As filed with the Securities and Exchange Commission on September 10, 1998.
Registration Statement No. 33-60307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT
NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
ADMIRALTY BANCORP, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 6712 22-3543338
- ----------------------------- ------------------------- ------------------
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
4400 PGA BOULEVARD, SUITE 200
PALM BEACH GARDENS, FLORIDA 33410
(561) 624-4100
-------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
4400 PGA BOULEVARD, SUITE 200
PALM BEACH GARDENS, FLORIDA 33410
(561) 624-4100
- --------------------------------------------------------------------------------
(Address of Principal Place of Business or Intended Principal Place of Business)
ADMIRALTY BANCORP, INC.
4400 PGA BOULEVARD, SUITE 200
PALM BEACH GARDENS, FLORIDA 33410
ATTN: BRUCE MAHON
(561) 624-4100
----------------------------------------------------------
(Name, Address, and Telephone Number of Agent for Service)
----------
With copies of communication to:
JAMIESON, MOORE, PESKIN & SPICER GREENBERG TRAURIG, P.A.
177 Madison Avenue 777 South Flager Drive
Morristown, NJ 07960 Suite 300 -- East
Attn: Robert A. Schwartz, Esq. West Palm Beach, FL 33401
(973) 984-1616 Attn: Morris C. Brown, Esq.
(561) 650-7900
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
----------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
<TABLE>
ADMIRALTY BANCORP, INC.
Cross Reference Sheet Form SB-2
<CAPTION>
Items of Form SB-2 Prospectus Caption or Location
- ------------------ ------------------------------
<C> <S> <S>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus ..................... Facing Page of Registration Statement;
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ......................................... Inside Front Cover Page;
AVAILABLE INFORMATION;
TABLE OF CONTENTS
3. Summary Information and Risk Factors ............... PROSPECTUS SUMMARY;
RISK FACTORS
4. Use of Proceeds .................................... USE OF PROCEEDS
5. Determination of Offering Price .................... UNDERWRITING
6. Dilution ........................................... DILUTION
7. Selling Security Holders ........................... Not Applicable
8. Plan of Distribution ............................... UNDERWRITING
9. Legal Proceedings .................................. THE BANK -- Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons .................................... MANAGEMENT -- Board of Directors
11. Security Ownership of Certain Beneficial
Owners and Management .............................. MANAGEMENT -- Stock Ownership of Directors
12. Description of Securities .......................... DESCRIPTION OF THE COMPANY'S
SECURITIES
13. Interest of Named Experts and Counsel .............. Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ..... Not Applicable
15. Organization Within Last Five Years ................ MANAGEMENT -- Certain Transactions with
Management
16. Description of Business ............................ THE BANK
17. Management's Discussion and Analysis or
Plan of Operation .................................. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
18. Description of Property ............................ THE BANK -- Physical Facilities
19. Certain Relationships and Related Transactions ..... MANAGEMENT -- Certain Transactions
with Management
20. Market for Common Equity and
Related Stockholder Matters ........................ PROSPECTUS SUMMARY; DESCRIPTION
OF THE COMPANY'S SECURITIES
21. Executive Compensation ............................. MANAGEMENT -- Compensation of
Board of Directors; Compensation of Executive
Officers; Management Stock Option Plan
22. Financial Statements ............................... CONSOLIDATED FINANCIAL STATEMENTS
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ......................................... Not Applicable
</TABLE>
<PAGE>
================================================================================
SUBJECT TO COMPLETION, DATED SEPTEMBER __, 1998
PROSPECTUS
- ----------
ADMIRALTY BANCORP, INC.
1,100,000 SHARES
of
Class B Common Stock
[RED HERRING LANGUAGE: Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time this registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.]
Admiralty Bancorp, Inc. a Delaware corporation and registered Bank Holding
Company (the "Company" or "Admiralty") is hereby offering (the "Offering") for
sale 1,100,000 shares of Class B Stock, no par value per share (the "Class B
Stock"). Prior to the Offering, there has been no public market for the Class B
Stock or any of the other Company's securities. Although the Company has
received approval to have the Class B Stock quoted on the NASDAQ National Market
under the symbol "____________", no assurance can be given that an active or
liquid trading market will develop for the Class B Stock. The proposed offering
range for the Class B common stock is $10.00 to $11.00. The offering price of
the Class B Stock offered by this Prospectus was determined by negotiations
between the Company and First Colonial Securities Group, Inc. (the
"Underwriter"), and does not necessarily relate to the Company's book value or
other established criteria of value. See "Underwriting" for a description of
factors considered in determining the initial Price to the Public of the Class B
Stock and "Risk Factors -- Absence of a Public Market; Arbitrary Pricing of
Securities."
THE PURCHASE OF THE CLASS B STOCK INVOLVES VARIOUS INVESTMENT RISKS WHICH
SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS. SEE "RISK FACTORS" ON
PAGE ___ OF THIS PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITERING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
--------------- ---------------------- ----------------------
Per Share ....... $____________ $____________ $_____________
Total (3) ....... $____________ $____________ $_____________
- ---------------
(1) For information regarding indemnification of the Underwriter, see
"Underwriting."
(2) Before deduction of expenses of the Offering payable by the Company
estimated at $400,000.
(3) The Company has granted the Underwriters an option, exercisable within 45
days of the date hereof, to purchase up to an additional 165,000 shares of
Class B Stock solely to cover over-allotments, if any, on the same terms
and conditions as the shares of Class B Stock offered hereby (the
"Over-Allotment Option"). If such option is exercised in full, the total
"Price to Public," "Underwriting Discounts and Commissions" and "Proceeds
to Company" will be $_______, $__________, and $________, respectively.
See "Underwriting."
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
-----------------
The shares are offered by the Underwriter, when, as and if delivered to and
accepted by the Underwriter, subject to prior sale, withdrawals or cancellation
of the offer without notice. It is expected that delivery of certificates
representing the shares of the Class B Stock will be made at the offices of
First Colonial Securities Group, Inc., Boca Raton, Florida on or about
_____________________, 1998.
FIRST COLONIAL SECURITIES GROUP, INC.
The date of this Prospectus is _______ __, 1998
<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT BANK ACCOUNTS, SAVINGS ACCOUNTS, OR
CERTIFICATES OF DEPOSIT, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC").
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE MAY AFFECT THE PRICE OF THE COMPANY'S
CLASS B STOCK INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS,
EFFECTING COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND QUARTERLY REPORTS
CONTAINING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
------------------
The following summary does not contain or summarize all of the information
in this Prospectus and is qualified in its entirety by the more detailed
information found elsewhere in this Prospectus. Prospective investors should
read this Prospectus in its entirety. For a discussion of certain risks
associated with the purchase of the securities offered hereby, see "RISK
FACTORS." Unless otherwise indicated, the information in this Prospectus assumes
that the Over-Allotment Option is not exercised.
ADMIRALTY BANCORP, INC.
-----------------------
Admiralty Bancorp, Inc. is a holding company for Admiralty Bank, a Florida
state chartered commercial bank and member of the Federal Reserve System (the
"Bank"). Ownership of the Bank currently constitutes the only activity of the
Company.
The current management and shareholders of Admiralty acquired control of
the Company on January 22, 1998 (the "Change In Control"). Prior to the Change
In Control, the Company, then known as White Eagle Financial Group, Inc. ("WEFG"
or "Predecessor Company"), was a closely held corporation. Pursuant to the terms
of an Agreement and Plan of Merger, all then existing shareholders of WEFG had
their interests in WEFG canceled in exchange for a cash payment equal to 1.85
times the shareholders' equity of WEFG, calculated in accordance with generally
accepted accounting principles. The consideration paid to WEFG shareholders upon
consummation of the acquisition was $7,007,725. Since the transaction was
consummated on January 22, 1998, the WEFG book value was calculated as of
December 31, 1997, using unaudited financial statements. In order to ensure that
the WEFG shareholders' equity was calculated in accordance with generally
accepted accounting principles, certain adjustments which increased the WEFG
shareholders' equity were required. Under the terms of the Merger, Admiralty is
required to pay the former WEFG shareholders additional consideration of
$483,602, subject to certain adjustments for post closing fees owed to WEFG's
counsel, which will be paid out of the proceeds of the Offering (the "Additional
WEFG Payment"). In addition, the organizers of Admiralty recapitalized the
Company through $8,000,000 in new capital raised through a private placement of
the Company's Class A Units, consisting of one share of Class A Common Stock, no
par value (the "Class A Stock") and one Class B Common Stock Purchase Warrant
(the "Warrants"). Each Warrant entitles the holder to purchase one share of the
Class B Stock, at a purchase price of $11.00 per share, for a period of four (4)
years. Each Class A Unit had a purchase price of $10.00. The Class A Stock can
be converted into Class B Stock on a share for share basis at the option of the
holder, and in certain circumstances at the option of the Company. The Bank
formerly had a number of minority shareholders who combined owned approximately
4% of the Bank's capital stock. Effective ______, 1998, these minority
shareholders were bought out for an aggregate purchase price of $ _________.
Certain members of the Board of Directors of the Company have extensive
backgrounds in the banking industry. Messrs. Bruce A. Mahon, Thomas L. Gray,
Jr., Michael E. Golden and Mark A. Wolters were all members of the Board of
Directors of Carnegie Bancorp, a New Jersey based bank holding company which was
recently acquired by Sovereign Bancorp. In addition, Mr. Richard P. Rosa, a
Director and the Chief Financial Officer of the Company, was the Chief Financial
Officer of Carnegie Bancorp. Mr. Leslie E. Goodman was a Senior Executive
Officer with First Union National Bank, First Fidelity Bank and its predecessor
organizations and previously served as President and Chief Executive Officer of
several financial institutions. He has over 20 years experience in the banking
industry. Mr. George R. Zoffinger was formerly the President, Chief Executive
Officer and Chairman of the Board of Directors of Constellation Bancorp and
CoreStates, N.J. National Bank. Mr. Sidney Hofing is a director of Yardville
National Bank, Yardville, New Jersey. The other members of the Board of
Directors of the Company have extensive business experience which the Company
believes will assist the Company in developing new business and expanding its
operations.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Management Strategy
The Company has traditionally sought to serve as a source of credit and
other banking products for small to mid-size businesses located in its Palm
Beach County, Florida trade area. The Company has not, and has not sought to,
engage in high volume retail banking, although the Company has traditionally
offered retail type products, such as home mortgages, to meet the needs of its
business customer base. The Company intends to continue its focus on small to
mid-size businesses, and to expand its target customer base to include high net
worth individuals and professionals. Admiralty will seek to serve the needs of
this target customer base by providing superior, personalized service. While
management believes that the Company's emphasis on personalized service may
cause the Company to recognize higher non-interest expense, through personnel
and other administrative expenses, than its peers, management also believes the
Company's business strategy will appeal to less cost sensitive customers,
allowing the Company to compete for loans and deposits on factors other than
price. Further, it is management's intention to increase the Company's tangible
capital through the Offering and invest the additional capital in the short term
in investment securities and mortgage backed securities. Going forward,
Admiralty will seek to develop new loan demand to more profitably deploy this
additional capital. Although the Company intends to remain an active participant
in the SBA's Guaranteed Loan Program, management intends to de-emphasize the
origination of these loans through third-party brokers and focus on originating
more traditional commercial loans. Admiralty has established business
development boards for each of its offices, composed of local business leaders.
In addition, its officers will review and pursue new branch locations in areas
where management believes the local business community is being underserved by
existing larger institutions.
During the past several years, the Bank's operations have been restricted
due to the Bank's need to bolster its capital base and because the Bank was
subject to a Cease and Desist Order imposed by the Florida Department of Banking
and Finance and the Federal Reserve Bank of Atlanta (the "C&D"). The Florida
Department of Banking and Finance (the "Department") and the Federal Reserve
Bank of Atlanta ("FRBA") had jointly imposed the cease and desist order (the
"C&D") on January 14, 1992. The C&D cited the Bank for maintaining
unsatisfactory asset quality and excessive past due loans, operating with
inadequate capital, funding operations with unstable deposits and other
liabilities and maintaining an inadequate loan loss reserve. In connection with
the Change in Control of the Company, the Department and the FRBA jointly lifted
the C&D. The C&D had required the Bank to maintain a designated level of
allowance for loan losses, and to expense provisions necessary to maintain the
allowance at the required levels. There are no remaining restrictions or
regulatory burdens applicable to the Bank due to the C&D. Commencing with the
first quarter of 1998, management began to set the Company's expense for
provision for loan losses at a level management believed appropriate based upon
management's view of the risks inherent in the Company's lending functions.
Although the actual dollar value of provisions in future periods may vary based
upon, among other things, the increase in size of the Bank's loan portfolio,
economic conditions and management's view of the creditworthiness of individual
borrowers, management believes that the provision, as a percentage of income,
will remain lower than it was while the C&D was in effect.
The Bank is a full service commercial bank, providing a wide range of
business and consumer financial services through its main office in Palm Beach
Gardens, Florida and its two branch offices located in Juno Beach and Jupiter,
Florida. In addition, the Bank has received regulatory approval to open a fourth
office in Boca Raton, and has applied for regulatory approval to relocate its
Jupiter office to more spacious quarters. The Bank is an active participant in
the Small Business Administration's Guaranteed Loan Program, and provides other
commercial, consumer and personal banking products similar to those offered by
other financial institutions of comparable size.
The Bank was founded in 1987 as a Florida chartered commercial bank and
member of the Federal Reserve System. The deposits of the Bank are insured up to
applicable amounts under the Bank Insurance Fund (the "BIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). At June 30, 1998, the Company had
total assets of $50.5 million, net loans (including loans held for sale) of
$24.1 million and total deposits of $40.8 million. For the year ended December
31, 1997, the Predecessor Company had net income of $1.3 million.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Risk factors include substantial book value dilution, the Company's
dependence on key personnel, the absence of a public market for the Class B
Stock, the Company's historic dependence on non-interest income, the Company's
potential future need to issue additional securities and other risks associated
with the business of banking.
Recipients of this Prospectus are urged to read the "RISK FACTORS" section
herein for certain considerations and risk factors associated with investment in
the Class B Stock.
THE OFFERING
- -------------------------------------------------------------------------------
Securities Offered ........ 1,100,000 shares of Class B Stock
- -------------------------------------------------------------------------------
Common Stock Outstanding .. 1,116,640 shares (1), including 888,881 shares of
Prior to the Offering of Class A Stock and 227,759 shares of Class B
shares Stock.
- -------------------------------------------------------------------------------
Common Stock Outstanding .. 2,216,640 shares (1) including 888,881 shares
After the Offering of Class A Stock and 1,327,759 shares of Class
B Stock.
- -------------------------------------------------------------------------------
Use of Proceeds ........... Approximately $485,000 will be used to satisfy the
Additional WEFG Payment owed to the former WEFG
shareholders. The remaining net proceeds of this
Offering will be used to provide working capital
to Admiralty and to permit the Bank to diversify
its product lines and grow its assets. In
addition, proceeds may be used by Admiralty to
acquire other financial institutions or otherwise
expand its business. Other than in connection with
its new Boca Raton office, Admiralty has not
entered into any agreements with any parties for
acquisitions of financial institutions or other
businesses.
- -------------------------------------------------------------------------------
Market For Securities ..... Prior to this Offering, there has been no
public market for any securities of
Admiralty. Although the Company has received
approval to have the Class B Stock included for
quotation on the NASDAQ National Market under
the symbol "___________________________", no
assurance can be given that a public market
will ever develop for any of Admiralty's
securities.
- -------------------------------------------------------------------------------
(1) Does not include 965,000 Shares of Class B Stock reserved for issuance upon
the exercise of Warrants or 330,000 Shares of Class B Stock reserved for
issuance pursuant to the Company's 1998 Management Stock Option Plan.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data of the Company and the
Predecessor Company set forth below is derived in part from, and should be read
in conjunction with, the consolidated financial statements of the Company and
the Predecessor Company and notes thereto and the Proforma Condensed
Consolidated Income Statements presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Admiralty Bancorp, Inc. | Predecessor Company
- ---------------------------------------------------------------------------|------------------------------------------
As of December 31, |
1997 and for the |
Period August 11, 1997 |
As of and for the (date of inception) | As of and for the As of and for the
Six Months Ended through | Six Months Ended Years Ended
June 30, December 31, 1997 | June 30, December 31,
- ---------------------------------------------------------------------------|------------------------------------------
1998 (Pro Forma) (1) | 1997(1) 1997(1) 1996(1)
- ---------------------------------------------------------------------------|------------------------------------------
(Unaudited) | (Unaudited)
(Dollars In Thousands) | (Dollars In Thousands)
- ---------------------------------------------------------------------------|------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $ 147 $ 59 | $ 528 $ 1,264 $ 673
|
- ---------------------------------------------------------------------------|------------------------------------------
Net Income per share--Basic |
and Diluted 0.13(2) .20 | 1.63 3.91 2.08
- ---------------------------------------------------------------------------|------------------------------------------
Total Assets 50,495 8,045 | 43,578 48,206 43,435
- ---------------------------------------------------------------------------|------------------------------------------
Total Loans, Net 23,735 -- | 20,960 22,854 18,228
- ---------------------------------------------------------------------------|------------------------------------------
Investment Securities 13,398 -- | 17,730 20,181 17,461
- ---------------------------------------------------------------------------|------------------------------------------
Goodwill, Net 3,642 -- | -- -- --
- ---------------------------------------------------------------------------|------------------------------------------
Deposits 40,811 -- | 39,639 42,776 39,820
- ---------------------------------------------------------------------------|------------------------------------------
Stockholders' Equity 8,267 8,045 | 3,505 4,245 2,977
- ---------------------------------------------------------------------------|------------------------------------------
Return on Average Assets (3) 0.60% -- | 2.42% 2.85% 1.67%
- ---------------------------------------------------------------------------|------------------------------------------
Return on Average Stockholders' |
Equity (3) 3.63% -- | 33.61% 35.56% 25.62%
- ---------------------------------------------------------------------------|------------------------------------------
Net Interest Margin (3) 5.51% -- | 4.91% 4.92% 4.93%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Summary consolidated financial information as of and for the six months
ended June 30, 1997 and as of and for the years ended December 31, 1997 and
1996 were prepared from historical financial data of WEFG, without giving
effect to the Change In Control. Summary pro forma financial information as
of and for the six months ended June 30, 1998 were prepared from historical
and pro forma financial data of Admiralty Bancorp, Inc. See Pro forma
Condensed Consolidated Income Statements for the Six Months Ended June 30,
1998, and Selected Consolidated and Other Financial Data.
(2) Per share amounts for the six months ended June 30, 1998 have been adjusted
to retroactively reflect the semi-annual Class A dividend, paid in stock,
declared on June 26, 1998 and payable on July 21, 1998. Per share amounts
for WEFG have not been adjusted for this stock dividend.
(3) Ratios for the Period August 11, 1997 (date of inception) through December
31, 1997 for Admiralty Bancorp, Inc. have not been presented because
presentation is not meaningful.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
RECENT DEVELOPMENTS
Effective July 1, 1998, Mr. Ward Kellogg was hired as President and Chief
Executive Officer of Admiralty Bank. Mr. Kellogg was formerly Executive Vice
President of 1st United Bank of Boca Raton, Florida. Mr. Kellogg also served as
Chief Credit Officer of 1st United Bank, and oversaw the administration of a
$550 million loan portfolio. Mr. Kellogg has also substantially reassembled at
Admiralty Bank his 1st United Bank lending, administration and business
development team. This team includes Mr. William Burke, who will serve as
Executive Vice President and Chief Operating Officer of the Bank, Mr. Dennis
Gavin, who will serve as Senior Vice President and Senior Lending Officer for
the Bank, Ms. Anne Paddock, who will serve as Senior Vice President -- Loan
Administration, Mr. John Kapsis, who will serve as Senior Vice President of
Finance, and Messrs. John Oliver and Dave Englert, who will serve as Regional
Managers for the Bank. 1st United Bank was acquired in 1997 by Wachovia
Corporation. Mr. James Semrad, formerly President of Admiralty Bank, has
resigned to pursue other business opportunities. Mr. Semrad, however, will
continue to serve as a consultant to the Company and the Bank until December 31,
2001.
For the period ended June 30, 1998, the Company experienced a significant
increase in non-accrual loans to $707,000 at June 30, 1998 from $96,000 at
December 31, 1997. This increase is substantially attributable to placement of a
single loan with a balance of $516,000 on non-accrual status. This loan is
currently the subject of a workout agreement. The borrower is performing under
the workout agreement, and management believes that the loan is adequately
secured and does not anticipate that the Company will incur a material loss on
this credit.
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
The following risk factors should be considered by a prospective investor
in deciding whether to purchase the Class B Stock offered hereby. The
information should be considered together with and in addition to the
information discussed elsewhere herein.
SUBSTANTIAL BOOK VALUE DILUTION
Purchasers of the Class B Stock offered hereby will suffer immediate and
substantial dilution in the net tangible book value per share of the Class B
Stock from the Price to Public provided for herein. Upon consummation of this
Offering, it is anticipated that the book value per share of Class B Stock will
be $6.70 per share (assuming $10,226,000 in net proceeds are raised in this
Offering), representing dilution of $3.80 per share, or 36.19%.
DEPENDENCE UPON KEY PERSONNEL
The future performance of the Company is highly dependent upon the services
of Mr. Ward Kellogg, President and Chief Executive Officer of the Bank, and the
Bank's new management team. If the services of this management team, and in
particular Mr. Kellogg, were to become unavailable for any reason, the
operations and future performance of the Company would likely be adversely
affected in a material manner. Although the Bank has entered into to an
employment agreement with Mr. Kellogg, none of the other members of the new
management team have contracts with the Bank or the Company. The Company has
purchased a key-man insurance policy on Mr. Kellogg's life in the amount of
$3,000,000 payable to the Company. The future successful development of the
Company's business will depend, in large measure, upon its ability to retain
this management team.
ABSENCE OF A PUBLIC MARKET
There is currently no public market for any of Admiralty's securities. None
of the Company's Class A Stock, the Class B Stock or the Class B Common Stock
Warrants are traded on any recognized exchange or trading market. Although the
Company has received approval for quotation of the Class B Stock on the NASDAQ
National Market under the symbol "_______________________ ", there can be no
assurance that an active trading market for the Class B Stock will develop or,
if one develops, be sustained. Although under no obligation to do so, First
Colonial Securities Group, Inc. has stated its intention to make a market in the
Class B Stock.
DEPENDENCE OF NON-INTEREST INCOME
Over the past two years, the Company has been highly dependent upon
non-interest income, some of which may be non-recurring income. For the year
ended December 31, 1996, the Company recognized $437,000 in income from gains on
the sale of securities, out of total net income of $673,000. In addition, during
1996, the Company recognized income of $572,000 from the gain on sale of loans
through its participation in the Small Business Administration's ("SBA")
guaranteed loan program. For the year ended December 31, 1997, the Company
recognized income of $975,000 from the gain on sale of SBA loans. The Company
had total net income of $1,264,000 for the year ended December 31, 1997. No
assurances can be given that the Company will continue to recognize a high level
of income from the gain on sale of SBA loans, and the Company does not
anticipate recognizing material amounts of income from the gain on sale of
securities in future periods. Although the Company intends to continue
originating SBA guaranteed loans, management intends to de-emphasize SBA lending
in favor of more traditional
8
<PAGE>
commercial lending. In addition, SBA lending is a highly competitive business,
which is dependent upon Congressional appropriations to the United States Small
Business Administration. No assurances can be given regarding the level of
future appropriations by Congress to the SBA for the guaranteed loan program.
Reductions in appropriations to the SBA program could reduce both participation
in the program and the amount of loans eligible to be originated under the
program. A reduction in future SBA guaranteed loans originated by the Company,
whether due to the management strategy of de-emphasizing this product or because
of increased competition or because of other causes, could adversely affect the
Company's results of operations in future periods.
FUTURE ISSUANCE OF SECURITIES
In order to have sufficient capital to facilitate future growth, Admiralty
may be required to raise additional capital. In the event Admiralty is unable to
raise such capital, it may not be able to undertake its future expansion and
management will be required to reorient its long term strategy for the Company
and the Bank. There can be no assurance that Admiralty will be able to generate
or attract additional capital in the future on favorable terms. In addition, the
issuance of additional securities to raise additional capital will result in
dilution to the then current stockholders of Admiralty.
In connection with the recapitalization of the Company, the Company issued
800,000 Class A Units. Each Class A Unit contained a share of Class A Stock and
one Warrant, entitling the holder thereof to purchase one share of Class B Stock
at a purchase price of $11.00 per share, for a period of 4 years. In addition,
each share of Class A Stock may be converted into Class B Stock, either at the
option of the holder of the Class A Stock or, in certain circumstances, at the
option of the Company. Finally, to compensate Directors of the Company for their
time and efforts in organizing the Company and consummating the Change in
Control, the Board of Directors of the Company awarded warrants to purchase
150,000 shares of Class B Stock in the aggregate to members of the Board of
Directors of the Company and, as part of the consideration for the Change in
Control, the Company issued warrants to purchase 15,000 shares of Class B Stock
to the former majority shareholder of WEFG. All of these warrants also have a
four-year term, and are also exercisable at $11.00 per share. Finally, the
Company has also adopted the 1998 Management Stock Option Plan pursuant to which
options to purchase 330,000 Shares of Class B Stock may be issued to members of
management of the Company. The exercise price for these options will be at least
the fair market value of the date of grant. Exercise of these Warrants and
options at a time when the Company's book value per share is in excess of the
respective exercise prices for the Warrants and Options would cause book value
dilution to holders of the Company's Class B Stock, and exercise of these
Warrants and options will dilute the ownership percentage of owners of the Class
B Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and certain provisions of Federal law are designed to assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, super-majority voting on certain
matters, classified terms for the Board of Directors and a provision which
permits the Board of Directors to consider the interest of constituencies other
than the stockholders of the Corporation in evaluating whether to undertake any
corporate transaction. Certain of these provisions, such as the super-majority
voting provision, may not apply to transactions approved by the Board of
Directors. These provisions of the Company's governing instruments, as well as
certain provisions of Delaware law and Federal banking law, may discourage
potential proxy contests and other potential takeover attempts, particularly
those which have not been negotiated with the Board of Directors in advance and
thus, may generally serve to perpetuate current management.
YEAR 2000
The Company's operations and financial results are highly dependent upon
the Company's ability to rapidly and accurately process data through its
internal and external computer systems and processors. The Company's future
performance may be adversely affected by the ability of computer systems owned
and used by the Company to read entries for the Year 2000. Many computer systems
currently in use are unable to distinguish between the year 2000 and the year
1900, causing a variety of processing difficulties. Although the Company is in
the process of remediating these computer processing issues, both internally and
those affecting its service bureau, no assurances can be given that the Company
will be fully successful in remediating all Year 2000 issues affecting the
Company. Failure to fully remediate Year 2000 issues could adversely affect the
Company's future results of operations, impeding the Company's ability to
calculate payments, interest due, service loans and perform other necessary
functions.
9
<PAGE>
ARBITRARY PRICING OF SECURITIES
There is no established market for the Class B Stock and there can be no
assurance that a liquid trading market for Admiralty's securities will develop
after the Offering. The price per share of the Class B Stock is entirely
arbitrary, unrelated to any intrinsic or market value and bears no relationship
to established criteria of value such as assets, earnings or book value.
COMPETITION
The banking and financial services field in which the Bank is engaged is
highly competitive and most competitors have substantially greater financial
resources than that of the Bank. The Bank's principal market area is served by
branch offices of large commercial banks and thrift institutions. Such
institutions have substantially greater resources than the Bank to expend upon
advertising and marketing, and their substantially greater capitalization
enables those competitors to make much larger loans. The Bank's success depends
a great deal upon its judgment that large and mid-size financial institutions do
not adequately serve small businesses and consumers in its principal market area
and the Bank's ability to compete favorably for such customers.
LENDING RISKS
The risk of non-payment (or deferred or delayed payment) of loans is
inherent in commercial banking. Such non-payment, or delayed or deferred payment
of loans to the Bank, if they occur, may have a material adverse effect on the
Bank's earnings and overall financial condition. Additionally, in compliance
with applicable banking laws and regulations and in light of sound judgment, the
Bank maintains an allowance for credit losses created through charges against
earnings. As of June 30, 1998, the Bank's allowance for loan losses was
$431,000, or 1.78% of total loans and 59% of non-performing assets. The Bank's
marketing focus on small to medium-size businesses may result in the assumption
by the Bank of certain lending risks that are different from or greater than
those which would apply to loans made to larger companies. Management of the
Bank seeks to minimize the Bank's credit risk exposure through credit controls
which include evaluation of potential borrowers, collateral available, liquidity
and cash flow. However, there can be no assurance that such procedures will
actually reduce loan losses.
DIVIDEND LIMITATIONS
The ability of the Company to pay dividends on the Class B Stock in future
periods may be restricted. Under the terms of the Company's outstanding Class A
Stock, dividends may not be paid on the Class B Stock unless the Company has
made its most recently required dividend payment on the shares of Class A Stock.
Therefore, if the Company fails to make a dividend payment on the Class A Stock,
dividends may not be paid for that period on the Class B Stock. Management has
not yet established a dividend policy, but the Company's strategic plan focuses
on growth. Therefore, to the extent additional capital is
10
<PAGE>
required to support the Company's growth, the Board could elect to retain all
available earnings as capital rather than to use the earnings to pay dividends
on the Class B Stock. Finally, the only current source of income to the Company
is earnings from the Bank. The Bank's ability to pay dividends is subject to
various regulatory restrictions imposed by Florida and Federal law. See
"Regulation and Supervision -- Bank Regulation -- Dividends Rights."
POTENTIAL IMPACT OF CHANGES IN MONETARY POLICY AND INTEREST RATES
The operating results of Admiralty may be significantly affected (favorably
or unfavorably) by market rates of interest which, in turn, are affected by
prevailing economic conditions, by the fiscal and monetary policies of the
United States Government and by the policies of various regulatory agencies. The
earnings of Admiralty will depend primarily upon its interest rate spread (i.e.,
the difference between income earned on its loans and investments and the
interest paid on its deposits). Like many financial institutions, Admiralty may
be subject to the risk of fluctuations in interest rates, which, if significant,
may have a material adverse affect on its operations.
USE OF PROCEEDS
The net proceeds of this Offering are estimated to be approximately
$10,226,000 ($11,820,000 if the Underwriters' over-allotment option is exercised
in full) after deducting underwriting discounts and offering expenses, assuming
a price to the public of $10.50 per share. Of these proceeds, approximately
$485,000 will be used to satisfy the contingent payment owed to the former WEFG
shareholders and the remainder will be used to support the continuing expansion
of the Bank's business through increased lending and investment activities and
the opening or purchasing of additional branches. The proceeds will also
increase the Bank's legal lending limit, permitting the Bank to make larger
loans. In addition, proceeds may be used by Admiralty to acquire other financial
institutions or lines of business. Admiralty has recently received regulatory
approval to open a new office in Boca Raton, Florida. This facility is being
leased from a limited liability company consisting of certain members of the
Company's Board of Directors, and provides for a 20 year term with a base rent
of $143,000 per year. Other than this Boca Raton branch, Admiralty has not
entered into any agreements with parties for the opening or purchasing of
additional branches, and Admiralty has not entered into any agreements calling
for the acquisitions of any other institutions. Although, other than for use in
lending operations the Company does not have a specific current use for the
proceeds of the Offering, management believes the Company's potential future
growth would be negatively impacted if the Offering were not undertaken at this
time. With the new management team hired for the Bank, the Company anticipates
substantial new lending opportunities. Under regulatory requirements, the Bank's
lending authority per-borrower is limited by the Bank's capital. Management
therefor believes that the Bank may lose lending opportunities, and related
income, if the Bank does not currently increase its capital. In addition, as the
Florida banking market continues to consolidate, management believes
opportunities to acquire new branch locations, and possibly entire institutions,
will arise. If the Bank does not have sufficient capital, it will not be able to
take advantage of these opportunities.
DILUTION
The difference between the public offering price per share of Class B Stock
and the Company's net tangible book value per share after the Offering
constitutes the dilution to new investors in the Offering. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the number of
11
<PAGE>
outstanding shares of Common Stock, both Class A and Class B.
At June 30, 1998, the net tangible book value of the Company was $4.14 per
share. After giving effect to the sale of the 1,100,000 shares of Class B Stock
being offered hereby and the receipt of the estimated net proceeds therefrom
(less underwriting discounts and commissions and estimated expenses of the
Offering), the pro forma net tangible book value of the Company at June 30,
1998 would be approximately $6.70 per share, representing an immediate increase
in net tangible book value of $2.56 per share to existing shareholders and an
immediate dilution of $3.80 per share to new investors. The following table
illustrates the foregoing information with respect to dilution to new investors
on a per share basis.
- --------------------------------------------------------------------------------
Initial public offering price ........................... $10.50
- --------------------------------------------------------------------------------
Net tangible book value before the Offering ....... $4.14
- --------------------------------------------------------------------------------
Increase attributable to new investors in
the Offering ................................. $2.56
-----
- --------------------------------------------------------------------------------
Adjusted pro forma net tangible book value after
the Offering $ 6.70
------
- --------------------------------------------------------------------------------
Dilution to new investors in the Offering $ 3.80
======
- --------------------------------------------------------------------------------
The following table sets forth, with respect to existing shareholders and
new investors in the Offering, a comparison of the number of shares of Common
Stock acquired from the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average price per share.
- -------------------------------------------------------------------------------
TOTAL CASH Average
SHARES PURCHASED CONSIDERATION Price
----------------- -------------- Per
Number Percent Amount Percent Shares
------ ------- ------ ------- -------
Existing Shareholders(1) 1,116,640 50.38 $ 8,160,000 41.40 $ 7.31
- -------------------------------------------------------------------------------
New Investors ........... 1,100,000 49.62 $11,550,000 58.60 $10.50
--------- ------ ----------- ----- -------
- -------------------------------------------------------------------------------
Total 2,216,640 100.00% $19,710,000 100.00% $ 8.89
========= ======= =========== ====== ======
- -------------------------------------------------------------------------------
- ----------
(1) Includes 888,881 shares of Class A and 227,759 shares of Class B Common
Stock.
The above table assumes no exercise of the Over-Allotment Option, no
exercise of outstanding stock options and no purchase by existing shareholders
of shares offered hereby. The table excludes 330,000 shares of Class B Stock
reserved for issuance under the Company's 1998 Management Stock Option Plan and
965,000 Shares of Class B Stock reserved for issuance upon the exercise of
Warrants.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the regulatory capital ratios of the Bank at June 30, 1998, and as
adjusted, at such date, to give effect to the issuance and sale of the shares of
Class B Stock offered hereby. The table should be read in conjunction with the
Company's Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus.
- -------------------------------------------------------------------------------
JUNE 30, 1998
- -------------------------------------------------------------------------------
ACTUAL AS ADJUSTED
- -------------------------------------------------------------------------------
(Unaudited)
(Dollars in Thousands)
- -------------------------------------------------------------------------------
Stockholders' equity
- -------------------------------------------------------------------------------
Common Stock, Class A, no par value,
1,000,000 shares authorized actual and
as adjusted, 888,881 shares issued and
outstanding at June 30, 1998, actual
and as adjusted $ 7,556 $ 7,556
- -------------------------------------------------------------------------------
Common stock, Class B, no par value,
4,000,000 shares authorized actual and
as adjusted, 227,759 shares issued and
outstanding at June 30, 1998 actual
and 1,327,759 issued and outstanding,
as adjusted (1)(2)(3) 1,034 11,260
- -------------------------------------------------------------------------------
Accumulated Deficit (275) (275)
- -------------------------------------------------------------------------------
Net unrealized loss on securities
available for sale (48) (48)
------- --------
- -------------------------------------------------------------------------------
Total Capitalization $ 8,267 $ 18,493
======= ========
- -------------------------------------------------------------------------------
13
<PAGE>
- -------------------------------------------------------------------------------
JUNE 30, 1998
- -------------------------------------------------------------------------------
MINIMUM
REGULATORY
ACTUAL AS ADJUSTED REQUIREMENT
- -------------------------------------------------------------------------------
(Unaudited)
- -------------------------------------------------------------------------------
Bank Capital Ratios(1):
- -------------------------------------------------------------------------------
Total Capital ................ 16.11% 46.92% 8%
- -------------------------------------------------------------------------------
Tier 1 Capital ............... 14.86% 45.75% 4%
- -------------------------------------------------------------------------------
Leverage Capital ............. 9.74% 26.19% 4%
- -------------------------------------------------------------------------------
- ----------
(1) Assumes the Company will contribute the net proceeds from the sale of the
shares of Common Stock offered hereby to the Bank. Also assumes that the
Over-Allotment Option is not exercised. The Bank's capital ratios, as
adjusted, are computed in a manner consistent with regulatory guidelines
and assume that the net proceeds from the Offering that are contributed to
the Bank are invested in assets that carry a 20% risk-weighting.
(2) Excludes 330,000 shares of Common Stock reserved for issuance under the
Company's 1998 Management Stock Option Plan. See "Management --
Remuneration of Executive Officers -- Management Stock Option Plan."
(3) Adjusted retroactively to reflect a 5% Class B Common Stock dividend,
payable July 21, 1998.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial data present a pro
forma condensed consolidated statement of income for the Company for the year
ended December 31, 1997 reflecting the Change In Control as if such event had
occurred as of the beginning of each of the periods presented. The unaudited
financial statements at and for the six-months ended June 30, 1998 presented
elsewhere herein reflect the historical consolidated financial data of the
Company and the 21 days of operation of the Predecessor Company. The unaudited
pro forma information for the year ended December 31, 1997 is based upon the
historical financial statements of the Company after giving effect to the Change
In Control.
This unaudited pro forma information has been prepared by the Company's
management based upon historical financial statements. The unaudited pro forma
information should be read in conjunction with the Company's historical
consolidated financial statements and notes. The pro forma of financial data is
not necessarily indicative of the operating results which would have been
achieved had these transactions been consummated as of the beginning of such
periods for which such data are presented and should not be construed as being
representative of future performance.
14
<PAGE>
===============================================================================
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. PREDECESSOR COMPANY
SIX MONTHS ENDED PERIOD JANUARY 1, 1998
JUNE 30, 1998 THROUGH JANUARY 21, 1998 ADJUSTMENTS (1) PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income $1,759 $234 $ -- $ 1,993
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense 484 76 -- 560
------ ---- ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,275 158 -- 1,433
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 55 -- -- 55
------ ---- ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 1,220 158 -- 1,378
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest income 305 22 -- 327
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense 1,317 131 9 (2) 1,457
------ ---- ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and minority interest 208 49 (9) 248
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense 93 -- -- 93
------ ---- ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
Income before minority interest 115 49 (9) 155
- ----------------------------------------------------------------------------------------------------------------------------------
Minority interest (6) (2) -- (8)
------ ---- ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 109 $ 47 $ (9) $ 147
====== ==== ==== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Per share data:
Net income per common share-basic
and diluted $ 0.10 $ 0.13
====== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of common shares-basic
and diluted 1,110,839 1,110,839
========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) No proforma adjustment was made for estimated merger expense. Additionally
other proforma purchase accounting adjustments are not significant.
(2) Represents amortization of goodwill for the period January 1, 1998
through January 21, 1998. Goodwill is being amortized over a 25 year life.
15
<PAGE>
===============================================================================
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
HISTORICAL ADJUSTMENTS(1) PRO FORMA
- --------------------------------------------------------------------------------
(In thousands, except per share
data)
- --------------------------------------------------------------------------------
Interest income $ 3,630 $ -- $ 3,630
- --------------------------------------------------------------------------------
Interest expense 1,197 -- 1,197
------- ----- -------
- --------------------------------------------------------------------------------
Net interest income 2,433 -- 2,433
- --------------------------------------------------------------------------------
Provision for loan losses 435 -- 435
------- ----- -------
- --------------------------------------------------------------------------------
Net interest income after provision for
loan losses 1,998 -- 1,998
- --------------------------------------------------------------------------------
Non-interest income 1,728 -- 1,728
- --------------------------------------------------------------------------------
Non-interest expense 2,697 148(2) 2,845
------- ----- -------
- --------------------------------------------------------------------------------
Income before income tax benefit 1,029 (148) 881
and minority interest
- --------------------------------------------------------------------------------
Income tax benefit (288) (288)
------- ----- -------
- --------------------------------------------------------------------------------
Income before minority interest 1,317 (148) 1,169
- --------------------------------------------------------------------------------
Minority interest (53) (53)
------- ----- -------
- --------------------------------------------------------------------------------
Net income $ 1,264 $(148) $ 1,116
======= ===== =======
- --------------------------------------------------------------------------------
Per share data:
Net income per common share-basic and
diluted $ 3.91 $ 3.45
====== ======
- --------------------------------------------------------------------------------
Average number of common shares-basic
and diluted 323,533 323,533
======= =======
- --------------------------------------------------------------------------------
- ----------
(1) No pro forma adjustment was made for estimated merger expense. Additionally
other pro forma purchase accounting adjustments are not significant.
(2) Amortization of goodwill over a 25 year life.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected information regarding the Company and the
Predecessor Company should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Consolidated historical financial and other data
regarding the Company and the Predecessor Company at or for the six months ended
June 30, 1998 and 1997 have been prepared by the Company without audit and may
not be indicative of results on an annualized basis or any other period. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation for such periods or dates
have been made. Selected consolidated financial and other data as of and for the
six months ended June 30, 1998 were prepared from historical and pro forma
financial data of Admiralty Bancorp, Inc. See "Pro forma Condensed Consolidated
Income Statement for the Six Months Ended June 30, 1998." The audited financial
statements for the year ended December 31, 1997 and 1996 do not give effect to
the Change In Control and recapitalization of the Company described under the
heading "Offering Summary -- Admiralty Bancorp, Inc.", which were consummated on
January 22, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------|-------------------------------------------
Admiralty Bancorp, Inc. | Predecessor Company
- ---------------------------------------------------------------------------|------------------------------------------
As of December 31, |
1997 and for the |
Period August 11, 1997 |
As of and for the (date of inception) | As of and for the As of and for the
Six Months Ended through | Six Months Ended Years Ended
June 30, December 31, | June 30, December 31,
- ---------------------------------------------------------------------------|------------------------------------------
(Pro Forma)
1998 1997 | 1997 1997 1996
- ---------------------------------------------------------------------------|------------------------------------------
INCOME STATEMENT DATA: (Unaudited) | (Unaudited)
(in thousands, except per share data) | (in thousands, except per share data)
<S> <C> <C> | <C> <C> <C>
Interest income $ 1,993 84 | $ 1,783 $ 3,630 $ 3,297
- ---------------------------------------------------------------------------|--------------------------------------------
Interest expense 560 8 | 591 1,197 1,134
------- -- ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Net interest income 1,433 76 | 1,192 2,433 2,163
- ---------------------------------------------------------------------------|--------------------------------------------
Provision for loan losses 55 -- | 287 435 297
------- -- ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Net interest income |
after provision for |
loan losses 1,378 76 | 905 1,998 1,866
------- -- | ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Non-interest income 327 -- | 940 1,729 1,790
- ---------------------------------------------------------------------------|--------------------------------------------
Non-interest expense 1,457 2 | 1,362 2,698 2,940
- ---------------------------------------------------------------------------|--------------------------------------------
Income before income |
taxes 248 74 | 483 1,029 716
------- -- | ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Income tax (benefit) |
expense 93 15 | (67) (288) 15
- ---------------------------------------------------------------------------|--------------------------------------------
Income before minority |
interest 155 59 | 550 1,317 701
------- -- | ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Minority interest in net |
income of |
subsidiaries (8) -- | (22) (53) (28)
------- | ------- -------- --------
- ---------------------------------------------------------------------------|--------------------------------------------
Net income $ 147 59 | $ 528 1,264 673
======= == | ======= ======== ========
- ---------------------------------------------------------------------------|--------------------------------------------
PER COMMON SHARE DATA: |
- ---------------------------------------------------------------------------|--------------------------------------------
Net income--basic |
and diluted(2) $0.13 0.20 | $1.63 $ 3.91 $ 2.08
- ---------------------------------------------------------------------------|--------------------------------------------
Book value(2) $7.40 7.50 | $9.99 $13.12 $9.20
- ---------------------------------------------------------------------------|--------------------------------------------
BALANCE SHEET DATA: |
- ---------------------------------------------------------------------------|--------------------------------------------
Total assets 50,495 8,045 | $43,578 $ 48,206 $ 43,435
- ---------------------------------------------------------------------------|--------------------------------------------
Total loans 24,166 -- | 21,320 23,232 18,593
- ---------------------------------------------------------------------------|--------------------------------------------
Allowance for loan |
losses (431) -- | (360) (378) (365)
- ---------------------------------------------------------------------------|--------------------------------------------
Investment Securities 13,398 -- | 17,730 20,181 17,461
- ---------------------------------------------------------------------------|--------------------------------------------
Goodwill, net 3,642 -- | -- -- --
- ---------------------------------------------------------------------------|--------------------------------------------
Deposits 40,811 -- | 39,639 42,776 39,820
- ---------------------------------------------------------------------------|--------------------------------------------
Minority interest 384 -- | 398 376 323
- ---------------------------------------------------------------------------|--------------------------------------------
Shareholders' equity 8,267 8,045 | 3,505 4,245 2,977
- ---------------------------------------------------------------------------|--------------------------------------------
SELECTED OPERATING RATIOS:(3)(4) |
- ---------------------------------------------------------------------------|--------------------------------------------
Return on average assets 0.60% -- | 2.42% 2.85% 1.67%
- ---------------------------------------------------------------------------|--------------------------------------------
Return on average common |
equity 3.63% -- | 33.61% 35.56% 25.62%
- ---------------------------------------------------------------------------|--------------------------------------------
Net interest margin 5.51% -- | 4.91% 4.92% 4.93%
- ---------------------------------------------------------------------------|--------------------------------------------
SELECTED CAPITAL AND ASSET |
QUALITY RATIOS: |
- ---------------------------------------------------------------------------|--------------------------------------------
Equity/assets 15.88% -- | 7.19% 8.01% 6.51%
- ---------------------------------------------------------------------------|--------------------------------------------
Non-accrual loans/total 2.93% -- | 1.30% 0.41% 1.33%
loans |
- ---------------------------------------------------------------------------|--------------------------------------------
Non-performing |
assets/total loans and |
other real estate owned 3.02% -- | 1.30% 0.52% 1.33%
- ---------------------------------------------------------------------------|--------------------------------------------
Allowance for loan |
losses/total loans 1.78% -- | 1.69% 1.63% 1.96%
- ---------------------------------------------------------------------------|--------------------------------------------
Allowance for loan |
losses/non- |
performing assets 58.96% -- | 129.50% 315.00% 147.18%
- ---------------------------------------------------------------------------|--------------------------------------------
Net charge-offs/average |
loans 0.01% -- | 1.43% 2.02% 1.41%
- ---------------------------------------------------------------------------|--------------------------------------------
</TABLE>
- -------------
(1) Financial Information for the six months ended June 30, 1998 is based upon
the Pro forma Consolidated Income Statement for that time period. See
"Pro forma Consolidated Financial Information."
(2) Per share amounts for the six months ended June 30, 1998 have been adjusted
to retroactively reflect the Semi-annual Class A dividend, paid in stock,
declared on June 26, 1998 and payable on July 21, 1998. Per share amounts
for WEFG have not been adjusted for the stock dividend.
(3) Ratios for interim periods have been annualized.
(4) Ratios for the period August 11, 1997 (date of inception) through December
31, 1997 for Admiralty Bancorp, Inc. have not been presented because
presentation is not meaningful.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's financial statements
and the notes relating thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with prior periods. All
income statement data for the six months ended June 30, 1998 were prepared from
historical and proforma financial data of Admiralty Bancorp, Inc. See "Pro forma
Condensed Consolidated Income Statement for the six months ended June 30, 1998."
OVERVIEW AND STRATEGY
The Company has traditionally sought to serve as a source of credit and
other banking products for small to mid-size businesses located in its Palm
Beach County, Florida trade area. The Company has not, and has not sought to,
engage in high volume retail banking, although the Company has traditionally
offered retail type products, such as home mortgages, to meet the needs of its
business customer base. The Company intends to continue its focus on small to
mid-size businesses, and to expand its target customer base to include high net
worth individuals and professionals. Admiralty will seek to serve the needs of
this target customer base by providing superior, personalized service. While
management believes that the Company's emphasis on personalized service may
cause the Company to recognize higher non-interest expense, through personnel
and other administrative expenses, than its peers, management also believes the
Company's business strategy will appeal to less cost sensitive customers,
allowing the Company to compete for loans and deposits on factors other than
price. Further, it is management's intention to increase the Company's tangible
capital through the Offering and invest the additional capital in the short term
in investment securities and mortgage-backed securities. Going forward,
Admiralty will seek to develop new loan demand to more profitably deploy this
additional capital. Although the Company intends to remain an active participant
in the SBA's Guaranteed Loan Program, management intends to de-emphasize the
origination of these loans through third-party brokers and focus on originating
more traditional commercial loans. Admiralty has established business
development boards for each of its offices, composed of local business leaders.
In addition, its officers will review and pursue new branch locations in areas
where management believes the local business community is being undeserved by
existing larger institutions.
During the past several years, the Bank's operations have been restricted
due to the Bank's need to bolster its capital base and because the Bank was
subject to the C&D. The C&D was lifted in early 1998. The C&D required the Bank
to maintain a designated level of allowance for loan losses, and to expense
provisions necessary to maintain the allowance at the
18
<PAGE>
required levels. Commencing with the first quarter of 1998, management began to
set the Company's expense for provision to loan losses at a level management
believed appropriate based upon management's view of the risks inherent in the
Company's lending functions. Although the actual dollar value of provisions in
future periods may vary based upon, among other things, the increase in size of
the Bank's loan portfolio, economic conditions and management's view of the
creditworthiness of individual borrowers, management believes that the
provision, as a percentage of income, will remain lower than it was while the
C&D was in effect.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on its net interest
income, which is the difference between the interest earned on its
interest-earning assets and fees earned servicing loans which the Bank has sold
and the interest paid on funds borrowed to support those assets, such as
deposits. In addition, the Company earns commission income in connection with
sales of the guaranteed portion of loans originated under the SBA loan program.
Net interest margin is a function of the difference between the weighted average
rate received on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, as well as the average level of interest-bearing
assets as compared with that of interest-bearing liabilities. Net income is also
affected by the amount of non-interest income and operating expenses.
NET INCOME
For the six months ended June 30, 1998, the Company had pro forma net
income of $147,000, a decrease of $381,000, or 72.2%, from net income of
$528,000 for the first half of 1997. The period to period decrease in reported
net income is attributable to the extinguishment of net operating losses
available during 1997 to reduce the Company's tax expense, and a decrease in the
gain on sale of loans, partially offset by a reduction in expense for the
provision for loan losses. In addition, 1998 net income was affected by a
reduction in gains on sales of securities. During the first half of 1998,
interest income increased to $1,993,000 from $1,783,000, while non-interest
income declined to $327,000 from $940,000. Interest expense declined to $560,000
from $591,000 for the comparable period of 1997, while
19
<PAGE>
non-interest expense increased to $1,457,000 from $1,362,000.
For the year ended December 31, 1997, net income increased by $591,000, or
87.8%, to $1,264,000 from $673,000 for 1996. This increase is attributable to
increased net interest income from loans, investments and Federal funds sold,
reflecting higher average balances and, with regard to the loan portfolio,
higher average rates. The Company's net interest income for the year ended
December 31, 1997 was $2,433,000, an increase of $270,000, or 12.5%, over the
comparable period of 1996. The increase in net interest income for 1997 over
1996 was partially offset by an increase of $138,000 in the provision for loan
losses and a decrease of $61,000 in non-interest income. In addition, the
Company's total non-interest expense for the year ended December 31, 1997
decreased by $242,000 over the comparable period of 1996, reflecting, among
other things, management's decision during 1996 to charge-off certain
non-earning assets.
COMPARATIVE AVERAGE BALANCE SHEETS
The following table reflects the components of the Company's net interest
income, setting forth for the periods presented herein, (1) average assets,
liabilities and stockholders' equity, (2) interest income earned on
interest-earning assets and interest expenses paid on interest-bearing
liabilities, (3) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, (4) the Company's net interest
spread (i.e., the average yield on interest-earnings assets less the average
rate on interest-bearing liabilities) and (5) the Company's net yield on
interest-earning assets. Rates are computed on a taxable equivalent basis.
20
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
===============================================================================================================================
1998(1) 1997 1997 1996
------- ---- ---- ----
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Interest Rates Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/ Average Income Earned
Balance Expense Paid(2) Balance Expense Paid(2) Balance Expense Paid Balance Expense Paid
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Interest-Earning
assets:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable loans
(net of unearned
income)............. 25,055 1,409 11.24% 20,378 1,136 11.15% 20,907 2,329 11.14% 19,568 2,040 10.42%
- -------------------------------------------------------------------------------------------------------------------------------
Taxable investment
securities.......... 16,813 541 6.44% 17,227 569 6.61% 17,899 1,179 6.59% 16,632 1,226 7.37%
- -------------------------------------------------------------------------------------------------------------------------------
Federal funds sold.... 1,600 43 5.40% 2,833 78 5.40% 2,234 122 5.45% 531 31 5.81%
- -------------------------------------------------------------------------------------------------------------------------------
Total
interest-earning
assets.............. 43,468 1,993 9.17% 40,488 1,783 8.81% 41,040 3,630 8.85% 36,731 3,297 8.98%
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest earning
assets............. 7,929 3,615 3,687 4,000
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for
possible loan
losses ............ (417) (371) (372) (362)
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets.... 50,980 43,732 44,355 40,369
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
- -------------------------------------------------------------------------------------------------------------------------------
Borrowings 483 14 5.79% -- -- -- 72 5 6.60% 437 29 6.60%
- -------------------------------------------------------------------------------------------------------------------------------
NOW deposits......... 5,912 36 1.23% 5,267 39 1.50% 5,149 74 1.43% 4,126 61 1.47%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial information for the six months ended June 30, 1998 is based upon
the Proforma Consolidated Income Statement for that time period. See
"Proforma Consolidated Financial Information."
(2) Ratios for interim periods have been annualized.
21
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
===============================================================================================================================
1998(1) 1997 1997 1996
------ ---- ---- ----
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Interest Rates Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/ Average Income Earned
Balance Expense Paid(2) Balance Expense Paid(2) Balance Expense Paid Balance Expense Paid
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits...... 2,493 22 1.77% 2,318 22 1.89% 2,271 42 1.88% 2,243 42 1.89%
- -------------------------------------------------------------------------------------------------------------------------------
Money market
deposits............ 7,660 114 2.97% 5,782 77 2.68% 6,082 166 2.73% 5,951 152 2.56%
- -------------------------------------------------------------------------------------------------------------------------------
Time deposits......... 13,987 374 5.33% 16,934 453 5.34% 16,859 910 5.40% 15,652 850 5.43%
- -------------------------------------------------------------------------------------------------------------------------------
Total
interest-bearing
liabilities......... 30,535 560 3.66% 30,301 591 3.90% 30,433 1,197 3.93% 28,409 1,134 4.05%
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
liabilities:
- -------------------------------------------------------------------------------------------------------------------------------
Demand deposits....... 10,998 9,544 10,091 8,807
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities 1,351 745 275 963
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest
bearing
liabilities......... 12,349 10,289 10,366 9,770
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders'
equity.............. 8,096 3,142 3,554 2,627
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and shareholders'
equity.............. 50,980 43,732 44,353 40,806
- -------------------------------------------------------------------------------------------------------------------------------
Net interest
differential........ 5.51% 4.91% 4.92% 4.93%
- -------------------------------------------------------------------------------------------------------------------------------
Net yield on
interest bearing
assets.............. -- $1,433 6.60% -- $1,192 5.89% -- $2,433 5.93% -- $2,163 5.89%
====== ====== ====== ======
===============================================================================================================================
</TABLE>
(1) Financial information for the six months ended June 30, 1998 is based upon
the Proforma Consolidated Income Statement for that time period. See
"Proforma Consolidated Financial Information."
(2) Ratios for interim periods have been annualized.
22
<PAGE>
The following table presents by category the major factors that contributed
to the changes in net interest income for each of the periods presented as
compared to each respective previous period. Amounts have been computed on a
fully tax-equivalent basis.
- --------------------------------------------------------------------------------
Six Months Ended Year Ended December
June 30, 1998 31, 1997
versus 1997(1) versus 1996
---------------- ----------------
- --------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
- --------------------------------------------------------------------------------
Average Average Net Average Average Net
Volume Rate Volume Rate
- --------------------------------------------------------------------------------
(In Thousands)
- --------------------------------------------------------------------------------
Interest income:
- --------------------------------------------------------------------------------
Taxable loans (net of
unearned income) $ 263 $10 $ 273 $ 144 $ 145 $ 289
- --------------------------------------------------------------------------------
Taxable investment
securities (21) (7) (28) 89 (135) (46)
- --------------------------------------------------------------------------------
Federal funds sold (35) -- (35) 92 (2) 90
- --------------------------------------------------------------------------------
Total interest income 207 3 210 325 8 333
- --------------------------------------------------------------------------------
Interest expense:
- --------------------------------------------------------------------------------
Federal funds
purchased 14 -- 14 (24) -- (24)
- --------------------------------------------------------------------------------
NOW deposits 4 (7) (3) 15 (2) 13
- --------------------------------------------------------------------------------
Savings deposits 2 (2) -- -- -- --
- --------------------------------------------------------------------------------
Time deposits (79) -- (79) 65 (5) 60
- --------------------------------------------------------------------------------
Money Market 27 10 37 4 10 14
- --------------------------------------------------------------------------------
Total interest expense (32) 1 (31) 60 3 63
- --------------------------------------------------------------------------------
Net interest income $ 239 $ 2 $ 241 $ 265 $ 5 $ 270
================================================================================
(1) Financial Information for the six months ended June 30, 1998 is based upon
the Proforma Consolidated Income Statement for that time period. See
"Proforma Consolidated Financial Information."
23
<PAGE>
PROVISION FOR LOAN LOSSES
For the six months ended June 30, 1998, the Company recognized a provision
for loan losses of $55,000, a decline of $232,000, or 80.8%, over the provision
of $287,000 recognized for the first half of 1997. The loan loss reserve, as a
percentage of non-performing assets, decreased to 59% from 130% for the six
months ended June 30, 1997. During the first half of 1997, the Bank was subject
to the C&D requiring a certain allowance for loan losses and quarterly
provisions to maintain the allowance. The C&D was lifted in the first quarter of
1998, and the Company established a provision based upon management's view of
the risks inherent in the Company's loan portfolio. For the year ended December
31, 1997, the Company's provision for loan losses was $435,000, an increase of
$138,000, or 46.5%, over the provision of $297,000 for the year ended December
31, 1996. This increase in the provision for loan losses reflects management's
view of the potential losses inherent in the Bank's remaining problem loans as
well as the reserve necessary in light of the Bank's ongoing and increasing
lending activities.
NON-INTEREST EXPENSES
Total non-interest expense for the six months ended June 30, 1998, was
$1,457,000, an increase of $95,000 from total non-interest expense of $1,362,000
incurred for the six months ended June 30, 1997. The primary reason for the
increase was expense of $73,000 in amortization of the goodwill recognized in
the Change of Control. In connection with the Change In Control, the Company
recognized $3,706,000 in goodwill, which will be amortized over 25 years.
Non-interest expenses for the year ended December 31, 1997 amounted to
$2,698,000, a decrease of $242,000, or 8.2% from the comparable period of 1996.
The decline in non-interest expenses for the year ended December 31, 1997 over
the comparable period of 1996 reflects, among other things, the Company's
decision during 1996 to write off certain non-performing assets, including
$119,000 in real estate owned, as management sought to restructure the Company's
balance sheet. There were no similar real estate owned write downs in 1997. In
addition, the Company's legal expenses declined by $50,000 during 1997 compared
to 1996, as the Company settled certain litigation during 1996. In addition,
salaries and employee benefits expense declined by $16,000 in 1997 from 1996.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1998 totaled
$327,000, a reduction of $613,000, or 65.2%, from total non-interest income of
$940,000 recognized for the first half of 1997. This reduction in non-interest
income is primarily attributable to a reduction in the gain on sale of loans of
$287,000, losses on sales of securities and decreases in service charges and
fees. Services charges and fees assessed during the first half of 1998 declined
by $177,000 over the comparable period of 1997. This decline is attributable to
a reduction in
24
<PAGE>
overdraft fees on deposit accounts as the Company's deposit customers overdrew
their accounts less frequently. In addition, during the first half of 1997, the
Company recognized $87,000 in net gain on the sale of securities, while the
Company recognized a net loss on the sale of securities during the first half of
1998 of $39,000. This loss was incurred as the Company began to restructure its
securities portfolio by selling certain private label CMO's. The decline in
non-interest income during the first half of 1998 also reflects a reduction of
$287,000 in gains sales of loans as the Company began to implement its strategy
of deemphasizing SBA lending in favor of more traditional commercial lending.
Non-interest income amounted to $1,728,000 for the year ended December 31,
1997, a decrease of $62,000, or 3.5%, from the comparable period of 1996. The
Company's non-interest income consists primarily of service charges and fees on
deposit accounts, gain on the sale of loans through the Company's participation
in the SBA Guaranteed Loan program and gain on the sale of securities. For the
years of 1997 and 1996, the decrease in non-interest income reflects a decrease
of $350,000 in the gain on sale of securities during 1997. This gain on sale of
securities during 1996 represents management's decision to recognize gains in
the securities portfolio by selling higher rate mortgage backed securities into
a lower rate market. In addition, service charges and fees declined $12,000 and
other income declined $102,000. These declines were partially off-set by an
increase of $403,000, in the gain on sale of loans as the Company continued to
increase its SBA lending.
INCOME TAX EXPENSES
For the six months ended June 30, 1998, the Company recognized income tax
expense of $93,000, compared to a tax benefit of $67,000 for the six months
ended June 30, 1997. This $160,000 change is attributable to the Company's use
of unrestricted net operating loss carry forwards during 1997 to offset income
tax expense. These net operating loss carry forwards were exhausted in 1997 and
for the first quarter of 1998 the Company was required to pay taxes on its
income. The Company continues to have available restricted net operating loss
carry forwards available to offset a portion of its taxable income in future
periods. The amount of this restricted net operating loss which may be applied
annually is $117,000.
The income tax provision, which includes both federal and state taxes, was
$15,000 for the year ended December 31, 1996 reflecting amounts due under the
alternative minimum tax provisions of the Internal Revenue Code of 1986.
Although the Company earned taxable income during 1996, the Company's tax
liability was substantially reduced by the use of net operating loss carry
forwards. Due to the Company's use of net operating loss carry forwards during
1997, the Company recognized a tax benefit of $288,000 for Federal or State
taxes for 1997.
25
<PAGE>
FINANCIAL CONDITION
At June 30, 1998, the Company's total assets were $50.5 million, compared
to $48.2 million and $43.4 million at December 31, 1997 and 1996, respectively.
Total loans, net increased to $23.7 million at June 30, 1998 from $22.9 million
at December 31, 1997. Total deposits were $40.8 million at June 30, 1998
compared to $42.8 million at December 31, 1997.
LOAN PORTFOLIO
At June 30, 1998, the Company's total loans, net were $23.7 million, an
increase of $880,000 over total loans, net of $22.9 million at December 31,
1997. The increase in loans was primarily in loans secured by real estate and
commercial loans, and reflects the Company's continued efforts to achieve
greater penetration in its market areas and new customer activity following the
Change In Control in January, 1998. The Company's loans held for sale declined
to $349,000 at June 30, 1998 from $994,000 at December 31, 1997.
At December 31, 1997, the Company's total loans, net were $22.9 million, an
increase of $4.6 million, or 25.4%, over total loans, net at December 31, 1996.
These increases in the loan portfolio reflect increased commercial and SBA
lending. As a participant in the SBA Guaranteed Loan Program, the Company
originates loans for resale, while retaining both the servicing rights for the
loans and the non-guaranteed portion of the loan. The Company then receives a
fee for servicing the loan. As a result of the increases in SBA lending, the
Company's loans held for sale increased to $994,000 at December 31, 1997 from
$826,000 at December 31, 1996.
The Company's loan portfolio consists primarily of loans secured by real
estate, and, to a lesser extent, commercial and consumer loans. Real estate
loans consist of loans secured by commercial or residential real property and
loans for the construction of commercial or residential property. Consumer loans
are made for the purpose of financing the purchase of consumer goods, home
improvements, and other personal needs, and are generally secured by the
personal property being purchased.
The Company's loans are primarily to businesses and individuals located in
northern Palm Beach and Broward Counties, Florida. The Company has not made
loans to borrowers outside of the United States. Commercial lending activities
are focused primarily on lending to small business borrowers. The Company
believes that its strategy of customer service, competitive rate structures and
selective marketing have enabled the Company to gain market entry to local
loans. Bank mergers by larger banks competing with the Company have also
contributed to the Company's efforts to attract borrowers.
The following table sets forth the classification of the Company's loans by
major category for the periods presented.
26
<PAGE>
================================================================================
June 30, 1998 December 31,
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
- --------------------------------------------------------------------------------
Commercial and
Industrial $6,002 25% $6,074 26% $5,419 29%
- --------------------------------------------------------------------------------
Real Estate
Non-Residential
Properties 16,516 68% 14,301 61% 11,291 60%
- --------------------------------------------------------------------------------
Residential
Properties 684 3% 1,613 7% 1,357 8%
- --------------------------------------------------------------------------------
Construction 101 -- 375 2% 31 --
- --------------------------------------------------------------------------------
Consumer 900 4% 910 4% 575 3%
--- - --- -- --- --
- --------------------------------------------------------------------------------
Total Loans $24,203 100% $23,273 100% $18,673 100%
======= === ======= === ======= ===
================================================================================
The following table sets forth fixed and adjustable rate loans as of June
30, 1998 in terms of interest rate sensitivity.
================================================================================
Within 1 After 5
Year 1 to 5 Years years Total
-------- ------------ ------- -----
- --------------------------------------------------------------------------------
(In Thousands)
- --------------------------------------------------------------------------------
Loans with fixed rate $ 868 $ 2,236 $ 390 $ 3,494
- --------------------------------------------------------------------------------
Loans with
adjustable rate 19,385 1,324 0 20,709
-------- ------- ----- -------
- --------------------------------------------------------------------------------
$ 20,253 $ 3,560 $ 390 $24,203
======== ======= ===== =======
================================================================================
ASSET QUALITY
The Company's principal earning assets are its loans. Inherent in the
lending function is the risk of the borrower's inability to repay their loan
under its existing terms. Risk elements include non-accrual loans, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate.
Non-performing assets include loans that are not accruing interest
(non-accrual loans) as a result of principal or interest being in default for a
period of 90 days or more. When a loan is classified as non-accrual, interest
accruals discontinue and all past due interest, including interest
27
<PAGE>
applicable to prior years, is reversed and charged against current income. Until
the loan becomes current, any payments received from the borrower are applied to
outstanding principal until such time as management determines that the
financial condition of the borrower and other factors merit recognition of such
payments as interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time a borrower and the Company begin to discuss the origination
of a loan. Documentation, including a borrower's credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the
loan, the source and timing of the repayment of the loan, and other factors are
analyzed before a loan is submitted for approval. Loans made are also subject to
periodic review.
During the period ended June 30, 1998, the Company's non-accrual loans
increased by $611,000 to $707,000 at June 30, 1998 from $96,000 at December 31,
1997. This increase is substantially attributable to the placement of a single
loan with a balance of $516,000 on non-accrual status. This loan is subject to a
workout agreement, and management believes that the loan is adequately secured
and does not anticipate that the Company will incur a material loss on this
credit.
The following table sets forth information concerning The Company's
non-performing assets as of the dates indicated:
NON-PERFORMING LOANS
================================================================================
June 30 December 31
- --------------------------------------------------------------------------------
1998 1997 1997 1996
---- ---- ---- ----
- --------------------------------------------------------------------------------
(In Thousands)
- --------------------------------------------------------------------------------
Non-accrual loans ............. $707 $278 $ 96 $248
- --------------------------------------------------------------------------------
Other real estate owned ....... 24 -- 24 --
- --------------------------------------------------------------------------------
Total non-performing
assets(1) ................... $731 $278 $120 $248
==== ==== ==== ====
- --------------------------------------------------------------------------------
Non-accrual loans to
total loans ................. 2.93% 1.30% 0.41% 1.33%
- --------------------------------------------------------------------------------
Non-performing assets
to total assets ............. 1.45% 0.64% 0.25% 0.57%
- --------------------------------------------------------------------------------
Allowance for possible
loan losses as a
percentage of
non-performing assets ....... 58.96% 129.50% 315.00% 147.18%
================================================================================
28
<PAGE>
(1) Excludes loans past due 90 days or more and still accruing interest of
approximately $290,000, $50,000, $213,000, and $48,000 at June 30, 1998,
and 1997 and December 31, 1997 and 1996, respectively.
If the above-described non-accruing loans had been current, the Company's
interest income would have increased by $4,000, and $5,000 for the six month
periods ended June 30, 1998 and 1997, respectively, and $11,000 and $5,000, for
the years ended December 31, 1997 and 1996, respectively.
At the dates indicated in the above table, there were no concentration of
loans exceeding 10% of the Company's total loans and the Company had no foreign
loans.
ALLOWANCE FOR LOAN LOSSES
The Company attempts to maintain an allowance for loan losses at a
sufficient level to provide for potential losses in the loan portfolio. Loan
losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a
continuous basis by the Company's officers, by outside, independent loan review
auditors and by the Company's Loan Committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
management feels deserve recognition in establishing an appropriate reserve.
These estimates are reviewed at least quarterly, and, as adjustments become
necessary, they are realized in the periods in which they become known.
Additions to the allowance are made by provisions charged to expense and the
allowance is reduced by net charge-offs (i.e. - loans judged to be uncollectible
and charged against the reserve, less any recoveries on such loans). Although
management attempts to maintain the allowance at a level deemed adequate, future
additions to the allowance may be necessary based upon changes in market
conditions. In addition, various regulatory agencies periodically review the
Company's allowance for loan losses. These agencies may require the Company to
take additional provisions based on their judgments about information available
to them at the time of their examination. See "Prospectus Summary - Admiralty
Bancorp, Inc. - Management Strategy" for a description of the effect of lifting
the C & D in the first half of 1998 on the Company's provision of its
allowance for loan losses.
The Company's allowance for possible loan losses totaled $431,000,
$360,000, $378,000 and $365,000 at June 30, 1998 and 1997, December 31, 1997
and 1996, respectively.
The following is a summary of the reconciliation of the allowance for loan
losses for the periods presented.
29
<PAGE>
================================================================================
Six Months
Ended Year Ended
June 30, December 31
- --------------------------------------------------------------------------------
1998 1997 1997 1996
---- ---- ---- ----
- --------------------------------------------------------------------------------
(Dollars In Thousands)
- --------------------------------------------------------------------------------
Balance at Beginning of
Period ................. $ 378 $365 $ 365 $ 344
- --------------------------------------------------------------------------------
Charge-Offs: .............
- --------------------------------------------------------------------------------
Commercial and
industrial.............. 5 221 340 283
Real estate............... -- 74 104 3
Consumer.................. -- -- 3 --
---- ---- ---- ----
5 295 447 286
- --------------------------------------------------------------------------------
Recoveries................ 3 3 25 10
- --------------------------------------------------------------------------------
Net Charge Offs: ......... 2 292 422 276
- --------------------------------------------------------------------------------
Provision Charged to
Expense................. 55 287 435 297
- --------------------------------------------------------------------------------
Balance of Allowance at
End of Period........... $431 $360 $378 $365
==== ==== ==== ====
- --------------------------------------------------------------------------------
Ratio of Net Charge-Offs
to Average Loans
Outstanding............. 0.01% 1.43% 2.02% 1.41%
- --------------------------------------------------------------------------------
Balance of Allowance at
Period-End as a % of
Loans at Period End..... 1.78% 1.69% 1.63% 1.96%
================================================================================
The following table sets forth, for each of the Company's major lending
areas, the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated:
30
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES BY CATEGORY
================================================================================
December 31
- --------------------------------------------------------------------------------
June 30, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------
% of all % of all % of all
Amount Loans Amount Loans Amount Loans
- --------------------------------------------------------------------------------
Balance Applicable to:
- --------------------------------------------------------------------------------
Commercial and
Industrial $166 25% $105 26% $118 29%
- --------------------------------------------------------------------------------
Real Estate:
- --------------------------------------------------------------------------------
Non-Residential
Properties 235 68% 175 61% 140 60%
- --------------------------------------------------------------------------------
Residential Properties 18 3% 35 7% 35 8%
- --------------------------------------------------------------------------------
Construction 1 -- 4 2% 5 --%
- --------------------------------------------------------------------------------
Consumer 4 4% 5 4% 4 3.0%
--- ---- --- ---- --- ----
- --------------------------------------------------------------------------------
Subtotal 424 100% 324 100% 302 100%
- --------------------------------------------------------------------------------
Unallocated Reserves 7 -- 54 -- 63 --
--- ---- --- ---- --- ----
- --------------------------------------------------------------------------------
Total $431 100% $378 100% $365 100%
==== ==== ==== ==== ==== ====
================================================================================
31
<PAGE>
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand
or decreased deposits and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed primarily of U.S. Treasury
Securities and obligations of U.S. Government agencies and government sponsored
entities, including collateralized mortgage obligations issued by such agencies
and entities, and to a lesser extent collateralized mortgage obligations issued
by non-public entities. As a Federal Reserve Member Bank, the Bank also holds
stock in the Federal Reserve Bank of Atlanta.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115),
effective January 1, 1994. Under SFAS 115, securities are classified as
securities held to maturity based on management's intent and the Company's
ability to hold them to maturity. Such securities are stated at cost, adjusted
for unamortized purchase premiums and discounts. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities, which are carried at market value. Realized gains and
losses and gains and losses from marking the portfolio to market value are
included in trading revenue. Securities not classified as securities held to
maturity or trading securities are classified as securities available for sale,
and are stated at fair value. Unrealized gains and losses on securities
available for sale are excluded from results of operations, and are reported as
a separate component of stockholders' equity, net of taxes. Securities
classified as available for sale include securities that may be sold in response
to changes in interest rates, changes in prepayment risks, the need to increase
regulatory capital or other similar requirement.
Management determines the appropriate classification of securities at the
time of purchase. At June 30, 1998, the Company's entire investment securities
portfolio of $13.4 million was classified as available for sale.
Investment securities at June 30, 1998 represent a decrease of $6.8
million, or 33.6%, over total investment securities of $20.2 million at December
31, 1997. This decrease in investment securities represents proceeds of maturing
and called securities being invested in new loan originations and used to fund a
reduction in deposits.
At December 31, 1997, the majority of the Company's investment securities
were held to maturity. Pursuant to the Change In Control, and as part of the
purchase accounting adjustments made in connection with the transaction,
securities were reclassified as available for sale.
The following table sets forth the carrying value of the Company's
securities portfolio as of the dates indicated.
32
<PAGE>
A comparative summary of securities available for sale for the periods
presented is as follows (in thousands):
================================================================================
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
June 30, 1998:
U.S. Government and
Agency Obligations .. $ 3,500 $ -- $ (8) $ 3,492
- --------------------------------------------------------------------------------
Mortgage Backed
Securities .......... 9,961 -- (69) 9,892
- --------------------------------------------------------------------------------
Other.................. 14 -- -- 14
-------- ---- ------ -------
- --------------------------------------------------------------------------------
$ 13,475 $ -- $(77) $13,398
======== ==== ====== =======
- --------------------------------------------------------------------------------
December 31, 1997:
U.S. Government and
Agency Obligations... $ 3,608 $ 16 $ (4) $ 3,620
======== ==== ====== =======
- --------------------------------------------------------------------------------
December 31, 1996:
U.S. Government and
Agency Obligations... $ 8,979 $ 57 $(53) $ 8,983
======== ==== ====== =======
================================================================================
A comparative summary of investment securities held to maturity for the
periods presented is as follows (in thousands):
================================================================================
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
December 31, 1997:
U.S. Government
and Agency
Obligations... $ 16,561 $ 73 $(28) $16,606
======== ==== ====== =======
- --------------------------------------------------------------------------------
December 31, 1996:
U.S. Government
and Agency
Obligations... $ 8,478 $ 55 $(61) $ 8,472
======== ==== ====== =======
================================================================================
The following table sets forth as of June 30, 1998 the maturity
distribution of the Company's investment portfolio.
33
<PAGE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
and Agency
Obligations -- -- $3,492 5.83% -- -- -- -- $ 3,492 5.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgaged
Backed
Securities 6,243 6.27% 2,512 6.45% 659 6.73% 478 6.73 $ 9,892 6.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Other -- -- -- - -- -- $ 14 -- % $ 14 $ 6.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gains from the sales of investment securities available for sale during the
years ended December 31, 1997 and 1996 were $87,000 and $437,000, respectively.
Gross gains of $87,000 and gross losses of $0 were realized on those sales in
1997. Securities with a carrying value of $3.1 million, $5.3 million and $5.0
million at June 30, 1998, December 31, 1997 and 1996 were pledged to secure
public funds on deposit.
DEPOSITS
Deposits are the Company's primary source of funds. During the first half
of 1998, the Company's deposits declined by $1,965,000, or 4.6%, to $40,811,000
at June 30, 1998 from $42,776,000 at December 31, 1997. During the first half of
1998, the Company allowed higher rate certificates of deposit to run off since
the funds were not needed to fund loan demand. Time deposits declined from $16.2
million at December 31, 1997 to $13.2 million at June 30, 1998, and the average
rate paid on these deposits declined from 5.40% for the year ended December 31,
1997 to 5.33% for the six months ended June 30, 1998. The Company's cost of
funds for the six months ended June 30, 1998 was 2.78%, compared to 2.95% for
the year ended December 31, 1997. The Company experienced an increase in average
deposit balances of $3,673,000, or 10.0%, to $40,452,000 for the year ended
December 31, 1997 from
34
<PAGE>
average deposits or $36,779,000 for the year ended December 31, 1996. The
year-to-year growth was accomplished through increased marketing of the Bank and
its products. Among the increase in deposits, average savings, N.O.W. and money
market accounts grew to $13,502,000, an increase of $1,182,000, or 9.6%, over
the average for the year ended December 31, 1996. The aggregate amount of
average non-interest-bearing deposits was 25% and 24% during 1997 and 1996,
respectively, of average total deposits. The Company has no foreign deposits,
nor are there any material concentrations of deposits.
The following table sets forth the average amounts of various types of deposits
for each of the periods indicated:
================================================================================
June 30, December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Average Average Average
Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------
Non-Interest Bearing
Demand $10,998 -- $10,091 -- $ 8,807 --
- --------------------------------------------------------------------------------
Interest-Bearing Demand 5,912 1.23% 5,149 1.43% 4,126 1.47%
- --------------------------------------------------------------------------------
Savings Deposit 10,153 2.68% 8,353 2.49% 8,194 2.37%
- --------------------------------------------------------------------------------
Time Deposits 13,987 5.33% 16,859 5.40% 15,652 5.43%
------ ------ ------
- --------------------------------------------------------------------------------
Total $41,050 $40,452 $36,779
======= ======= =======
================================================================================
The Company does not actively solicit short-term deposits of $100,000 or
more because of the liquidity risks posed by such deposits. The following table
summarizes the maturity distribution of certificates of deposits of
denominations of $100,000 or more as of June 30, 1998.
Time Deposits ($100,000 and over)
(In Thousands)
Three months or less .......................................... $ 225
Over three months through nine months ......................... 308
Over nine months through twelve months ........................ 332
Over twelve months ............................................ 683
------
Total ................................................. $1,548
======
35
<PAGE>
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched.
Interest rate sensitivity is the relationship between market interest rates and
earnings volatility due to the repricing characteristics of assets and
liabilities. The Company's net interest income is affected by changes in the
level of market interest rates. In order to maintain consistent earnings
performance, the Company seeks to manage, to the extent possible, the repricing
characteristics of its assets and liabilities.
The ratio between assets and liabilities repricing in specific time
intervals is referred to as an interest rate sensitivity gap. Interest rate
sensitivity gaps can be managed to take advantage of the slope of the yield
curve as well as forecasted changes in the level of interest rate changes.
One major objective of the Company when managing the rate sensitivity of
its assets and liabilities is to stabilize net interest income. The management
of and authority to assume interest rate risk is the responsibility of the
Company's Asset/Liability Committee ("ALCO"), which is comprised of senior
management and Board members. The process to review interest rate risk
management is a regular part of management of the Company. Consistent policies
and practices of measuring and reporting interest rate risk exposure,
particularly regarding the treatment of noncontractual assets and liabilities,
are in effect. In addition, there is an annual process to review the interest
rate risk policy with the Board of Directors which includes limits on the impact
to earnings from shifts in interest rates.
To manage the interest sensitivity position, an asset/liability model
called "gap analysis" is used to monitor the difference in the volume of the
Company's interest sensitive assets and liabilities that mature or reprice
within given periods. A positive gap (asset sensitive) indicates that more
assets reprice during a given period compared to liabilities, while a negative
gap (liability sensitive) has the opposite effect. The Company employs
computerized net interest income simulation modeling to assist in quantifying
interest rate risk exposure. This process measures and quantifies the impact on
net interest income through varying interest rate changes and balance sheet
compositions. The use of this model assists the ALCO to gauge the effects of the
interest rate changes on interest sensitive assets and liabilities in order to
determine what impact these rates changes will have upon the net interest
spread.
36
<PAGE>
At June 30, 1998, the Company maintained a one year negative cumulative gap
of $1,398,000 million or 2.8% of total assets.
<TABLE>
<CAPTION>
Interest Sensitivity Gap at June 30, 1998
------------------------------------------------------
3 months 3 through 1 through Over
or less 12 months 3 years 3 years Total
-------- --------- --------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 6,503 $ -- $ -- $ -- $ 6,503
Investment securities(1)(2)................ 1,663 4,579 7,142 296 13,680
Loans(2)................................... 20,373 446 3,384 -- 24,203
Fixed and other assets..................... -- -- -- 6,109 6,109
-------- ------- ------- ------ -------
Total assets........................... $ 28,539 $ 5,025 $10,526 $6,405 $50,495
Non interest-bearing transaction deposits.. 11,807 -- -- -- $11,807
Interest-bearing transaction deposits...... 15,764 -- -- -- 15,764
Time....................................... 1,663 5,728 5,849 -- 13,240
Other liabilities.......................... -- -- -- 1,417 1,417
-------- ------- ------- ------ -------
Total.................................. 29,234 5,728 5,849 1,417 $42,228
-------- ------- ------- ------ =======
Interest sensitivity gap................... (695) (703) 4,677 4,988
-------- ------- ------- ------
Cumulative gap............................. $ (695) $(1,398) $ 3,279 $8,267
======== ======= ======= ======
Cumulative gap to total assets............. (1.38%) (2.77%) 6.49% 16.37%
===== ===== ==== =====
</TABLE>
- ----------
(1) Gross of unrealized gains/losses on available for sale securities.
(2) Investments and loans are included in the earlier of the period in which
interest rates were next scheduled to adjust or the period in which they
are due. In addition, loans were included in the periods in which they are
scheduled to be repaid based on scheduled amortization. For amortizing
loans and mortgage-backed securities, annual prepayment rates are assumed
reflecting historical experience as well as management's knowledge and
experience of its loan products.
37
<PAGE>
LIQUIDITY
The Company's liquidity is a measure of its ability to fund loans,
withdrawals or maturities of deposits and other cash outflows in a
cost-effective manner. The Company's principal sources of funds are deposits,
scheduled amortization and prepayments of loan principal, sales and maturities
of investment securities and funds provided by operations. While scheduled loan
payments and maturing investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Company's total deposits equaled $40.8 million, $42.8 million and $39.8
million as of June 30, 1998 and December 31, 1997 and 1996, respectively. The
funds provided by deposits during these years have been more than sufficient to
provide for the Company's lending demand.
Through the Company's investment portfolio the Company has generally sought
to obtain a safe yet slightly higher yield than would have been available to the
Company as a net seller of overnight Federal Funds while still maintaining
liquidity. Through its investment portfolio, the Company also attempts to manage
its maturity gap by seeking maturities of investments which coincide as closely
as possible with maturities of deposits. The Company's investment portfolio also
includes securities held for sale to provide liquidity for anticipated loan
demand and other liquidity needs.
Management believes that the Company's current sources of funds provide
adequate liquidity for the current cash flow needs of the Company.
CAPITAL
A significant measure of the strength of a financial institution is its
capital base. The Bank's federal regulators have classified and defined capital
into the following components: (1) Tier I capital, which includes tangible
shareholders' equity for common stock and qualifying preferred stock, and (2)
Tier II capital, which includes a portion of the allowance for possible loan
losses, certain qualifying long-term debt and preferred stock which does not
qualify for Tier I capital. Minimum capital levels are regulated by risk-based
capital adequacy guidelines which require a financial institution to maintain
certain capital as a percent of its assets and certain off-balance sheet items
adjusted for predefined credit risk factors (risk-adjusted assets.) A financial
institution is required to maintain, at a minimum, Tier I capital as a
percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II
capital as a percentage of risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, the federal regulators require
that a financial institution which meets the regulators' highest performance and
operation standards maintain a
38
<PAGE>
minimum leverage ratio (Tier I capital as a percentage of tangible assets) of
3%. For those institutions with higher levels of risk or that are experiencing
or anticipating significant growth, the minimum leverage ratio will be
proportionately increased. Minimum leverage ratios for each bank are evaluated
through the ongoing regulatory examination process.
The Company's federal regulators impose capital standards on bank holding
companies which are substantially similar to those imposed upon the Bank.
However, provided the Company's total assets are less than $150 million, these
standards are applied on a bank only basis.
The following table summarizes the Bank's risk-based and leverage capital
ratios at June 30, 1998, as well as the required minimum regulatory capital
ratios:
===============================================================================
CAPITAL ADEQUACY
- --------------------------------------------------------------------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
- --------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------
(in thousands, except percentages)
Total Capital
(to risk-weighted
assets) $ 4,845 16.11% $ 2,405 8.00% $ 3,007 10.0%
- --------------------------------------------------------------------------------
Tier I Capital
(to risk-weighted
assets) 4,468 14.86% 1,203 4.00% 1,804 6.00%
- --------------------------------------------------------------------------------
Tier I Capital
(to average assets) 4,468 9.74% 1,830 4.00% 2,288 5.00%
===============================================================================
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
39
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting For Earnings Per Share. In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes
standards for computing and presenting Earnings Per Share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. It also requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. The Company adopted the statement effective period end December 31,
1997.
Reporting of Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of financial statements. This statement also requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. The adoption
of SFAS 130 did not have material effect on the Presentation of the Company's
financial statements.
Disclosure About Segments and Related Information. In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that such enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
This statement also establishes standards for related disclosures about
products and services, geographical areas, and major customers. This statement
requires the reporting of
40
<PAGE>
financial and descriptive information about an enterprise's reportable operating
segments. This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company does
not anticipate that the preparation of disclosure to comply with SFAS 131 will
have a material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (gains and
losses) depends on the intended use of the derivative and resulting designation.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Earlier application is permitted only as of the beginning
of any fiscal quarter. The Company is currently reviewing the provisions of SFAS
No. 133. But does not anticipate the new provisions will have material effect
on the Company's financial statements.
YEAR 2000 COMPLIANCE
Rapid and accurate data processing is essential to the Company's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the Year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data.
The Company has been evaluating both information technology (computer systems)
and non-information technology systems (e.g., vault timer, electronic door lock
and heating, ventilation and air conditioning control). The Company has examined
all of its non-information technology systems and has either received
certifications of Year 2000 compliance for systems controlled by third party
providers or determined that the systems should not be impacted by the Year
2000. The Company expects to further test the systems it controls and receive
third party certifications, when appropriate, that these systems will continue
to function. The Company does not expect any material costs to address its
non-information technology systems and has not had any material costs to date.
The Company has determined that the information technology systems it currently
uses have substantially more Year 2000 risk than the non-information technology
systems the Company uses. The Company has evaluated its information technology
systems risk in three areas: (1) its own computers, (2) computers of others used
by its borrowers, and (3) computers of others who provide the Company with data
processing.
The Company's Computers. The Company expects to spend approximately
$300,000 through November 30, 1998 to upgrade its computer systems, primarily
through the purchase of new hardware. This upgrade was necessary to accommodate
the planned expansion of the Bank, and is not necessitated as part of the
Company's Year 2000 remediation efforts. However, these new systems will be Year
2000 compliant. The Company does not expect to have material costs to address
this risk area after November 30, 1998. At June 30, 1998, none of the estimated
$300,000 had been expensed.
Computers of Others Used by Borrowers. The Company has evaluated most of
its borrowers and does not believe that the Year 2000 problem should, on an
aggregate basis, impact their ability to make payments to the Bank. The Company
believes that most of its individual borrowers are not dependent on their home
computers for income and none of the Bank's commercial borrowers are so large
that a Year 2000 problem would render them unable to collect revenue or rent
and, in turn, continue to make loan payments to the Bank. The Company does not
expect any material costs to address this risk area.
Computers of Others Who Provide the Company With Data Processing. This risk
is primarily focused on one third party service bureau that provides virtually
all of the Bank's data processing. This service bureau is not Year 2000
compliant but has advised the Company that it expects to be compliant before the
year 2000. If this problem is not solved before the year 2000, the Company would
likely experience significant delays, mistakes or failures. These delays,
mistakes or failures could have a significant impact on the Company's financial
condition and results of operations.
Contingency Plan. The Company is monitoring its service bureau to evaluate
whether the Company's data processing system will fail. The Company is being
provided with periodic updates on the status of testing and upgrades being made
by the service bureau. If the Company's service bureau fails, the Company will
attempt to locate an alternative service bureau that is Year 2000 compliant or
the Company will contract with the same vendor of its software system (which is
Year 2000 compliant) to utilize this software on the Company's own in-house
hardware system. If the Company is unsuccessful, the Company will enter deposit
and loan transactions by hand in its general ledger and computer loan payments
and deposit balances and interests with its existing computer system. The
Company can do this because of its relatively small number of loan and deposit
accounts and would expand its internal bookkeeping system. The Company's
computer systems are independently able to generate labels and mailings for all
of the Company's customers. If this labor intensive approach becomes necessary,
management and the Company's employees will become much less efficient. However,
the Company believes that it would be able to operate in this manner
indefinitely, until the Company's existing service bureau, or their replacement,
is able to again provide data processing services. If very few financial
institution services bureaus were operating in the Year 2000, the Company's
replacement costs, assuming it could negotiate an agreement, could be material.
THE BANK
GENERAL
The Bank is a Florida state chartered bank which opened for business in
1987. The Bank operates through its main office located in Palm Beach Gardens
and three branch offices located in
41
<PAGE>
Juno Beach, Boca Raton and Jupiter, Florida. Recently, the Bank applied for
regulatory approval to open its fourth office in Boca Raton.
The Bank is a community-oriented, full service commercial bank providing
commercial and consumer financial services to businesses and individuals in its
northern Palm Beach County trade area. See "Primary Trade Area" below.
Due to losses incurred on the Bank's loan portfolio and investment
securities portfolio, as well as certain other regulatory concerns, the Bank
entered into the C&D with the Florida Department of Banking and Finance and the
Federal Reserve Bank of Atlanta in January, 1992.
DEPOSITS
The Bank offers a full range of depository products and is competitive in
structuring the terms (e.g., interest rates, minimum balances, etc.) of the
deposit accounts as part of its strategy to gain deposits in its primary trade
area. In spite of this effort, the Bank believes that its cost of funds is lower
than the average costs experienced by its competitors.
LOANS
The Bank lends funds to individuals and businesses for personal and
commercial purposes. Most of the Bank's commercial loans, i.e., those for
business purposes, have floating rates tied to the Bank's prime rate. Typically,
the Bank's commercial loans are secured by business assets, personal guarantees
of the principals of closely-held businesses and often by the personal assets of
such principals. The loans are primarily made to small and mid-sized businesses
in the Bank's trade area. The Bank believes that it can attract commercial
borrowers by providing competitive rates, superior service, local
decision-making and flexibility in loan structure. The Bank's Board of Directors
believes that small and mid-sized businesses are not always of primary
importance to larger banking institutions for commercial lending purposes,
whereas such businesses represent the main portion of the commercial loan
business for the Bank.
The Bank has and will continue to emphasize adjustable rate loans. As of
June 30, 1998, total loans were $24.2 million of which 24.8% were commercial and
industrial, 68.2% were real estate, non-residential, 2.8% were loans secured by
residential properties, 0.4% were construction loans, and 3.7% were consumer
loans.
Fixed rate loans as of June 30, 1998 totaled $3.5 million, of which 25.0%
were commercial and industrial, 29.4% were real estate, non-residential, 20.8%
were loans secured by residential properties, 2.6% were construction loans, and
22.3% were consumer loans.
Commercial and Industrial Loans: As of June 30, 1998, the Bank had $6.0
million in commercial and industrial loans with risks generally associated with
economic conditions in the Bank's Florida trade area and a potential rise in
interest rates. The Bank underwrites these loans based on the credit history of
the borrowers, a demonstrated ability to repay the loan, favorable collateral
and personal guarantees. Lines of credit are reviewed at least annually and term
loans depend on the purpose and identified source of repayment.
Real Estate, Non-Residential Loans: As of June 30, 1998 the Bank had $16.5
million in Real Estate Non-Residential loans. The risks involved with these
loans are associated with economic conditions in the Bank's Florida trade area,
a potential rise in interest rates and potential dramatic decreases in real
estate values. The Bank underwrites these loans based on loan to value ratios
generally not exceeding 80%, a favorable debt coverage ratio based on current or
projected cash flow and generally requires personal guarantees of principals.
Residential Property: As of June 30, 1998, the Bank had $684,000 in loans
secured by residential properties. The risks involved with these loans are
associated with the personal financial condition of the borrowers and potential
dramatic decreases in real estate values. The Bank underwrites these loans
generally not exceeding 90% of the property value to borrowers based on the
borrowers' credit history and a demonstrated sufficient repayment ability.
Construction Loans: As of June 30, 1998, the Bank had $101,000 in
construction loans. The risks associated with these loans involve cost of
completion, economic conditions in Florida, repayment ability, a potential rise
in interest rates and potential dramatic decreases in property values. The Bank
underwrites these loans based on loan to values generally not exceeding 80%,
projected debt coverage ratios, and personal guarantees of principals.
Consumer Loans: As of June 30, 1998, these loans totaled $900,000. The
risks associated with these loans involve potential decreases in the borrowers'
income and loss or damage of the collateral. The Bank underwrites these loans
based upon the credit history of the borrower and a demonstrated ability to
repay the loan.
In addition, the Bank has been very active in providing loans to small
businesses through the United States Small Business Administration ("SBA")
guaranteed loan program. Under the SBA program, loans are available to small
businesses which meet certain criteria. Generally, 75% of the principal of the
loan to a qualified business may be guaranteed by the United States government.
The Bank sells the guaranteed portion of its SBA loans into the secondary market
and derives premium income from such sales. The Bank's ability to offer SBA
loans on an ongoing basis is dependent upon, among other factors, appropriation
of funds by the Federal government to the SBA program. Historically, the Bank
has originated SBA guaranteed loans through a network of third-party brokers.
Under its arrangements with these brokers, the Bank would pay a commission fee
on closed loans. Management of the Company intends to de-
42
<PAGE>
emphasize the origination of SBA guaranteed loans, and particularly the use of
third-party brokers, and focus the Bank's lending activities on more traditional
commercial loans.
The Bank grants both secured and unsecured consumer loans to finance the
purchase of automobiles, durable goods or for any worthwhile purpose. The Board
of Directors believes that the Bank's competitive interest rates and superior
service (which includes, among other things, convenience, personal attention and
prompt local decision-making) are important competitive factors in attracting
personal loans from credit-worthy consumers.
The Bank also makes residential and commercial mortgage loans. Commercial
real estate transactions have generally been limited to owner-occupied
commercial properties.
OTHER ACTIVITIES
The Bank also derives income from investments in securities, typically
obligations of the United States Government and government agencies. The Bank
also provides a variety of financial services to its customers including wire
transfers, issuing money orders and travelers checks, accepting direct deposit
of payroll and of federal recurring payments, and issuing both standby and
commercial letters of credit.
LEGAL PROCEEDINGS
From time to time, the Bank may be a plaintiff or defendant in various
legal proceedings in the normal course of its business. The Bank is not
presently a defendant in any legal proceeding and, to the knowledge of the Board
of Directors, there are no threatened actions or proceedings which would have a
material adverse effect on the financial position or results of operations of
the Bank.
PRIMARY TRADE AREA
The Bank's primary trade area at present encompasses northern Palm Beach
County, Florida. Through the mid-1990s, Palm Beach County has experienced rapid
growth, showing a rate of population growth of nearly 50% from 1980 through
1990, with the population growing from 576,863 to an estimated 1996 population
of 980,000. The County's primary employers include service providers and retail
trade companies along with some light manufacturing. Major employers within Palm
Beach County include Pratt & Whitney, Marquette Medical Systems, Philips
Components, Siemens, Motorola, Sony USA and W.R. Grace & Co. Palm Beach County's
unemployment rate has declined since the early 1990s, and average annual
earnings in the West Palm Beach - Boca Raton area have grown at an annual rate
of 8.4% from 1984 through 1994.
43
<PAGE>
COMPETITION
The Bank is located in an extremely competitive environment. The Bank's
trade area is already serviced by major regional banks, large thrift
institutions and by a variety of credit unions. Most of the Bank's competitors
have substantially more capital and therefore greater lending limits than the
Bank. The Bank's competitors generally have established positions in the trade
area and have greater resources than the Bank with which to pay for advertising,
physical facilities, personnel and interest on deposited funds.
PHYSICAL FACILITIES
The Bank leases its main office in Palm Beach Gardens and its two branch
offices in Juno Beach and Jupiter, Florida. The following table sets forth
certain information regarding these leases:
- --------------------- ------------------ ------------------- ------------------
LOCATION SQUARE FEET MONTHLY RENTAL TERM
- --------------------- ------------------ ------------------- ------------------
Palm Beach Gardens 7,930 $ 13,204 October 31, 2003
- --------------------- ------------------ ------------------- ------------------
Juno Beach 2,508 4,719 December 31, 2000
- --------------------- ------------------ ------------------- ------------------
Jupiter 1,500 2,054 June 15, 1999
- --------------------- ------------------ ------------------- ------------------
In addition, the Bank has received regulatory approval to open a new office
in Boca Raton, Florida, and is currently finalizing the terms of the lease
agreement for this facility. As proposed, the lease will be for a term of 20
years, with four renewal options of five years each. The base rent will be
$143,000 per year. See "Management -- Transactions with Management."
PERSONNEL
The Bank currently employs 34 full time employees, and anticipates hiring
approximately seven additional employees as it continues to implement its
business strategy. Other than the employment agreement with Mr. Kellogg, the
Bank has no written employment agreements with its officers and employees.
Obtaining and retaining well-trained and qualified personnel may require the
Bank to pay salaries at or above those currently paid by competitors.
44
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
The direction and control of Admiralty is vested in its Board of Directors,
which pursuant to its bylaws must consist of not less than 3 nor more than 25
persons with the exact number to be determined by the Board from time to time.
Admiralty currently has ten (10) Directors. The term of each director is three
years, and the Board is divided into three classes, with one class standing for
election at each Annual Meeting. See, "Anti-Takeover Provisions -- Classified
Board of Directors."
The following sets forth certain information regarding Admiralty's
Directors:
BRUCE A. MAHON, 67 - CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Mr.
Mahon was formerly the Chairman of the Board of Carnegie Bancorp and had been
Chairman of the Board of Carnegie Bank, NA since its inception in 1988. Carnegie
Bank, NA is a commercial bank headquartered in Princeton, New Jersey. In July,
1998, Carnegie Bancorp was acquired by Sovereign Bancorp of Wyomissing,
Pennsylvania. Mr. Mahon is also the past President of the McCay Corporation as
well as the past President of Trenton Wine & Spirits. He has an extensive
background in public service, including service as the former Director of
Finance for Burlington County, New Jersey, former Burlington County Freeholder,
and a former Member of the Delaware Valley Regional Planning Board.
MICHAEL E. GOLDEN, 54 - VICE CHAIRMAN OF THE BOARD. Mr. Golden is the
Chairman of the Board and CEO of First Colonial Securities Group, Inc., a full
service investment brokerage and the managing Underwriter. Mr. Golden was also
the Vice Chairman of the Board of Carnegie Bancorp since its inception in 1988.
Prior to 1990, Mr. Golden was Senior Vice President of Smith Barney Harris Upham
& Company, Inc. Mr. Golden is a Director of the Cooper Hospital of Camden, New
Jersey, a Director of the Palm Beach Jewish Federation, Director of the Donna
Klein Jewish Academy of Boca Raton, Florida and Chairman of KidAcademy Learning
Centers.
LESLIE E. GOODMAN, 55, DIRECTOR. Mr. Goodman is currently an executive
officer with the Eagle Group, Inc., a New Jersey based real estate development
firm. Prior to his retirement, Mr. Goodman was a senior executive officer with
First Union National Bank, and, prior to its acquisition by First Union, First
Fidelity Bank and its predecessors, for more than 30 years. Mr. Goodman has
served for over 20 years as President and Chief Executive Officer of various
financial institutions in New Jersey, including the First National State Bank of
Central New Jersey, Fidelcor, Inc., Fidelity Bank, N.A., New Jersey, and First
Fidelity Bank, N.A., New
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Jersey. In addition, after the acquisition of First Fidelity Bank by First Union
National Bank, Mr. Goodman served as the President for First Union National
Bank's North Jersey area. Mr. Goodman is also a licensed attorney in the State
of New Jersey and the Commonwealth of Pennsylvania.
THOMAS L. GRAY, JR., 53, DIRECTOR. Mr. Gray was formerly the President,
Chief Executive Officer and member of the Board of Carnegie Bancorp. Prior to
forming Carnegie in 1988, Mr. Gray served for five years as President and CEO of
Peoples National Bank of Denville, New Jersey. He served in that same capacity
at Lafayette Bank & Trust Company of Bridgeport Connecticut for ten years, and
was a National Bank Examiner for the OCC for six years. Mr. Gray has over 30
years of experience in the banking industry.
SIDNEY L. HOFING, 63, DIRECTOR. Mr. Hofing has been the President of the
Eagle Group, a New Jersey based real estate development company for over five
(5) years and is also the Chairman of the Board of New General Packaging
Service, Inc., a pharmaceutical packaging company. Mr. Hofing also serves on the
Board of Yardville National Bank, a national bank headquartered in Yardville,
New Jersey. Mr. Hofing is a licensed attorney in both Pennsylvania and New
Jersey.
PETER L.A. PANTAGES, 43, DIRECTOR. Mr. Pantages has been the President of
McCay Real Estate Group, a real estate sales, management and development company
for over five (5) years. Mr. Pantages is a licensed real estate broker and
financial consultant, and has extensive experience in real estate financing. He
is also an active investor in banks.
RICHARD P. ROSA, 46, DIRECTOR AND CHIEF FINANCIAL OFFICER. Mr. Rosa was
formerly the Chief Financial Officer of Carnegie Bancorp since April, 1995.
Prior joining Carnegie Bancorp, Mr. Rosa was the Chief Financial Officer of
Lakeland First Financial Group, Inc., the parent company of Lakeland Savings
Bank, Succasunna, New Jersey, for four years. Prior to his service at Lakeland,
Mr. Rosa served for seven years as Senior Vice President and Treasurer of United
Jersey Bank/Northwest, Randolph, New Jersey and also has seven years of bank
auditing experience, and is a Certified Bank Auditor. Mr. Rosa has an MBA from
Rutgers University Graduate School of Business Administration in accounting.
CRAIG A. SPENCER, 37, DIRECTOR. Mr. Spencer has been the President and
Chief Executive Officer of The Arden Group, Inc., a real estate development
company for over five (5) years. Mr. Spencer is also a licensed attorney and
real estate broker in the Commonwealth of Pennsylvania. Mr. Spencer has
extensive experience in the real estate industry, having previously served as a
Vice President for Acquisitions for National Property Analysts of Philadelphia,
Pennsylvania. Mr. Spencer also serves on the advisory board of XNDO, Inc.
MARK A. WOLTERS, 37, DIRECTOR. Mr. Wolters was formerly a Director and the
Executive Vice President of Carnegie Bancorp and served as an Executive Vice
President of Carnegie Bank, NA since 1988. Mr. Wolters has been involved in the
banking industry since 1978. Prior
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to joining Carnegie, Mr. Wolters served as the Senior Lending Officer of the
Yardville National Bank where he was employed for six years. Prior to his
service, Mr. Wolters was affiliated with the Central Jersey Bank and Trust.
GEORGE R. ZOFFINGER, 50, DIRECTOR. Mr. Zoffinger is President and Chief
Executive Officer of Constellation Capital Corp. Previously, Mr. Zoffinger was
President and Chief Executive Officer of Value Property Trust, a New Jersey
based real estate investment trust. Value Property Trust was merged with
Wellford Properties, Inc. in February 1998. Previously, Mr. Zoffinger was
Chairman of CoreStates New Jersey National Bank and President and Chief
Executive Officer of Constellation Bancorp. Mr. Zoffinger has over 25 years
experience in the banking industry and also served as Commissioner of the New
Jersey State Department of Commerce and Chairman of the New Jersey Economic
Development Authority.
No Director of Admiralty is also a director of any company registered as an
investment company under the Investment Company Act of 1940.
The following sets forth certain information regarding members of the
Bank's management who are not Directors of Admiralty:
WARD KELLOGG, 39. Mr. Kellogg is the President and Chief Executive Officer
of the Bank. Prior to joining the Bank, Mr. Kellogg served as Executive Vice
President and Chief Credit Officer for 1st United Bank of Boca Raton, Florida
from 1987 through 1998, when 1st United Bank was acquired by Wachovia
Corporation. Mr. Kellogg received degrees in business administration and
marketing from Florida International University. Mr. Kellogg has over 16 years
of experience in the banking industry in the South Florida market.
WILLIAM J. BURKE, 38. Mr. Burke is the Executive Vice President and Chief
Operating Officer of the Bank. From 1994 through 1998, Mr. Burke was the Senior
Vice President and Regional Senior Lending Officer of 1st United Bank of Boca
Raton, Florida, until it was acquired by Wachovia Corporation. Previously, from
1989 through 1994, Mr. Burke was the Vice President for Commercial Lending for
SouthEast Bank, which was acquired by First Union Corporation. Mr. Burke is a
graduate of Florida International University. Mr. Burke has over 16 years of
banking experience in the South Florida market.
DENNIS GAVIN, 33. Mr. Gavin is the Senior Vice President and the Senior
Lending Officer of the Bank. From 1994 through 1998, Mr. Gavin served as a Vice
President of Commercial Lending for 1st United Bank of Boca Raton, Florida,
until it was acquired by Wachovia Corporation. Prior to 1994, Mr. Gavin served
as a Credit Administration Officer for Barnett Bank of Palm Beach County. Mr.
Gavin has over 10 years of banking experience in the South Florida market.
ANNE PADDOCK, 37. Ms. Paddock is the Senior Vice President -- Loan
Administration
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of the Bank. From 1994 to 1998, Ms. Paddock was the Vice President of Commercial
Lending for 1st United Bank, which was acquired by Wachovia Corporation.
Previously, Ms. Paddock was a commercial loan officer with another Palm Beach
County, Florida based financial institution. Ms. Paddock received an MBA from
Duke University.
JOHN KAPSIS, 50. Mr. Kapsis is the Senior Vice President -- Finance of the
Bank. From 1991 through 1997, Mr. Kapsis was the Senior Vice President --
Accounting at 1st United Bank, which was acquired by Wachovia Corporation. He
previously served as Chief Financial Officer and Vice President -- Corporate
Accounting, respectively, at two other financial institutions. Mr. Kapsis is a
graduate of the University of Illinois.
SYLVIA R. WEBER, 36. Ms. Weber is the Senior Vice President in charge of
operations of the Bank, and joined the Bank in November, 1993. Ms. Weber, an MBA
from Southern Methodist University, Dallas, Texas, has an extensive background
in operations and management in a variety of bank and bank related positions
over 13 years.
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STOCK OWNERSHIP OF DIRECTORS
The following table sets forth certain information regarding beneficial
ownership of the Admiralty's Class A Stock and Class B Stock as of August 1,
1998 and, after giving effect to the Offering (assuming 1,100,000 shares of
Class B Stock are sold), by (i) each person who is known to the Admiralty to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director, and (iii) all officers and directors as a group. All persons listed
have sole voting and investment power with respective to their shares unless
otherwise indicated. As of June 30, 1998, the Company had 888,881 shares of its
Class A Stock outstanding and 227,759 shares of its Class B Stock outstanding
after giving effect to the recent 5% dividend declared on the Class A Stock paid
in shares of Class B Stock, paid on July 21, 1998. Since the Class A Stock and
the Class B Stock vote together as a single class, the following table does not
present the classes separately.
- -------------------------------------------------------------
SHARES BENEFICIALLY OWNED
- -------------------------------------------------------------
NAME(1) NUMBER PERCENTAGE PERCENTAGE
OWNERSHIP AFTER
OFFERING
- -------------------------------------------------------------
Bruce A. Mahon 108,784(2)(3) 9.5% 4.7%
- -------------------------------------------------------------
Michael E. Golden 88,216(2)(4) 7.7% 3.9%
- -------------------------------------------------------------
Leslie E. Goodman 40,125(2)(5) 3.6% 1.8%
- -------------------------------------------------------------
Thomas L. Gray, Jr. 80,191(2)(5) 7.1% 3.6%
- -------------------------------------------------------------
Sidney L. Hofing 66,375(2)(5)(6) 5.9% 2.9%
- -------------------------------------------------------------
Peter L.A. Pantages 28,968(2)(5)(7) 2.6% 1.3%
- -------------------------------------------------------------
Richard P. Rosa 25,207(2)(5) 2.3% 1.1%
- -------------------------------------------------------------
Craig A. Spencer 50,625(2)(5) 4.5% 2.2%
- -------------------------------------------------------------
Mark A. Wolters 25,207(2)(5) 2.3% 1.1%
- -------------------------------------------------------------
George R. Zoffinger 19,625(2)(5)(8) 1.7% 0.9%
- -------------------------------------------------------------
Ward Kellogg -- -- --
- -------------------------------------------------------------
All Directors and
Executive Officers
as a group (16
persons) 532,853 47.7% 24.0%
- -------------------------------------------------------------
(1) The address of all persons is c/o Admiralty Bancorp, Inc., Inc., 2275
Highway 33, Suite 305, Hamilton Square, New Jersey 08690.
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(2) Does not include 15,000 shares of Class B Stock purchasable upon the
exercise of Warrants. These Warrants are not exercisable until January,
1999.
(3) Includes 30,000 shares of Class B Stock purchasable upon the exercise of
stock options.
(4) Includes 24,000 shares of Class B Stock purchasable upon the exercise of
stock options.
(5) Includes 13,875 shares of Class B Stock purchasable upon the exercise of
stock options.
(6) Includes 20,000 shares hereby held by a limited partnership of which Mr.
Hofing is a member.
(7) Includes 2,000 shares held in trust.
(8) These shares are held by a limited partnership of which Mr. Zoffinger is a
member.
COMPENSATION OF THE BOARD OF DIRECTORS
Members of the Board of Directors of the Company do not currently receive
board fees for their services. However, members of the Board of Directors of the
Bank who are not also employees of the Bank do receive $500 per board of
director meeting. See "--Certain Transaction with Management."
COMPENSATION OF EXECUTIVE OFFICERS
Mr. Bruce A. Mahon, Chairman of the Board of the Company, began receiving
an annual salary of $50,000 in August, 1998.
Effective July 1, 1998, Mr. Ward Kellogg was retained as President and
Chief Executive Officer of the Bank. Pursuant to his employment agreement, Mr.
Kellogg is to receive an annual salary of $125,000, subject to annual increases.
In addition, Mr. Kellogg may receive a cash bonus based upon the Company's
return on average assets. Mr. Kellogg's employment agreement has a term of three
and one-half years. If Mr. Kellogg is terminated other than for cause he is to
receive his then current base compensation for the remaining term of the
agreement, or twenty-four months, which is longer. If Mr. Kellogg's employment
is terminated following a change in control (as defined in the agreement) or if
he voluntarily terminates his employment following a change in control under
certain circumstances, Mr. Kellogg will be entitled to receive his then current
base compensation for a period of twenty-four (24) months. Mr. Kellogg is also
to receive options to purchase 25,000 shares of Class B Stock.
In addition, Mr. William Burke has been retained to serve as a Vice
President and the Chief Operating Officer of the Bank at an annual salary of
$100,000. Mr. Burke is also to receive options to purchase 10,000 shares of
Class B Stock.
Effective July 1, 1998, Mr. James A. Semrad resigned as President of the
Bank to pursue
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other professional opportunities. Mr. Semrad will remain as a consultant to the
Bank and the Company, and he will continue to receive a consulting fee of $8,333
per month for the next thirty (30) months, or an aggregate payment of $250,000.
As a consultant, Mr. Senrad will assist the Bank in developing business plans,
branch locations and strategic planning.
MANAGEMENT STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1998 Management Stock
Option Plan (the "Management Plan"), which provides for options to purchase up
to 330,000 shares of Class B Stock to be issued to employees and members of the
Board of Directors of the Company, the Bank and any other subsidiaries which the
Company may acquire or incorporate in the future. The purpose of the Management
Plan is to assist both the Company and its subsidiaries in attracting and
retaining highly qualified persons to serve both as employees and members of the
Board of Directors of the Company and its subsidiaries and to help ensure that
management of the Company and its subsidiaries have shared economic interests
with the shareholders of the Company. The Management Plan will be administered
by the Board of Directors of the Company. The Board will have the authority to
determine the terms and conditions of options granted under the Management Plan,
the exercise price for such options, subject to the terms of the Plan, and
whether the Options are incentive or non-statutory options, subject to the terms
of the Internal Revenue Code of 1986, as amended (the "Code"). Options granted
under the Management Plan may not be exercised more than 10 years after the date
such Option is granted.
The Management Plan provides for the granting of both incentive options
under Section 422 of the Code and non-statutory options. Incentive stock options
may be granted at an exercise price of not less than 100% of the fair market
value of the Class B Stock on the date of grant. The Option price for
non-statutory options may not be less than 100% of the fair market value of the
Class B Stock on the date of grant. The Board of Directors has discretion to set
the actual exercise price of any option within the foregoing parameters.
The grant of a non-statutory option, which has no readily ascertainable
fair market value at the time it is granted, is not taxable to the recipient of
the option for federal income tax purposes at the time the option is granted.
The recipient of a non-statutory option realizes compensation taxable as
ordinary income at the time the option is exercised. The amount of such
compensation is equal to the amount by which the fair market value of the stock
acquired upon exercise of the option exceeds the amount required to be paid for
such stock.
Incentive stock options may, in many instances, be more beneficial for
employees than non-statutory options. The exercise of an incentive stock option
generally will have not federal income tax consequences and, if certain
conditions are met, any excess of fair market value over the option price will
be reportable as capital gain in the year the common stock purchased upon
exercise of the option is sold.
The Board has approved the following stock option grants under the
Management Plan:
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Name Shares Under Option
---- -------------------
Bruce A. Mahon 30,000
Michael E. Golden 24,000
Leslie E. Goodman 13,875
Thomas L. Gray, Jr. 13,875
Sydney L. Hofing 13,875
Peter L.A. Pantages 13,875
Richard P. Rosa 13,875
Craig A. Spencer 13,875
Mark A. Wolters 13,875
George R. Zoffinger 13,875
Ward Kellogg 25,000(1)
William Burke 10,000(1)
Dennis Gavin 8,000(1)
Anne Paddock 6,000(1)
Others 3,000(1)
------
TOTAL GRANTS 217,000
- ----------
(1) Subject to a four-year vesting schedule.
Exercise price for these options will be the purchase price for the Class B
Stock sold in this Offering.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Bank has made in the past and, assuming continued satisfaction of
generally applicable credit standards, expects to continue to make loans to
directors, executive officers and their associates (i.e. corporations or
organizations for which they serve as officers or directors or in which they
have beneficial ownership interests of ten percent or more). These loans have
all been made in the ordinary course of the Bank's business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features. In
addition, Bank Directors and Officers keep depository balances with the Bank.
The Bank has received regulatory approval to open a new branch in Boca
Raton, Florida. This branch will be leased from an entity owned by certain
members of the Company's Board of Directors. In addition, the Bank has applied
for regulatory approval to relocate its Jupiter branch to more spacious
quarters. This facility will also be leased from an entity owned by members of
the Company's Board of Directors. The aggregate rental payment due under these
two leases will be $238,000 per year. The Company believes that these leases
represent fair market value, and
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are comparable to terms which the Bank could have obtained from unaffiliated
parties.
Mr. Michael E. Golden, member of the Board of Directors of the Company, is
a principal of First Colonial Securities Group, Inc., the managing Underwriter
of this Offering. As a founder of the Company, Mr. Golden received 25,183 shares
of Class A Stock and 37,774 shares of Class B Stock for a purchase price of
$0.68 per share. In addition, First Colonial Securities Group, Inc. acted as
placement agent in connection with the Company's private placement of $8 million
of its Class A Units. First Colonial Securities Group, Inc. received a placement
agent fee of $400,000 for its efforts in the private placement. As the managing
Underwriter of this Offering, First Colonial Securities Group, Inc. will receive
certain compensation. See "Underwriting".
DESCRIPTION OF THE COMPANY'S SECURITIES
CAPITAL STOCK
General. Admiralty is incorporated under the laws of the State of Delaware.
Therefore, the rights of holders of Admiralty's stock will be governed by the
Delaware General Corporation Law and the Company's Certificate of Incorporation.
Admiralty's Certificate of Incorporation provides for an authorized
capitalization of 7,000,000 shares of capital stock, consisting of 5,000,000
shares of Common Stock, in two classes, and 2,000,000 shares of preferred stock,
to be issued in series as determined by the Board of Directors.
CLASS B STOCK
As of June 30, 1998, there were 227,759 shares of Class B Stock
outstanding, after giving effect to the recent dividend declared on the Class A
Stock paid in shares of Class B Stock.
Dividend Rights. The holders of Admiralty's Class B Stock will be entitled
to dividends, when, as, and if declared by the Company's Board of Directors,
subject to any restrictions imposed by Delaware law, and subject to the
restriction that holders of the Class B Stock may not receive dividends if
Admiralty has not made the most recently required dividend payment on its Class
A Stock. The only statutory limitation applicable to Admiralty under Delaware
law is that dividends must be paid out of surplus or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared or out
of the preceding year's net profit. However, as a practical matter, unless
Admiralty expands its activities, its only source of income will be the Bank.
Therefore, the dividend restrictions applicable to the Bank described under the
heading "Supervision and Regulation" will continue to impact Admiralty's ability
to pay dividends.
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Voting Rights. Except as discussed under "Anti-Takeover Provisions", each
share of Admiralty's Class B Stock is entitled to one vote per share. Cumulative
voting is not permitted. The Class B Stock will vote with the Class A Stock as a
single class on all matters on which a vote is required or permitted. Under the
Company's Certificate of Incorporation, certain matters require an 80%
stockholder vote. See "Anti-Takeover Provisions".
Preemptive Rights. Under Delaware law, shareholders may have preemptive
rights if these rights are provided in the certificate of incorporation.
Admiralty's Certificate of Incorporation does not provide for preemptive rights.
Appraisal Rights. Under Delaware law, dissenting shareholders of Admiralty
have appraisal rights (subject to the broad exception set forth in the next
sentence) upon certain mergers or consolidations. Appraisal rights are not
available in any such transaction if shares of the corporation are listed for
trading on a national securities exchange or designated as a national market
system security on the NASDAQ system or held of record by more than 2,000
holders.
Directors. Under Delaware law and Admiralty's Certificate of Incorporation,
Admiralty is to have a minimum of 3 directors and a maximum of 25, with the
number of directors at any given time to be fixed by the Board of Directors.
Admiralty has ten (10) members of its Board of Directors.
CLASS A STOCK
Admiralty's Class A Stock has the same basic rights as the Class B Stock,
with the exceptions listed below. Therefore, the voting rights, preemptive
rights, and appraisal rights of the Class A Stock are the same as for the Class
B Stock. As of June 30, 1998, there were 888,881 shares of the Company's Class A
Stock outstanding. The following is a discussion of the additional rights of the
Class A Stock:
Dividends
The holders of the Class A Stock are entitled to receive annual Class A
Stock dividends equal to 10% of the stated value of a share of Class A Stock,
$10.00 per share. The dividend may be paid either in cash or in market value of
Class B Stock, at the discretion of Admiralty's Board of Directors. Dividends
may be paid semi-annually or otherwise as the Board may determine, and the form
of the dividend will be determined before each payment period. No dividends may
be paid on the Class B Stock if Admiralty has failed to pay the most recently
required dividend payment on the Class A Stock, in cash or in shares of Class B
Stock. After receipt of the required 10% dividend, the Class A Stock is not
legally entitled to share in any dividends paid upon the Class B Stock, although
the Board of Directors may permit such participation.
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Conversion Rights
Each share of Class A Stock is convertible, at the option of the holder,
into one share of Admiralty Class B Stock.
The conversion rate is subject to adjustment in the manner provided in
Admiralty's Certificate of Incorporation in the event of payment of certain
stock dividends, stock split-ups or combinations or other similar
recapitalizations. No adjustment in the conversion rate is required unless it
would result in at least a 1% increase or decrease in that rate; however, any
adjustment not made is carried forward.
In addition to the foregoing voluntary conversion rights, Admiralty will
have the right to require a holder of Class A Stock to convert the Class A Stock
into Class B Stock, at the rate of one share of Class B Stock for each share of
Class A Stock held, in the event that Admiralty Class B Stock trades at $15.00
or higher and does not trade below $15.00 for the next 20 consecutive trading
days. Upon the end of such 20 consecutive trading day period, Admiralty may
issue a notice of mandatory conversion requiring the conversion of shares of the
Class A Stock to Class B Stock within 20 days.
Voting Rights
The holders of Class A Stock have the same voting rights as the Class B
Stock. Both the Class A Stock and the Class B Stock will vote together as a
single class on all matters.
Liquidation Rights
The holders of Class A Stock are entitled to share rateably with the
holders of the Class B Stock in the available proceeds of any liquidation or
dissolution of Admiralty. The Class A Stock has no preference upon a liquidation
of the Company.
PREFERRED STOCK
Admiralty is authorized to issue up to 2,000,000 shares of preferred stock,
in one or more series, with such designations and such relative voting,
dividend, liquidation, conversion and other rights, preferences and limitations
as shall be set forth in resolutions providing for the issuance thereof adopted
by the Board of Directors.
WARRANTS
In connection with the recapitalization of the Company described under the
heading "Offering Summary -- Admiralty Bancorp, Inc.", the Company has issued
stock purchase warrants entitling the holders thereof to purchase 800,000 shares
of Class B Stock. In addition,
55
<PAGE>
to compensate directors of the Company for their time and efforts in organizing
the Company and consummating the Change in Control, the Board of Directors of
the Company awarded warrants to purchase 150,000 shares of Class B Common Stock
in the aggregate to members of the Board of Directors of the Company and, as
part of the consideration in the Change in Control, the Company issued warrants
to purchase 15,000 shares of Class B stock to the former majority shareholder of
WEFG. Therefore, there are currently outstanding warrants to purchase 965,000
shares of Class B Common Stock. Each warrant entitles the holder thereof to
purchase one share of Admiralty Class B Stock at a purchase price of $11.00 for
a period commencing on January 22, 1999 and ending on January 21, 2002 (the
"Expiration Date"), although the Expiration Date of the warrants is subject to
acceleration as provided below. Any warrant not exercised on or before the
Expiration Date shall expire and will not thereafter be exercisable. Warrant
holders do not have the rights and privileges of holders of Common Stock.
The Company has the right to accelerate the Expiration Date in the event
that (i) the Class B Stock is traded on a nationally recognized securities
exchange or the NASDAQ National or SmallCap Market, and (ii) the Class B Stock
has traded at $15.00 per share or above and has not traded below $15.00 per
share for 20 consecutive trading days. In the event these conditions are met,
the Company may, but is not obligated, to issue a notice of acceleration to each
warrant holder. Upon issuance of the notice, the warrants will expire 30 days
after the date of the notice. To the extent the Company issues the Notice of
Acceleration, it will be required to redeem each outstanding but unexercised
warrant for a price of $0.10 per warrant upon the expiration of the warrants.
TRANSFER AGENT AND WARRANT AGENT
Admiralty's transfer agent for its Common Stock and the Warrant Agent for
the warrants is Stocktrans, Inc. with offices at 7 East Lancaster Avenue,
Ardmore, Pennsylvania.
ANTI-TAKEOVER PROVISIONS
BANK REGULATORY REQUIREMENTS
Under the Federal Change in Bank Control Act (the "Control Act"), a 60 day
prior written notice must be submitted to the FRB if any person, or any group
acting in concert, seeks to acquire 10% or more of any class of outstanding
voting securities of a bank holding company, unless the FRB determines that the
acquisition will not result in a change of control. Under the Control Act, the
FRB has 60 days within which to act on such notice taking into consideration
certain factors, including the financial and managerial resources of the
acquirer, the convenience and needs of the community served by the bank holding
company and its subsidiary banks and the antitrust effects of the acquisition.
Under the BHCA, a company is generally required to obtain prior approval of the
FRB before it may obtain control of a bank holding company. Under the BHCA,
control is generally described to mean the beneficial ownership of 25% or more
of
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the outstanding voting securities of a company, although a presumption of
control may exist if a party beneficially owns 10% or more of the outstanding
voting securities of a company and certain other circumstances are present.
DELAWARE LAW
Certain provisions of Delaware law are designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquirer to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
for this purpose calculated without regard to those shares owned by the
corporation's directors who are also officers and by certain employee stock
plans; (iii) any business combination with an Interested Stockholder that is
approved by the Board of Directors and by a two-thirds vote of the outstanding
voting stock not owned by the Interested Stockholder; and (iv) certain business
combinations that are proposed after the corporation had received other
acquisition proposals and which are approved or not opposed by a majority of
certain continuing members of the Board of Directors. A corporation may exempt
itself from the requirements of the statute by adopting an amendment to its
Certificate of Incorporation or Bylaws electing not to be governed by Section
203. At the present time, the Board of Directors does not intend to propose any
such amendment.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors of the Company is divided into three classes, each of which shall
contain approximately one-third of the whole number of the members of the board.
Each class shall serve a staggered term, with
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approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to use its voting power to gain control of the Board of Directors without
the consent of the incumbent Board of Directors of the Company.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS
The Certificate of Incorporation requires the approval of the holders of at
least 80% of the Company's outstanding shares of voting stock to approve certain
"Business Combinations," as defined therein, and related transactions. Under
Delaware law, absent this provision, Business Combinations, including mergers,
consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any Business Combination except in cases where the proposed transaction has
been approved in advance by a majority of the Company's Board of Directors. This
provisions of the Certificate of Incorporation applies to any "Business
Combination," which is defined to include (i) any merger or consolidation of the
Company or any of its subsidiaries with or into any other person; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
other person of substantially all of the assets of the Company or combined
assets of the Company and its subsidiary, or (iii) any offer for the exchange of
securities of another entry for the securities of the Company.
EVALUATION OF OFFERS
The Certificate of Incorporation of the Company further provides that the
Board of Directors of the Company, when evaluating any offer of another "Person"
(as defined therein), to (i) make a tender or exchange offer for any equity
security of the Company, (ii) merge or consolidate the Company with another
corporation or entity, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company, the Bank and the stockholders of the Company, give due
consideration (to the extent permitted by law) to all relevant factors,
including, without limitation, the social and economic effects of acceptance of
such offer on the Company's customers and the Bank's present and future account
holders, borrowers and employees; on the communities in which the Company and
the Bank operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a
58
<PAGE>
bank holding company and on the ability of the Bank to fulfill the objectives of
a state chartered stock bank under applicable statutes and regulations. By
having these standards in the Certificate of Incorporation of the Company, the
Board of Directors may be in a stronger position to oppose such a transaction if
the board concludes that the transaction would not be in the best interest of
the Company, even if the price offered is significantly greater than the then
market price of any equity security of the Company.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Amendments to the Company's Certificate of Incorporation must be approved
by a majority vote of its Board of Directors and also by a majority of the
outstanding shares of its voting stock, provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights and the provisions relating to approval of
certain Business Combinations.
CERTAIN BYLAW PROVISIONS
The Bylaws of the Company also require a stockholder who intends to
nominate a candidate for election to the Board of Directors to give at least 90
days advance notice in writing to the Secretary of the Company. The notice
provision requires a stockholder wishing to nominate any person or election as a
director provide the Company with certain information concerning the nominee and
the proposing stockholder.
REGULATION AND SUPERVISION
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of Admiralty and the Bank. See "Risk Factors--Supervision and
Regulation."
BANK HOLDING COMPANY REGULATION
General. As a bank holding company registered under the BHCA, Admiralty is
subject to the regulation and supervision of the FRB. Admiralty is required to
file with the FRB annual
59
<PAGE>
reports and other information regarding its business operations and those of its
subsidiaries. Under the BHCA, Admiralty's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of any other bank, (ii) acquire direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares) or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti- competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served. The FRB also considers capital adequacy and
other financial and managerial resources and future prospects of the companies
and the banks concerned, together with the convenience and needs of the
community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries, unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-bank subsidiary upon the FRB's determination that such activity
or control constitutes a serious risk to the financial soundness and stability
of any bank subsidiary of the bank holding company.
60
<PAGE>
Capital Adequacy Guidelines for Bank Holding Companies. In January 1989,
the FRB adopted risk-based capital guidelines for bank holding companies. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in consolidated assets, the guidelines
will be applied on a bank-only basis unless: (a) the parent bank holding company
is engaged in nonbank activity involving significant leverage; or (b) the parent
company has a significant amount of outstanding debt that is held by the general
public.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is required to be "Tier I Capital," consisting
of common stockholders' equity and qualifying preferred stock, less certain
goodwill items and other intangible assets. The remainder ("Tier II Capital")
may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted
assets, (b) non-qualifying preferred stock, (c) hybrid capital instruments, (d)
perpetual debt, (e) mandatory convertible securities, and (f) qualifying
subordinated debt and intermediate-term preferred stock up to 50% of Tier I
capital. Total capital is the sum of Tier I and Tier II capital less reciprocal
holdings of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as determined by the FRB
(determined on a case by case basis or as a matter of policy after formal
rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighing. Most investment securities (including, primarily,
general obligation claims of states or other political subdivisions of the
United States) are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S.
Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations are given a 100% risk-weighing. Transaction
related contingencies such as bid bonds, standby letters of credit backing
nonfinancial obligations, and undrawn commitments
61
<PAGE>
(including commercial credit lines with an initial maturity or more than one
year) have a 50% risk-weighing. Short term commercial letters of credit have a
20% risk-weighing and certain short-term unconditionally cancelable commitments
have a 0% risk-weighing.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
BANK REGULATION
As a Florida chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the Department. As a member of the
Federal Reserve System, the Bank is subject to regulation, supervision and
control of the Board of Governors of the Federal Reserve System. As an
FDIC-insured institution, the Bank is subject to regulation, supervision and
control of the FDIC, an agency of the federal government. The regulations of the
Federal Reserve, the FDIC and the Department impact virtually all activities of
the Bank, including the minimum level of capital the Bank must maintain, the
ability of the Bank to pay dividends, the ability of the Bank to expand through
new branches or acquisitions and various other matters.
Insurance of Deposits. The deposits of the Bank are insured up to
applicable limits by the Bank Insurance Fund ("BIF") of the FDIC. Accordingly,
the Bank is subject to deposit insurance assessments to maintain the BIF. Under
the FDIC's insurance premium assessment system, each institution is assigned to
one of nine assessment risk classifications based on its capital ratios and
supervisory evaluations. The lowest risk institutions do not pay any insurance
premium, while the highest risk institutions pay a premium assessed at the rate
of .27% of domestic deposits. Each institution's classification under the system
is re-examined semiannually. In addition, the FDIC is authorized to increase or
decrease such rates on a semiannual basis. In addition to insurance premium
assessments, under the Deposit Insurance Funds Act of 1996 (the "Deposit Act"),
commercial banks like the Bank are required for the first time to pay a portion
of the interest and principal owed on bonds issued by the Federal Financing
Corporation ("FICO") to assist the thrift bailout in the mid-1980's. BIF insured
commercial banks like the Bank are assessed 1.3 basis points of their assessed
deposits in satisfaction of this FICO payment, in addition to deposit insurance
premiums. The Deposit Act also calls for the federal banking agencies to study
the various financial institution charters and propose a single standard federal
charter, thereby doing away with the separate bank and thrift charters. If a
single charter is adopted, the BIF and the Savings Association Insurance Fund
("SAIF") will be merged on January 1, 1999, and both BIF and SAIF insured
institutions will share the FICO payment obligations on a pro rata basis.
Management of the Bank is not able to predict at this time whether the federal
regulators will adopt a unified charter nor to predict the impact of any
proposed change upon the Bank.
62
<PAGE>
Dividend Rights. Pursuant to the provisions of the Florida Banking Code, a
Florida state chartered bank may quarterly, semi-annually or annually declare a
dividend out of the bank's net profits for the dividend period and retained net
profits from the preceding two years. In addition, with the approval of the
Florida Department of Banking and Finance, a bank may declare a dividend from
retained profits which have accrued in periods prior to the preceding two years,
provided that in this circumstance the bank must make an addition to its surplus
fund equal to at least 20% of its net profits from the preceding period. No
Florida state chartered bank may declare a dividend if it has incurred a loss
for its current period plus the two preceding years, or which would cause the
capital account of the bank to fall below the minimum amount required by law or
regulation.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Company and the Underwriter, the
Company has agreed to sell to the Underwriter named below (the "Underwriter")
and the Underwriter has agreed to purchase from the Company, the number of
shares of Class B Stock set forth below opposite their respective names. The
Underwriter is committed to purchase all of such shares if any are purchased.
Under certain circumstances, the Underwriting Agreement provides that the
purchase commitments of a non-defaulting Underwriter may be increased to include
the purchase commitment of a defaulting Underwriter.
Number
Underwriters of Shares
------------ ---------
First Colonial Securities Group, Inc. ............
---------
Total ................................ 1,100,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class B Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriter has advised the Company that it proposed to initially offer
the shares of Class B Stock to the public at the Price to Public set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $_______ per share of Class B Stock. The Underwriter
may allow, and such dealers may re-allow, a discount not in excess of
$____________ per share of Class B Stock on sales to certain other dealers.
After the initial public offering, the Price to Public, concession and discount
may be changed.
63
<PAGE>
The Company has granted the Underwriter an option, exercisable for 45 days
after the effective date of the Registration Statement of which the Prospectus
forms a part, to purchase up to an additional 165,000 shares of Class B Stock to
cover over-allotments, if any, at the initial Price to Public, less the
underwriting discount, shown on the cover page of this Prospectus. To the extent
the Underwriter exercises such option, the Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof as the number of shares of Class B Stock to be purchased by
it as shown in the foregoing table bears to 1,100,000 shares of Class B Stock.
The Company and the Underwriter have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including certain
liabilities under the Securities Act, and to contribute to payments that each
may be required to make in respect thereof.
Prior to this Offering, there has been no public market for any securities
of the Company. Consequently, the Price to Public set forth on the cover page of
this Prospectus have been determined by negotiations between the Company and the
Underwriter. The factors considered in such negotiations included prevailing
market conditions, the future prospects of the Company, the banking industry in
general, the Bank's recent financial performance and its position in the banking
industry, the market valuation of publicly traded companies believed to be
comparable to the Company, the demand for similar securities and other factors
deemed relevant.
In connection with the Offering and in compliance with applicable law, the
Underwriter may over-allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participants which appear above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the Class B Stock at levels above those which might otherwise prevail
in the open market. Such transactions may include placing bids for the Class B
Stock or effecting purchases of Class B Stock for the purpose of pegging, fixing
or maintaining the price of Class B Stock for the purpose of reducing a short
position created in connection with the Offering. A short position may be
covered by exercise of the option described above in lieu of or in addition to
open market purchases. In addition, if the Underwriter purchases Class B Stock
in the open market for the account of the Underwriter and the securities
purchased can be traced to a member of the selling group, the Underwriter may
require the Underwriter or selling group member in question to purchase the
Class B Stock in question at the cost price to the Underwriter or may recover
from (or decline to pay to) the selling group member in question the selling
concession applicable to the securities in question. The Underwriter is not
required to engage in any of these activities, and any such activities, if
commenced, may be discontinued at any time.
Michael E. Golden, a Director of the Company, is the principal stockholder
and Chief Executive Officer of First Colonial Securities Group, Inc. First
Colonial Securities Group, Inc., is acting as the Underwriter.
LEGAL MATTERS
The validity of the shares of Class B Stock offered hereby will be passed
upon for the Company by Jamieson, Moore, Peskin & Spicer, P.C., Morristown, New
Jersey. Certain legal matters will be passed upon the Underwriters by Greenberg
Traurig, P.A., West Palm Beach, Florida.
EXPERTS
The financial statements for Admiralty Bancorp, Inc. as of December 31,
1997 and for the period August 11, 1997 (the date of inception) through December
31, 1997 have been included herein in reliance upon the report of Grant Thornton
LLP, Philadelphia, Pennsylvania, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
64
<PAGE>
The consolidated financial statements of White Eagle Financial Group, Inc.
(predecessor company) as of and for the years ended December 31, 1997 and 1996,
have been included herein in reliance upon the report of Grant Thornton LLP,
West Palm Beach, Florida, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Class B Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
promulgated thereunder. For further information with respect to the Company and
the shares of Class B Stock, reference is made to the Registration Statement and
the exhibits and schedules attached thereto. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office in Washington, D.C. The Commission also maintains a
Website that contains copies of such material. The address of the Commission's
Website is (http://www.sec.gov). Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by such reference.
In connection with the Offering, the Company will become subject to the
informational requirements of Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and in accordance therewith, will file
reports and other information with the Commission. Such reports and other
information can be inspected without charge and copied at prescribed rates at
the public reference facilities maintained by the SEC at Room 1024 Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at its regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300 New York, NY 10048. Copies of such
material can also be obtained at prescribed rates from the SEC's Public
Reference Section, 450 Fifth Street, N.W., Washington, DC 20549 and its public
reference facilities in Chicago, Illinois and New York, New York.
65
<PAGE>
C O N T E N T S
Page
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY F-4
CONSOLIDATED STATEMENTS OF INCOME - ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY F-5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY - ADMIRALTY BANCORP, INC. AND SUBSIDIARY F-6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY - PREDECESSOR COMPANY F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS - ADMIRALTY BANCORP,
INC. AND SUBSIDIARY AND PREDECESSOR COMPANY F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ADMIRALTY
BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY F-9
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Admiralty Bancorp, Inc.
We have audited the accompanying balance sheet of Admiralty Bancorp, Inc.
and Subsidiary as of December 31, 1997, and the related statements of income,
changes in stockholders' equity and cash flows for the period August 11, 1997
(date of inception), through December 31, 1997. These financial statements are
the responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Admiralty
Bancorp, Inc. and Subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the period
August 11, 1997 (date of inception), through December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
July 21, 1998
F-2
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
White Eagle Financial Group, Inc.
We have audited the accompanying consolidated balance sheet of White Eagle
Financial Group, Inc. and Subsidiary (Predecessor Company) as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of White Eagle
Financial Group, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
West Palm Beach, Florida
March 13, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
Admiralty Bancorp, Inc. | Predecessor Company
and Subsidiary | --------------------------
------------------------ | December 31,
June 30, December 31, | --------------------------
ASSETS 1998 1997 | 1997 1996
----------- ----------- | ----------- -----------
(unaudited) |
<S> <C> <C> <C> <C>
Cash and cash equivalents |
Cash and due from banks $ 3,595,250 $ 7,845,550 | $ 1,974,169 $ 3,490,056
Federal funds sold 2,908,000 -- | 100,000 1,187,000
----------- ----------- | ----------- -----------
Total cash and cash equivalents 6,503,250 7,845,550 | 2,074,169 4,677,056
Investment securities available for sale, at fair |
market value 13,398,326 -- | 3,619,550 8,983,268
Investment securities held to maturity, at cost |
(fair market value of $16,606,373 and |
$8,471,798 at December 31, 1997 |
and 1996, respectively) -- -- | 16,560,956 8,477,912
Loans held for sale 349,461 -- | 994,182 825,998
Loans, net 23,734,616 -- | 22,853,777 18,228,498
Accrued interest receivable 230,827 36,781 | 308,210 252,119
Federal Reserve Bank and FHLB stock 282,300 -- | 127,300 100,850
Premises and equipment, net 561,764 -- | 631,208 801,804
Deferred tax asset 438,600 -- | 438,600 --
Goodwill 3,641,614 -- | -- --
Other assets 1,134,469 162,526 | 597,829 1,087,769
----------- ----------- | ----------- -----------
Total assets $50,495,227 $ 8,044,857 | $48,205,781 $43,435,274
=========== =========== | =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
Liabilities |
Deposits $40,811,408 $ -- | $42,776,197 $39,820,158
Accrued interest payable 44,811 -- | 57,405 55,358
Due under purchase contract 630,848 -- | -- --
Other liabilities 357,027 40,356 | 750,646 259,868
----------- ----------- | ----------- -----------
Total liabilities 41,844,094 40,356 | 43,584,248 40,135,384
----------- ----------- | ----------- -----------
Minority interest 384,182 -- | 376,049 323,385
----------- ----------- | ----------- -----------
Stockholders' equity |
Preferred stock, no par value, 2,000,000 shares |
authorized, no shares issued or outstanding -- -- | -- --
Common stock, $0.01 par value, 325,000 shares |
authorized, 323,533 shares issued and outstanding |
in 1997 and 1996 -- -- | 3,235 3,235
Common stock, Class A, no par value, 1,000,000 shares |
authorized, 888,881 shares issued and outstanding at |
December 31, 1997 and June 30, 1998 7,556,014 8,060,440 | -- --
Common stock, Class B, no par value, 4,000,000 shares |
authorized, 227,759 and 177,759 shares issued and |
outstanding at June 30, 1998 and December 31, 1997 |
respectively 1,033,950 89,560 | -- --
Subscriptions receivable -- (205,000) |
Additional paid-in capital -- -- | 3,138,345 3,138,345
Retained earnings (accumulated deficit) (275,455) 59,501 | 1,096,280 (167,649)
Net unrealized (loss) gain on securities available |
for sale (47,558) -- | 7,624 2,574
----------- ----------- | ----------- -----------
Total stockholders' equity 8,266,951 8,004,501 | 4,245,484 2,976,505
----------- ----------- | ----------- -----------
Total liabilities and stockholders' equity $50,495,227 $ 8,044,857 | $48,205,781 $43,435,274
=========== =========== | =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Admiralty Bancorp, Inc. |
and Subsidiary | Predecessor Company
---------------------------- | --------------------------------------
For the period | For the period
August 11, 1997 | January 1,
Six months (date of inception)| 1998 Six months
ended through | through ended Years ended December 31,
June 30, December 31, | January 21, June 30, ------------------------
1998 1997 | 1998 1997 1997 1996
-------- --------- | --------- -------- ---------- ----------
(unaudited) | (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest income |
Loans $1,242,813 $ -- | $ 165,733 $1,135,988 $2,328,764 $2,039,918
Securities 473,288 84,445 | 68,133 569,138 1,179,503 1,226,398
Federal funds sold 42,829 -- | 388 77,801 121,800 30,830
Other -- -- | -- -- -- --
---------- --------- | --------- ---------- ---------- ----------
Total interest income 1,758,930 84,445 | 234,254 1,782,927 3,630,067 3,297,146
---------- --------- | --------- ---------- ---------- ----------
Interest expense |
Deposits 473,964 -- | 71,006 590,761 1,191,951 1,105,375
Borrowings 10,268 7,938 | 5,034 -- 4,783 28,818
---------- --------- | --------- ---------- ---------- ----------
Total interest expense 484,232 7,938 | 76,040 590,761 1,196,734 1,134,193
---------- --------- | --------- ---------- ---------- ----------
Net interest income 1,274,698 76,507 | 158,214 1,192,166 2,433,333 2,162,953
Provision for loan losses 55,000 -- | -- 287,260 435,000 297,000
---------- --------- | --------- ---------- ---------- ----------
Net interest income after |
Provision for loan losses 1,219,698 76,507 | 158,214 904,906 1,998,333 1,865,953
---------- --------- | --------- ---------- ---------- ----------
Non-interest income |
Service charges and fees 134,883 -- | 13,169 324,651 621,579 633,747
Net gain (loss) on sale of |
securities (39,349) -- | -- 86,712 86,712 437,138
Gain on sale of loans 201,581 -- | -- 489,341 974,571 572,276
Other income 8,050 -- | 8,906 39,329 45,247 146,759
---------- --------- | --------- ---------- ---------- ----------
Total non-interest income 305,165 -- | 22,075 940,033 1,728,109 1,789,920
---------- --------- | --------- ---------- ---------- ----------
Non-interest expense |
Salaries and employee benefits 435,326 -- | 38,792 444,544 903,625 920,172
Occupancy 174,877 -- | 29,699 204,129 403,260 381,953
Furniture and equipment 98,996 -- | 10,828 121,255 215,228 218,719
Amortization of goodwill 64,167 -- | -- -- -- --
Other expense 543,491 1,650 | 51,784 591,837 1,175,736 1,419,092
---------- --------- | --------- ---------- ---------- ----------
Total non-interest expense 1,316,857 1,650 | 131,103 1,361,765 2,697,849 2,939,936
---------- --------- | --------- ---------- ---------- ----------
Income before income tax |
(benefit) expense and |
minority interest 208,006 74,857 | 49,186 483,174 1,028,593 715,937
Income tax (benefit) expense 92,500 15,356 | -- (67,000) (288,000) 15,000
---------- --------- | --------- ---------- ---------- ----------
Income before minority
interest 115,506 59,501 | 49,186 550,174 1,316,593 700,937
Minority interest (6,072) -- | (2,020) (22,477) (52,664) (28,037)
---------- --------- | --------- ---------- ---------- ----------
Net income $ 109,434 $ 59,501 | $ 47,166 $ 527,697 $1,263,929 $ 672,900
========== ========= | ========= ========== ========== ==========
Per share data |
Net income per share - basic |
and diluted $ 0.10 $ 0.20 |
========== --------- |
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Stock unrealized gain Total
Preferred subscription Common stock Retained on securities stockholders'
stock receivable Class A Class B earnings available for sale equity
------ ---------- ---------- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 11, 1997 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock -- (205,000) 8,060,440 89,560 -- -- 7,945,000
Net income for the period -- -- -- 59,501 -- 59,501
Comprehensive Income,
December 31, 1997 -- -- -- -- -- -- --
------ --------- ---------- ---------- --------- -------- ----------
Balance, December 31, 1997 -- (205,000) 8,060,440 89,560 59,501 -- 8,004,501
Issuance of common stock -- -- -- 500,000 -- -- 500,000
Cost of issuance of common
stock -- -- (504,426) -- -- -- (504,426)
Collection of subscription
receivable -- 205,000 -- -- -- -- 205,000
Net income for the six
months ended June 30, 1998 -- -- -- -- 109,434 -- 109,434
Change in net unrealized
gain on securities
available for sale -- -- -- -- -- (47,558) (47,558)
Comprehensive Income,
June 30, 1998 -- -- -- -- -- -- --
Class A common stock
dividend -- -- -- 444,390 (444,390) -- --
------ --------- ---------- ---------- --------- -------- ----------
Balance, June 30, 1998
(unaudited) $ -- $ -- $7,556,014 $1,033,950 $(275,455) $(47,558) $8,266,951
====== ========= ========== ========== ========= ======== ==========
<CAPTION>
Other
Comprehensive
Income
--------------
<S> <C>
Balance, August 11, 1997 $ --
Issuance of common
stock --
Net income for the period 59,501
-------
Comprehensive Income,
December 31, 1997 $59,501
=======
Balance, December 31, 1997 --
Issuance of common stock --
Cost of issuance of common
stock --
Collection of subscription
receivable --
Net income for the six
months ended June 30, 1998 109,434
Change in net unrealized
gain on securities
available for sale (47,558)
-------
Comprehensive Income,
June 30, 1998 $61,876
=======
Class A common stock
dividend
Balance, June 30, 1998
(unaudited)
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Retained Net
Additional earnings unrealized gain Total
Common paid-in (accumulated on securities stockholders'
stock capital deficit) available for sale equity
------- ----------- ----------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 3,235 $ 3,138,345 $ (840,549) $38,908 $2,339,939
Net income -- -- 672,900 -- 672,900
Change in net unrealized loss on
securities available for sale -- -- -- (36,334) (36,334)
Comprehensive income,
December 31, 1996 -- -- -- -- --
------- ----------- ----------- ------- ----------
Balance, December 31, 1996 3,235 3,138,345 (167,649) 2,574 2,976,505
Net income -- -- 1,263,929 -- 1,263,929
Change in net unrealized gain on
securities available for sale -- -- -- 5,050 5,050
------- ----------- ----------- ------- ----------
Comprehensive income,
December 31, 1997 -- -- -- -- --
Balance, December 31, 1997 $ 3,235 $ 3,138,345 $ 1,096,280 $ 7,624 $4,245,484
======= =========== =========== ======= ==========
</TABLE>
Other
Comprehensive
Income
-------------
Balance, January 1, 1996 $ --
Net income 672,900
Change in net unrealized loss on
securities available for sale 20,895
----------
Comprehensive income,
December 31, 1996 $ 693,795
==========
Balance, December 31, 1996 --
Net income 1,263,929
Change in net unrealized gain on
securities available for sale 293,561
----------
Comprehensive income,
December 31, 1997 $1,557,490
==========
Balance, December 31, 1997
Disclosure of reclassification amount:
December December
31, 1997 31, 1996
-------- --------
Unrealized holding gain/arising during period ...... $ 293,561 $ 20,895
Reclassification adjustment for gain, net of tax ... (288,511) (57,229)
--------- --------
$ 5,050 $(36,334)
========= ========
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Admiralty Bancorp, Inc. |
and Subsidiary | Predecessor Company
------------------------------ | -----------------------------------------
For the period |
August 11, 1997 |
Six months (date of inception)| Six months
ended through | ended Years ended December 31,
June 30, December 31, | June 30, -------------------------
1998 1997 | 1997 1997 1996
----------- ------------ | ----------- ----------- ----------
(unaudited) | (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities |
Net income $ 109,434 $ 59,501 | $ 527,697 $ 1,285,329 $ 672,900
Adjustments to reconcile net income to net cash |
provided by (used in) operating activities |
Minority interest in net income 6,072 -- | 22,477 54,488 28,037
Provision for loan losses 55,000 -- | 287,260 435,000 297,000
Depreciation and amortization 166,415 -- | 100,693 243,806 202,105
Gain (Loss) on sale of securities 39,349 -- | (86,712) (86,712) (437,138)
Gains on sales of mortgage loans (201,581) -- | (489,341) (1,011,795) (572,276)
Decrease (increase) in other assets (479,469) (199,307) | 605,852 368,047 (593,588)
Increase in deferred tax asset -- -- | (67,000) (438,600) --
Increase in other liabilities (618,216) 40,356 | 54,353 506,825 12,645
----------- ------------ | ----------- ----------- ----------
Net cash provided by (used in) |
operating activities (922,996) (99,450) | 955,279 1,356,388 (390,315)
----------- ------------ | ----------- ----------- ----------
Investing activities |
Proceeds from maturities of investment |
securities available for sale 3,123,770 -- | -- -- --
Purchases of investment securities available |
for sale -- -- | (4,901,851) (12,159,399) (15,577,737)
Proceeds from sales of investment securities |
available for sale 2,929,000 -- | 1,800,000 9,531,835 9,474,406
Purchase of Federal Reserve Bank stock (155,000) -- | (10,950) (26,450) (6,700)
Net loan originations and principal collections |
on loans (12,684,310) -- | (5,024,886) (10,945,330) (15,276)
Proceeds from mortgage loan sales 12,875,657 -- | 6,728,662 6,728,662 6,026,196
Proceeds from sale of other real estate owned -- -- | -- -- 232,432
Purchase of premises and equipment (44,511) -- | -- (44,632) (60,431)
Payment for purchase of Company, net of |
cash acquired (2,881,831) -- | -- -- --
----------- ------------ | ----------- ----------- ----------
Net cash (used in) provided by |
investing activities 3,162,775 -- | (1,409,025) (6,915,314) 72,890
----------- ------------ | ----------- ----------- ----------
Financing activities |
Net increase in deposits 1,299,341 -- | (181,506) 2,956,039 3,648,363
Net decrease in securities sold under |
agreements to repurchase and other |
borrowings (4,582,000) -- | -- -- (570,000)
Collection of subscription receivable 205,000 -- | -- -- --
Proceeds from issuance of common stock, |
Net of costs (504,420) 7,945,000 | -- -- --
----------- ------------ | ----------- ----------- ----------
Net cash (used in) provided by |
financing activities (3,582,079) 7,945,000 | (181,506) 2,956,039 3,078,363
----------- ------------ | ----------- ----------- ----------
Net (decrease) increase in cash and cash |
equivalents (1,342,300) 7,845,550 | (635,252) (2,602,887) 2,760,938
Cash and cash equivalents, beginning of period 7,845,550 -- | 4,677,056 4,677,056 1,916,118
----------- ------------ | ----------- ----------- ----------
Cash and cash equivalents, end of period $ 6,503,250 $7,845,550 | $ 4,041,804 $ 2,074,169 $ 4,677,056
=========== ========== | =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Admiralty Bancorp, Inc. (formerly White Eagle Financial Group, Inc.), is a
bank holding company incorporated in the state of Delaware. The consolidated
financial statements include the accounts of Admiralty Bancorp, Inc. "the
Parent", and its 96% owned subsidiary, Admiralty Bank "the Bank",
collectively referred to as "the Company". The Bank is a state-chartered
independent community bank with its main office in Palm Beach Gardens,
Florida, and branches in Juno Beach and Jupiter.
The Bank operates as a commercial bank offering a wide variety of commercial
loans and, to a lesser degree, consumer credits. The Bank originates small
business loans which are partially guaranteed by the Small Business
Administration. The Bank sells the guaranteed portion to unrelated third
parties at a premium. The Bank continues to service these loans. Its primary
future strategic aim is to establish a reputation and market presence as the
"small and middle market business bank" in its principal market. The Bank
funds its loans primarily by offering time, savings and money market, and
demand deposit accounts to both commercial enterprises and individuals.
Additionally, the Bank originates residential mortgage loans. Principal
markets include South Florida.
The Bank competes with other banking and financial institutions in its
primary markets. Commercial banks, savings banks, savings and loan
associations, mortgage bankers and brokers, credit unions and money market
funds actively compete for deposits and loans. Such institutions, as well as
consumer finance, mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of the Bank with
respect to one or more of the services it renders.
The Bank is subject to regulations of certain state and federal agencies
and, accordingly, it is periodically examined by those regulatory
authorities. As a consequence of the extensive regulation of commercial
banking activities, the Bank's business is particularly susceptible to being
affected by state and federal legislation and regulations.
Basis of financial statement presentation
The accounting policies of the Parent and the Bank conform with generally
accepted accounting principles and predominant practices within the banking
industry. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. These estimates and assumptions also affect
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates
implicit in these financial statements are as follows.
(Continued)
F-9
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
The consolidated financial statements as of June 30, 1998, and for the six
months ended June 30, 1998 and 1997, are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations have been included. The results of operations for the six months
ended June 30, 1998 and 1997, are not necessarily indicative of the results
that may be attained for an entire year.
The principal estimate that is particularly susceptible to significant
change in the near term relates to the allowance for loan losses. The
evaluation of the adequacy of the allowance for loan losses includes, among
other factors, an analysis of historical loss rates, by category, applied to
current loan totals. However, actual losses may be higher or lower than
historical trends, which vary. Actual losses on specified problem loans,
which also are provided for in the evaluation, may vary from estimated loss
percentages, which are established based upon a limited number of potential
loss classifications.
The Company adopted the Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which is effective for periods beginning after
December 15, 1997. This new standard requires entities presenting a complete
set of financial statements to include details of comprehensive income.
Comprehensive income consists of net income or loss for the current period
and income, expenses, gains and losses that bypass the income statement and
are reported directly in a separate component of equity. The adoption of
SFAS No. 130 did not have a material effect on the presentation of the
Bank's financial position or results of operations.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which is effective for all periods beginning after
December 15, 1997. SFAS No. 131 requires that public business enterprises
report certain information about operating segments in complete sets of
financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public
business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major
customers. The adoption of SFAS No. 131 will not have a material effect on
the presentation of the Bank's financial position or results of operations.
(Continued)
F-10
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Investment securities
The Bank accounts for its investment securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
This standard requires investments in securities to be classified in one of
three categories: held to maturity, trading or available for sale.
Investments in debt securities, for which management has both the ability
and intent to hold to maturity, are carried at cost, adjusted for the
amortization of premiums and accretion of discounts computed by the interest
method. Investments in debt securities, which management believes may be
sold prior to maturity due to changes in interest rates, prepayment risk and
equity, liquidity requirements or other factors, are classified as available
for sale. Net unrealized gains and losses for such securities, net of tax
effect, are required to be recognized as a separate component of
shareholders' equity and excluded from the determination of net income. The
Bank does not engage in security trading. Security transactions are
accounted for on a trade date basis. Gains or losses on disposition of
investment securities are based on the net proceeds and the adjusted
carrying amount of the securities sold using the specific identification
method.
Loans and allowance for loan losses
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid
principal and are net of unearned discount, unearned loan fees and an
allowance for loan losses. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loan principal
considered to be uncollectible by management is charged against the
allowance for loan losses. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that
may become uncollectible based upon an evaluation of known and inherent
risks in the loan portfolio. The evaluation takes into consideration such
factors as changes in the nature and size of the loan portfolio, overall
portfolio quality, specific problem loans, and current and future economic
conditions which may affect the borrowers' ability to pay. The evaluation
details historical losses by loan category, the resulting loss rates for
which are projected at current loan total amounts. Loss estimates for
specified problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis. Accrual of
interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful. When a loan is placed on such non-accrual status, all accumulated
accrued interest receivable, applicable to periods prior to the current
year, is charged off to the allowance for loan losses. Interest which had
accrued in the current year is reversed out of current period income. Loans
90 days or more past due and still accruing interest must have both
principal and accruing interest adequately secured and must be in the
process of collection.
(Continued)
F-11
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
The Bank accounts for its impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." This standard requires that a creditor measure impairment
based on the present value of expected future cash flows discounted at the
loan's effective interest rate, except that as a practical expedient, a
creditor may measure impairment based on a loan's observable market price,
or the fair value of the collateral if the loan is collateral-dependent.
Regardless of the measurement method, a creditor must measure impairment
based on the fair value of the collateral when the creditor determines that
foreclosure is probable.
Bank premises and equipment
Bank premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation. Depreciation expense is computed on the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Other real estate owned
Other real estate owned, included in other assets, representing property
acquired through foreclosure, is carried at the lower of the principal
balance of the secured loan or fair value less estimated disposal costs of
the acquired property. Costs relating to holding the assets are charged to
expense.
Mortgage servicing
The Bank performs various servicing functions on loans owned by others. A
fee, usually based on a percentage of the outstanding principal balance of
the loan, is received for these services. At June 30, 1998, December 31,
1997 and 1996, the Bank was servicing approximately $17,416,000, $17,900,000
and $12,500,000, respectively, of loans for others.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provision of SFAS No. 125,"
which provides accounting guidance on transfers of financial assets,
servicing of financial assets and extinguishments of liabilities. This
statement is effective for transfers of financial assets, servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. The Bank originates mortgages under a definitive plan to sell or
securitize those loans and allocates the cost of the loans to originated
mortgage servicing rights and the loans based on relative fair values at the
date of origination. Adoption of this new statement did not have a material
impact on the Bank's financial position or results of operations.
(Continued)
F-12
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Long-lived assets
The Bank adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," for the year ended
December 31, 1996, which provides guidance on when to recognize and how to
measure impairment losses of long-lived assets and certain identifiable
intangibles and how to value long-lived assets to be disposed of. The
adoption of this new statement did not have a material impact on the Bank's
financial position or results of operations.
Mortgages held for sale
Mortgages held for sale are recorded at cost, which approximates market.
These mortgages are typically sold within three months of origination
without recourse to the Bank. Gain on the sales of residential mortgages is
recognized at the time of sale, and substantially all such gains result from
the recognition of previously deferred fees collected upon the origination
of such loans.
Restrictions on cash and due from banks
The Bank is required to maintain reserves against customer demand deposits
by keeping cash on hand or balances with the Federal Reserve Bank in a
non-interest bearing account. The amounts of those reserves and cash
balances at December 31, 1997 and 1996, were approximately $291,000 and
$192,000, respectively.
Earnings per common share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share,"
which eliminates primary and fully diluted earnings per share (EPS) and
requires presentation of basic and diluted EPS in conjunction with the
disclosure of the methodology used in computing such EPS. Basic EPS excludes
dilution and is computed by dividing income available to common shareholders
by the weighted average common shares outstanding during the period. Diluted
EPS takes into account the potential dilution that could occur if securities
or other contracts to issue common stock were exercised and converted into
common stock. Prior period EPS calculations for the three months ended March
31, 1998, and the period August 11, 1997 (date of inception), through
December 31, 1997, have been restated to reflect the adoption of SFAS No.
128. EPS for the predecessor company has not been presented because the
presentation is not meaningful.
Advertising costs
The Bank expenses advertising costs as incurred.
(Continued)
F-13
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Statement of cash flows
Cash and cash equivalents are defined as cash on hand, cash items in the
process of collection, amounts due from banks and federal funds sold with an
original maturity of three months or less. Cash paid for income taxes
for the six months ended June 30, 1998 and 1997, was approximately $160,000
and $25,000, respectively. No cash was paid for income taxes for the years
ended December 31, 1997 and 1996. Cash paid for interest was approximately
$545,000 and $591,000 for the six months ended June 30, 1998 and 1997,
respectively, and $1,195,000 and $1,176,000 for the years ended December 31,
1997 and 1996, respectively.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
NOTE B - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
value of the Bank's available for sale and held to maturity securities are
summarized as follows:
June 30, 1998
------------------------------------------------
(unaudited)
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----- -------- -----------
Available for sale
U.S. Government securities $ 3,500,000 $ -- $ (7,500) $ 3,492,500
Mortgage-backed securities 9,960,829 309 (69,062) 9,892,076
Other 13,750 -- -- 13,750
----------- ----- -------- -----------
Total available for
sale securities $13,474,579 $ 309 $(76,562) $13,398,326
=========== ===== ======== ===========
(Continued)
F-14
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE B - INVESTMENT SECURITIES - Continued
December 31, 1997
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities $ 3,607,351 $ 16,394 $ (4,195) $ 3,619,550
=========== ======== ========= ===========
Held to maturity
Mortgage-backed securities $16,059,516 $ 73,285 $ (27,834) $16,104,967
U.S. Government securities 501,440 -- (34) 501,406
----------- -------- --------- -----------
Total held to maturity
securities $16,560,956 $ 73,285 $ (27,868) $16,606,373
=========== ======== ========= ===========
December 31, 1996
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities $ 8,979,148 $ 57,274 $ (53,154) $ 8,983,268
=========== ======== ========= ===========
Held to maturity
Mortgage-backed securities $ 7,977,912 $ 54,476 $ (40,590) $ 7,991,798
U.S. Government securities 500,000 -- (20,000) 480,000
----------- -------- --------- -----------
Total held to maturity
securities $ 8,477,912 $ 54,476 $ (60,590) $ 8,471,798
=========== ======== ========= ===========
</TABLE>
The following table lists maturities of investment securities at June 30,
1998 classified as available for sale:
<TABLE>
<CAPTION>
Available for sale
-----------------------------
Estimated
Amortized fair
cost value
----------- -----------
(Unaudited)
<S> <C> <C>
Due from one year to five years $ 3,500,000 $ 3,492,500
Due after ten years 13,750 13,750
Mortgage-backed securities 9,960,829 9,892,076
----------- -----------
$13,474,579 $13,398,326
=========== ===========
</TABLE>
(Continued)
F-15
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE B - INVESTMENT SECURITIES - Continued
Proceeds on sales of securities classified as available for sale were
approximately $2,929,000 and $1,800,000 for the six months ended June 30,
1998 and 1997, respectively, and $9,500,000 for the years ended December 31,
1997 and 1996. The Bank had gross realized gains of approximately $2,000 and
$87,000 for the six months ended June 30, 1998 and 1997, respectively, and
$87,000 and $444,000 for the years ended December 31, 1997 and 1996,
respectively. The Bank had gross realized losses of approximately $41,000
and $-0- for the six months ended June 30, 1998 and 1997, respectively, and
$-0- and $7,000 of gross losses on sales of available for sale securities
for the years ended December 31, 1997 and 1996, respectively.
The carrying value of securities pledged to secure deposits and for other
purposes required or permitted by law amounted to approximately $3,053,000,
$5,395,000 and $5,003,000 at June 30, 1998, December 31, 1997 and 1996,
respectively.
NOTE C - LOANS
Major classification of loans are as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1998 1997 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Commercial $ 6,002,307 $ 6,074,099 $ 5,418,589
Real estate 17,259,227 16,288,446 12,679,300
Installment 682,051 688,652 504,297
Home equity 218,294 195,759 --
Overdrafts 41,228 25,912 70,339
------------ ------------ ------------
24,203,107 23,272,868 18,672,525
Less
Allowance for loan losses (431,204) (377,807) (364,745)
Unearned discount -- -- (36,832)
Deferred loan origination fees (37,287) (41,284) (42,450)
------------ ------------ ------------
Loans, net $ 23,734,616 $ 22,853,777 $ 18,228,498
============ ============ ============
</TABLE>
(Continued)
F-16
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE C - LOANS - Continued
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
------------------------- ------------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 377,807 $ 364,745 $ 364,745 $ 343,548
Loans charged off (5,000) (294,942) (447,356) (286,186)
Recoveries 3,397 2,657 25,418 10,383
Provision for loan losses 55,000 287,260 435,000 297,000
--------- --------- --------- ---------
Balance at end of year $ 431,204 $ 359,720 $ 377,807 $ 364,745
========= ========= ========= =========
</TABLE>
The balance of impaired loans was approximately $72,000, $95,000 and
$221,000 at June 30, 1998, December 31, 1997 and 1996, respectively. The
Bank has identified a loan as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the
loan agreements. The allowance for loan loss associated with impaired loans
was approximately $11,000, $11,000 and $94,000 at June 30, 1998, December
31, 1997 and 1996, respectively. The average recorded investment on impaired
loans was approximately $12,000 and $14,000, and $12,000 and $35,000 for the
six months ended June 30, 1998 and 1997, and for the years ended December
31, 1997 and 1996, respectively. The income recognized on impaired loans for
the six months ended June 30, 1998 and 1997, and for the years ended
December 31, 1997 and 1996, was approximately $-0- and $-0-, and $14,000 and
$-0-, respectively. Total cash collected on impaired loans for the three
months ended June 30, 1998 and 1997, and for the years ended December 31,
1997 and 1996, was approximately $7,000 and $149,000, and $30,000 and
$45,000, respectively, all of which was credited to the principal balance
outstanding on such loans. Interest which would have been accrued on
impaired loans for the six months ended June 30, 1998 and 1997, and for the
years ended December 31, 1997 and 1996, was approximately $4,000, $5,000,
$11,000 and $5,000, respectively. The Bank recognizes income on non-accrual
loans under the cash basis when the loans are both current and the
collateral on the loan is sufficient to cover the outstanding obligation to
the Bank; if these factors do not exist, the Bank will not recognize income.
As of June 30, 1998, the Bank had approximately $290,000 of loans past due
90 days or more still accruing interest. As of December 31, 1997 and 1996,
the Bank had no loans past due 90 days or more as to interest or principal
payments that were still accruing interest. At June 30, 1998, December 31,
1997 and 1996, there were no commitments to lend additional funds to
borrowers whose loans are classified as non-accrual.
F-17
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
Estimated June 30, ---------------------------
useful lives 1998 1997 1996
-------------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Furniture and equipment 5 to 7 years $ 1,219,891 $ 1,195,471 $ 1,381,059
Leasehold improvements 15 to 17 years 600,910 580,819 567,181
----------- ----------- -----------
1,820,801 1,776,290 1,948,240
Accumulated depreciation and amortization (1,259,037) (1,145,082) (1,146,436)
----------- ----------- -----------
$ 561,764 $ 631,208 $ 801,804
=========== =========== ===========
</TABLE>
NOTE E - DEPOSITS
Deposits are as follows:
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------
1998 1997 1996
----------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
Non-interest bearing demand $11,807,373 $11,686,556 $ 9,227,762
Savings, NOW and money market 15,764,105 14,933,464 14,249,652
Time deposits, under $100,000 11,691,595 11,888,066 11,489,390
Time deposits, $100,000 and over 1,548,335 4,268,111 4,853,354
----------- ----------- -----------
$40,811,408 $42,776,197 $39,820,158
=========== =========== ===========
</TABLE>
At June 30, 1998, the scheduled maturities of time deposits are as follows
(unaudited):
1999 $10,658,515
2000 1,918,283
2001 397,326
2002 146,357
2003 119,449
------------
$13,239,930
===========
(Continued)
F-18
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE E - DEPOSITS - Continued
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
--------------------------- ------------------------------
1998 1997 1997 1996
---------- ---------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
NOW and money market $ 132,162 $ 116,845 $ 255,341 $ 229,334
Savings 19,179 22,195 26,537 25,527
Time deposits 322,623 451,721 910,073 850,514
---------- ---------- ------------ -----------
$ 473,964 $ 590,761 $ 1,191,951 $ 1,105,375
========== ========== ============ ===========
</TABLE>
NOTE F - INCOME TAXES
Income tax (benefit) expense is comprised of the following:
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
--------------------------- ------------------------------
1998 1997 1997 1996
---------- ---------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Federal
Current $ 80,000 $ 34,000 $ 139,028 $ 15,000
Deferred -- (96,000) (400,482) --
---------- ---------- ------------ -----------
80,000 (62,000) (261,454) 15,000
---------- ---------- ------------ -----------
State
Current 12,500 5,000 16,211 --
Deferred -- (10,000) (42,757) --
---------- ---------- ------------ -----------
12,500 (5,000) (26,546) --
---------- ---------- ------------ -----------
$ 92,500 $ (67,000) $ (288,000) $ 15,000
========== ========== ============ ===========
</TABLE>
(Continued)
F-19
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE F - INCOME TAXES - Continued
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows:
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
--------------------------- ------------------------------
1998 1997 1997 1996
---------- ---------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Tax at statutory rate $ 71,000 $ 59,000 $ 365,642 $ 243,419
Adjustment of deferred tax
valuation allowance -- (126,000) (677,197) (251,065)
Amortization of goodwill 10,000 -- -- --
Other, net 11,500 -- 23,555 22,646
---------- ---------- ------------ -----------
Applicable income tax
(benefit) expense $ 92,500 $ (67,000) $ (288,000) $ 15,000
========== ========== ============ ===========
</TABLE>
The net deferred tax asset consisted of the following:
December 31,
June 30, -----------------------
1998 1997 1996
--------- --------- ---------
(unaudited)
Deferred tax assets (liabilities)
Net operating loss $ 474,000 $ 484,800 $ 804,500
Fixed assets (17,300) (17,300) 19,000
Alternative minimum tax credit -- -- 15,000
Other 1,400 (2,800) 7,500
SBA loans (34,500) (20,500) --
Allowance for loan losses 15,000 (5,600) (114,500)
--------- --------- ---------
438,600 438,600 731,500
Valuation allowance -- -- (731,500)
--------- --------- ---------
Net deferred tax asset $ 438,600 $ 438,600 $ --
========= ========= =========
At June 30, 1998, the Bank had unused net operating loss carryforwards of
approximately $1,200,000 for federal and Florida income tax purposes
expiring in various amounts from 2006 to 2008. Although larger tax losses
have occurred over the past five years, the loss carryforward reflects the
maximum benefit that could be obtained from these net operating losses.
Future sales of common stock, if any, may result in a second ownership
change which could further limit the utilization of net operating loss
carryforwards of losses incurred since November 1993.
F-20
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE G - EARNINGS PER SHARE
The earnings per share computation assumes the conversion of Class A common
stock into shares of Class B common stock. There were warrants outstanding
to purchase 965,000 shares of Class B common stock at $11.00 per share which
were not included in the computation of diluted earnings per share because
to do so would have been antidilutive for the periods presented.
The follow table illustrates the reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Six months ended June 30, 1998
--------------------------------------------
Weighted
average Per share
Income shares amount
----------- --------- -------
(Unaudited)
<S> <C> <C> <C>
Net income per share - basic and diluted $ 109,434 1,110,839 $ 0.10
=========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Period from August 11, 1997 (date of
inception) through December 31, 1997
--------------------------------------------
Weighted
average Per share
Income shares amount
----------- --------- -------
<S> <C> <C> <C>
Net income per share - basic and diluted $ 59,501 295,440 $ 0.20
=========== ========= =======
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
Operating leases
The Bank utilizes certain office space and equipment under operating leases
expiring through 1999. Total rent expense under such operating leases,
included in occupancy expense, was approximately $108,000 and $140,000 and
$282,000 and $274,000 for the six months ended June 30, 1998 and 1997, and
for the years ended December 31, 1997 and 1996, respectively.
(Continued)
F-21
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE H - COMMITMENTS AND CONTINGENCIES - Continued
Approximate minimum payments under non-cancellable operating leases for the
period ending June 30 are as follows (unaudited):
1999 $ 236,000
2000 238,000
2001 222,000
2002 208,000
2003 70,000
-----------
$ 974,000
===========
Other
The Bank is involved in certain litigation arising in the ordinary course of
business. In the opinion of management, the outcome of this litigation will
not have a significant effect on the accompanying financial statements.
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISKS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheets. The contract or notional amounts of
those instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and financial guarantees written is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments.
(Continued)
F-22
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISKS - Continued
The Bank does not require collateral or other security to support financial
instruments with credit risk. The approximate contract amounts are as
follows:
December 31,
June 30, -----------------------
1998 1997 1996
---------- ---------- ----------
(unaudited)
Unfunded line of credit $1,062,000 $ 986,000 $ 607,000
Standby letters of credit 149,000 161,000 173,000
Unfunded construction loans 25,000 599,000 3,867,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable; inventory,
property, plant, and equipment; and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements.
The Bank has not been required to perform on any financial guarantees during
the past year. The Bank has not incurred any losses on its commitments in
1997 or 1996.
The Bank is an independent community commercial bank, with its main office
in Palm Beach Gardens, Florida, and branches in Juno Beach, Boca Raton and
Jupiter. The Bank principally extends credit for commercial business and
commercial real estate loans, substantially all of which are located in
South Florida. Although the Bank maintains a diversified loan portfolio, a
substantial portion of its borrowers' abilities to repay loans is dependent
upon the economic condition of the South Florida region.
F-23
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE J - REGULATORY MATTERS
Based upon the results of the joint examination conducted by the State of
Florida Department of Banking and Finance (the Department) and the Federal
Reserve Bank of Atlanta (FRB) that concluded in September 1991, the Bank
entered into a Cease and Desist Order (C&D) in January 1992. Provisions of
this C&D required the Bank to, among other things, cease and desist from the
following: (1) operating the Bank with inadequate capital; (2) maintaining
unsatisfactory asset quality and excess past-due loans; (3) funding
operations with unstable deposits or other liabilities; and (4) maintaining
inadequate loss reserves.
Based upon the improvements in the Bank's condition as reflected in the
Report of Examination as of October 1997 by the FRB and based on the Bank's
overall compliance with the C&D, the FRB terminated its C&D on January 30,
1998, and the Department terminated its C&D on February 6, 1998.
The Bank, as a state-chartered Federal Reserve member bank, is subject to
regulatory dividend restrictions. Under such restrictions, the Bank may not,
without prior regulatory approval, declare dividends.
The Bank is subject to various regulatory and capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by the regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of June 30, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
(Continued)
F-24
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE J - REGULATORY MATTERS - Continued
As of October 1997, the most recent notification of the FRB categorized the
Bank as adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
---------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998
(unaudited)
Total capital (to risk-
weighted assets) $ 4,845,000 16.11% $ 2,405,000 > 8.00% $ 3,007,000 >10.00%
- -
Tier I capital (to risk-
weighted assets) 4,468,000 14.86 1,203,000 > 4.00 1,804,000 > 6.00
- -
Tier I capital (to
average assets) 4,468,000 9.74 1,830,000 > 4.00 2,288,000 > 5.00
- -
As of December 31, 1997
Total capital (to risk-
weighted assets) $ 4,414,328 13.98% $ 3,525,578 > 8.00% $ 3,156,973 >10.00%
- -
Tier I capital (to risk-
weighted assets) 4,036,521 12.79 1,262,789 > 4.00 1,894,184 > 6.00
- -
Tier I capital (to
average assets) 4,036,521 8.59 1,879,624 > 4.00 2,819,436 > 5.00
- -
As of December 31, 1996
Total capital (to risk-
weighted assets) $ 3,574,384 14.57% $ 1,962,056 > 8.00% $ 2,452,570 >10.00%
- -
Tier I capital (to risk-
weighted assets) 3,267,812 13.32 981,028 > 4.00 1,471,542 > 6.00
- -
Tier I capital (to average
assets) 3,267,812 8.18 1,597,554 > 4.00 2,396,331 > 5.00
- -
</TABLE>
F-25
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE K - PLAN OF MERGER AND RECAPITALIZATION
During September 1997, Admiralty Bancorp, Inc. (Admiralty), entered into an
Agreement and Plan of Merger (the Agreement) with White Eagle Financial
Group, Inc. (WEFG). Pursuant to the terms of the Agreement, all then
existing shareholders of WEFG had their interests in WEFG cancelled in
exchange for a cash payment equal to 1.85 times the shareholders' equity of
WEFG. The consideration paid to WEFG shareholders upon consummation of the
acquisition will be approximately $7,500,000. Additionally, Admiralty paid a
finder fee of $500,000, payable in 50,000 shares of Class B common stock and
issued warrants to purchase 15,000 shares of Class B Stock, to the former
Chairman of the Board of WEFG in conjunction with the sale of WEFG to
Admiralty. This fee was considered additional consideration in the purchase
WEFG. In connection with this transaction, Admiralty was merged into WEFG
and WEFG then changed its name to Admiralty Bancorp, Inc. This transaction
was accounted for under the purchase method of accounting and accordingly,
the results of operation for the six months ended June 30, 1998, include
only the results of operations from the date of acquisition, January 22,
1998. Goodwill resulting from this acquisition will be amortized on a
straight-line basis over 25 years.
The following represents pro forma financial information of Admiralty as if
the acquisition occurred on the first date of the periods indicated
(unaudited).
For the For the
six months year ended
June 30, December 31,
------------------- ------------
1998 1997 1997
---------- ------ ------------
Interest income $1,993 $1,783 $3,630
Interest expense 560 591 1,197
------ ------ ------
Net interest income $1,433 $1,192 $2,433
====== ====== ======
Net income $ 147 $ 484 $1,116
====== ====== ======
Net income per share - basic and
diluted $ 0.13 $ 1.50 $ 3.45
====== ====== ======
(Continued)
F-26
<PAGE>
Admiralty Bancorp, Inc. and Subsidiary
and Predecessor Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1998, December 31, 1997 and 1996
NOTE K - PLAN OF MERGER AND RECAPITALIZATION - Continued
The organizers of Admiralty recapitalized the Company through $8,000,000 in
new capital raised through a private placement of the Company's Class A
Units, consisting of one share of Class A Common Stock, no par value (the
Class A Stock) and one Class B Common Stock Purchase Warrant (the Class B
Stock). Holders of the warrants are entitled to purchase 800,000 shares of
the Class B Stock. Each of these warrants entitles the holder to purchase
one share of the Class B Stock, at a purchase price of $11.00 per share, for
a period commencing January 22, 1999, and ending January 21, 2002. Each
Class A Unit had a purchase price of $10.00. The Class A common stock can
also be convertible into shares of Class B common stock at the option of the
holders of the Class A common stock. Additionally, in connection with the
formation of Admiralty, the organizers received 88,881 shares of Class A
common stock and 133,320 shares of Class B common stock for $160,000 of
consideration and were awarded warrants to purchase 135,000 shares of Class
B stock exercised at $11.00 per share.
NOTE L - SUBSEQUENT EVENTS
Proposed Public Offering (Unaudited)
The Company anticipates a public offering in September 1998 of 1,100,000
shares (the Shares) of Class B common stock at a price per share of between
$10.00-$11.00. The Shares may be purchased separately and will be separately
tradable immediately upon issuance. The Company anticipates granting to the
underwriters of such offering a 30-day option to purchase up to an
additional 165,000 shares of common stock on the same terms and conditions
as set forth above solely to cover overallotments.
Management Stock Option Plan
In May 1998, the Board of Directors of the Company approved the 1998
Management Stock Option Plan (the Management Plan), which provides for
options to purchase up to 330,000 shares of Class B stock to be issued to
members of the Board of Directors of the Company, the Bank and any other
subsidiaries which the Company acquire or incorporate in the future.
The Management Plan provides for the granting of both incentive options and
non-statutory options. Incentive stock options may be granted at an exercise
price of not less than 100% of the fair market value of the Class B stock on
the date of grant. The Option price for non-statutory options may not be
less than 100% of the fair market value of the Class B stock on the date of
grant. The Board of Directors has discretion to set the actual exercise
price of any option within the foregoing parameters.
Class A Stock Dividend
On June 26, 1998, the Company declared a 5% Class B common stock dividend,
payable July 21, 1998. Total Class B common shares issued was 44,390. Per
share amounts for the months ended June 30, 1998, have been adjusted to
retroactively reflect this dividend. Per share amounts for the predecessor
company have not been adjusted for this stock dividend.
F-27
<PAGE>
No dealer, salesperson or any other person has been authorized to give
information or make any representation not contained in this Prospectus in
connection with the offer made hereby. If given or made, such information or
representation must not be relied upon as having been authorized by the Company
or Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that
information contained herein is current as of any time subsequent to such date.
TABLE OF CONTENTS
-----------------
PROSPECTUS SUMMARY ................................................... 3
ADMIRALTY BANCORP, INC. .............................................. 3
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA ........................ 6
RISK FACTORS ......................................................... 8
USE OF PROCEEDS ...................................................... 11
DILUTION ............................................................. 11
CAPITALIZATION ....................................................... 13
PRO FORMA FINANCIAL INFORMATION ...................................... 14
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA .................. 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... 17
OVERVIEW OF STRATEGY ................................................. 17
RESULTS OF OPERATIONS ................................................ 18
NET INCOME ........................................................... 18
COMPARATIVE AVERAGE BALANCE SHEETS ................................... 19
FINANCIAL CONDITION .................................................. 25
MATURITY SCHEDULE OF INVESTMENT SECURITIES ........................... 33
THE BANK ............................................................. 40
MANAGEMENT ........................................................... 44
DESCRIPTION OF THE COMPANY'S SECURITIES .............................. 52
ANTI-TAKEOVER PROVISIONS ............................................. 55
REGULATION AND SUPERVISION ........................................... 58
UNDERWRITING ......................................................... 62
LEGAL MATTERS ........................................................ 63
EXPERTS .............................................................. 63
AVAILABLE INFORMATION ................................................ 64
Until __, 199_ (25 days after the date of the prospectus), all dealers
effecting transactions in the Common Stock, 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 their unsold allotments or subscriptions.
1,100,000 SHARES
ADMIRALTY BANCORP, INC.
------------
PROSPECTUS
------------
FIRST COLONIAL
SECURITIES GROUP, INC.
________________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHT of the Restated Certificate of Incorporation of the Company
provides that the Company shall indemnify its present and former officers and
directors and may, by action of its Board of Directors, indemnify its present
and former employees and agents and persons serving at its request against
expenses, including attorneys' fees, judgments, fines or amounts paid in
settlement incurred in connection with any pending, threatened or completed
action (civil or criminal) if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company.
Under Section 145 of the Delaware General Corporation Law ("DGCL"), the
Company may indemnify a corporate agent in a specific case if a determination is
made by any of the following that the applicable standard of conduct was met:
(i) the Board of Directors, or a committee thereof, acting by a majority vote of
a quorum consisting of disinterested directors; (ii) by independent legal
counsel, if there is not a quorum of disinterested directors or if the
disinterested quorum empowers counsel to make the determination; or (iii) by the
shareholders.
Section 145 of the DGCL further provides that a corporate agent is entitled
to mandatory indemnification to the extent that the agent is successful on the
merits or otherwise in any proceeding, or in defense of any claim, issue or
matter in the proceeding. In advance of the final disposition of a proceeding,
the Company may pay an agent's expenses if the agent agrees to repay the
expenses unless it is ultimately determined he is entitled to indemnification.
<PAGE>
Article EIGHT also provides that such indemnification shall not exclude any
other rights to indemnification to which a person may otherwise be entitled, and
authorizes the Company to purchase insurance on behalf of any of the persons
enumerated against any liability whether or not the Company would have the power
to indemnify him under the provisions of Article EIGHT.
Article EIGHT of the Company's Certification of Incorporation provides that
a director of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for a breach of any fiduciary duty as director
owned to the Company or its shareholders except to the extent such exemption
from liability or limitation thereof is not permitted under the DGCL.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with the offering described
in this Registration Statement. All of such amounts (except the SEC Registration
Fee and the NASD Filing Fee) are estimated.
SEC Registration Fee $ 3,918
NASD Filing Fee $ 1,679
NASD Listing Fee $ 6,265
Blue Sky Fees and Expenses $ 25,000
Printing and Engraving Costs $ 25,000
Legal Fees and Expenses $150,000
Accounting Fees and Expenses $100,000
Transfer Agent and Registrar Fees and Expenses $ 5,000
Miscellaneous $ 83,138
--------
TOTAL $400,000
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
In September, 1997, the Company issued 88,881 shares of Class A stock and
133,320 shares of Class B stock to its founders pursuant to one exemption from
registration contained in Section 4(3) of the Securities Act. In January, 1998,
the Company consummated a private placement of units (the "Units"). Each Unit
consists of one (1) share of Class A Common Stock (the "Class A Stock") and one
(1) Class B Common Stock purchase warrant (the "Warrant"). Each Warrant permits
the holder thereof to purchase one (1) share of the Company's Class B Common
Stock for a purchase price of $11.00 per share. Each Warrant has a term of four
(4) years. The sale of the Units was undertaken in accordance with Rule 506 of
Regulation D. Approximately 800,000 units were sold to 71 purchasers, all of
whom the Company believes are "accredited investors" as defined in Rule 501 of
Regulation D, for gross proceeds of $8,000,000.
ITEM 27. EXHIBITS
EXHIBITS LIST
Number Description of Exhibits
- ------ -----------------------
1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Admiralty Bancorp, Inc.,
a Delaware corporation
3.2 Certificate of Incorporation of Admiralty Bank
3.3 Bylaws of Admiralty Bancorp, Inc., a Delaware corporation(1)
3.4 Bylaws of Admiralty Bank(1)
4.1 Form of Warrant Agreement to purchase Class B Common Stock(1)
4.2 Form of Class A Common Stock Certificate and Section Fourth of
Certificate of Incorporation (see Exhibit 3.1)(1)
4.3 Form of Class B Common Stock Certificate(1)
<PAGE>
5 Opinion of Jamieson, Moore, Peskin & Spicer, P.C.
10.1 Employment Agreement with Ward Kellogg(1)
10.2 Admiralty Bancorp, Inc. 1998 Stock Option Plan(1)
10.3 Lease Agreement between Loggerhead Associated LTD and Admiralty Bank
dated January 2, 1992, as amended(1)
10.4 Lease Agreement between Karl D. Griffin, Trustee and Admiralty Bank,
as amended(1)
10.5 Lease Agreement between RIMCO XII, Inc. and Admiralty Bank,
as amended(1)
21 List of Subsidiaries (1)
23.1 Consent of Jamieson, Moore, Peskin & Spicer (see Exhibit 5)
23.2 Consent of Grant Thornton LLP, West Palm Beach, FL as auditor to
White Eagle Financial Group, Inc., predecessor to Admiralty
Bancorp, Inc.
23.3 Consent of Grant Thornton LLP, Philadelphia, PA as auditor to
Admiralty Bancorp, Inc.
24 Power of Attorney(1)
27 Financial Data Schedule
- ----------
(1) Previously filed
ITEM 28. UNDERTAKINGS
The Registrant will provide to the underwriters at the closing specified in
the underwriting agreement certificates in such dominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions (as set forth in item 24),
or otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
-- In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
<PAGE>
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
-- The undersigned registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 44(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared in effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
-- The undersigned registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
<PAGE>
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Princeton, State of
New Jersey, on the __th day of September, 1998.
ADMIRALTY BANCORP, INC.
/s/ BRUCE A. MAHON
---------------------------------
BRUCE A. MAHON
Chairman of the Board and CEO
/s/ MICHAEL E. GOLDEN
---------------------------------
MICHAEL E. GOLDEN
Vice Chairman of the Board
/s/ LESLIE E. GOODMAN
---------------------------------
LESLIE E. GOODMAN
Director
/s/ THOMAS L. GRAY, JR.
---------------------------------
THOMAS L. GRAY, JR.
Director
/s/ SIDNEY L. HOFING
---------------------------------
SIDNEY L. HOFING
Director
/s/ PETER L. A. PANTAGES
---------------------------------
PETER L. A. PANTAGES
Director
/s/ RICHARD P. ROSA
---------------------------------
RICHARD P. ROSA
Director
/s/ CRAIG A. SPENCER
---------------------------------
CRAIG A. SPENCER
Director
/s/ MARK A. WOLTERS
---------------------------------
MARK A. WOLTERS
Director
/s/ GEORGE R. ZOFFINGER
---------------------------------
GEORGE R. ZOFFINGER
Director
<PAGE>
EXHIBITS LIST
-------------
Number Description of Exhibits
- ------ -----------------------
1 Form of Underwriting Agreement(1)
3.1 Restated Certificate of Incorporation of Admiralty Bancorp, Inc., a
Delaware corporation(1)
3.2 Certificate of Incorporation of Admiralty Bank(1)
3.3 Bylaws of Admiralty Bancorp, Inc., a Delaware corporation
3.4 Bylaws of Admiralty Bank
4.1 Form of Warrant Agreement to purchase Class B Common Stock
4.2 Form of Class A Common Stock Certificate and Section Fourth of
Certificate of Incorporation (see Exhibit 3.1)
4.3 Form of Class B Common Stock Certificate
5 Opinion of Jamieson, Moore, Peskin & Spicer, P.C.(1)
10.1 Employment Agreement with Ward Kellogg
10.2 Admiralty Bancorp, Inc. 1998 Stock Option Plan
10.3 Lease Agreement between Loggerhead Associated LTD and Admiralty Bank
dated January 2, 1992, as amended
10.4 Lease Agreement between Karl D. Griffin, Trustee and Admiralty Bank,
as amended
10.5 Lease Agreement between RIMCO XII, Inc. and Admiralty Bank, as
amended
21 List of Subsidiaries
23.1 Consent of Jamieson, Moore, Peskin & Spicer (see Exhibit 5)(1)
23.2 Consent of Grant Thornton LLP, West Palm Beach, FL as auditor to
White Eagle Financial Group, Inc., predecessor to Admiralty Bancorp,
Inc.
23.3 Consent of Grant Thornton LLP, Philadelphia, PA as auditor to
Admiralty Bancorp, Inc.
24 Power of Attorney
27 Financial Data Schedule
- ----------
(1) Filed herewith
ADMIRALTY BANCORP, INC.
1,100,000 SHARES*
COMMON STOCK
(NO PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
August 25, 1998
First Colonial Securities Group, Inc.
As Representative of the several
Underwriters named in Schedule I hereto.
1499 W. Palmetto Park Rd., Suite 312
Boca Raton, FL 33486
Gentlemen:
Admiralty Bancorp, Inc., a Delaware corporation (the "Company"), confirms
its agreement with the several underwriters (the "Underwriters") for whom you
are acting as representative (the "Representative") for the Company to issue and
sell 1,100,000 shares of the Company's common stock, no par value per share (the
"Underwritten Shares") to the Underwriters. The Company's common stock is more
fully described in the Registration Statement and the Prospectus hereinafter
mentioned.
For the sole purpose of covering over-allotments in connection with the
sale of the Underwritten Shares, the Company shall grant to the Underwriters the
option (the "Option") described in Section 2 hereof to purchase all or any part
of an additional 165,000 shares of the Company's common stock (the "Option
Shares"). The Underwritten Shares and the Option Shares purchased pursuant to
this Underwriting Agreement (this "Agreement") are herein called the "Shares"
and the proposed offering of the Shares by the Underwriters is hereinafter
referred to as the "Public Offering."
The Company has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"),
and published rules and regulations adopted by the Commission under the Act (the
"Rules"), a Registration Statement on Form SB-2 ("Form SB-2") (File No.
333-60307), including a Preliminary Prospectus, relating to the Shares, and such
amendments to such Registration Statement as may have been filed with the
Commission to the date of this Agreement. The Company will also file with the
Commission one of the following: (A) prior to effectiveness of such Registration
Statement, a further amendment to such Registration Statement, including the
form of final
- ----------
* Plus up to 165,000 additional shares of common stock to cover over-allotments.
<PAGE>
prospectus, and/or (B) after effectiveness of such Registration Statement, a
final prospectus in accordance with Rules 430A and 424(b). The Company has
furnished to the Representative copies of such Registration Statement, each
amendment to it filed by the Company with the Commission, and each Preliminary
Prospectus filed by the Company with the Commission. The Registration Statement
as amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to be
included by Rule 430A, is called the "Registration Statement." The term
"Preliminary Prospectus" means any Preliminary Prospectus (as referred to in
Rule 430 or Rule 430A of the Rules) included at any time as a part of the
Registration Statement and the term "Prospectus" means the prospectus relating
to the Shares that is first filed pursuant to Rule 424(b) after the date hereof.
Any reference herein to the Registration Statement, any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein on or before the Effective Date or
the date of such Preliminary Prospectus or the Prospectus, as the case may be.
As the Representative, you have advised the Company that (a) you are
authorized to enter into this Agreement on behalf of the several Underwriters
and (b) the Underwriters are willing, acting severally and not jointly, to
purchase the amounts of the Underwritten Shares set forth opposite their
respective names in Schedule I hereto, plus their pro rata portion of the Option
Shares if you elect to exercise the over-allotment Option in whole or in part
for the accounts of the several Underwriters.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the Company
and the Underwriters hereby agree as follows:
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
(a) The Company represents and warrants to, and agrees with, each
Underwriter as follows:
(i) The Company has been duly organized, is in compliance with its
Certificate of Incorporation, and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with full power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus. Each significant subsidiary (as
defined by the Act) of the Company (each a "Subsidiary" and collectively,
the "Subsidiaries") has been duly incorporated and is validly existing as a
corporation, in good standing under the laws of the jurisdiction of its
organization, with full power and authority (corporate and other) to own or
lease its properties, and conduct its business. The Company and the
Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of its business or the ownership or lease of its
properties requires such qualifications except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse
Effect (as defined below). The
2
<PAGE>
Company owns all of the outstanding capital stock of its Subsidiaries free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest.
(ii) The outstanding shares of common stock of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable; the Shares are duly and validly authorized, and, if not now
issued, when issued and paid for as contemplated herein, will be fully paid
and non-assessable. As of the Closing Date, there will be no preemptive or
other similar rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of the Shares pursuant to the Company's
Certificate of Incorporation, bylaws, or other governing documents or any
agreement or other instrument to which the Company or any of its
Subsidiaries is a party or by which any of them may be bound. Neither the
filing of the Registration Statement nor the offering of the Shares as
contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of
any shares of any class of the Company's capital stock. The Shares have
been approved for listing on The NASDAQ subject to official notice of
issuance.
(iii) The Shares conform in all material respects with the statements
concerning them in the Prospectus. As of the Closing Date (as defined
below) and any Option Closing Date (as defined below), if applicable, the
Company will have the authorized capital stock set forth under the caption
"Description of Capital Stock" in the Prospectus. No further corporate
approval or authority on behalf of the Company will be required for the
issuance and sale of the Shares to be sold by the Company as contemplated
herein.
(iv) Any Preliminary Prospectus, the Prospectus and the Registration
Statement comply as to form with the requirements of the Act and the Rules,
including Form SB-2.
(v) Neither the Commission nor any other agency, body, authority,
court or arbitrator of competent jurisdiction has, by order or otherwise,
prohibited or suspended the use of any Preliminary Prospectus or the
Prospectus relating to the proposed offering of the Shares or, to the
Company's knowledge, instituted proceedings for that purpose. The
Registration Statement, the Prospectus and any Preliminary Prospectus and
any amendments or supplements thereto at the time they became or become
effective or were filed or are filed with the Commission contained or will
contain all statements which are required to be stated therein by, and in
all material respects conformed or will conform to the requirements of, the
Act and the Rules. Neither the Registration Statement nor any Preliminary
Prospectus nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, as of its date and while effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the Company does not make any representations or
warranties as to information contained in or omitted from the Registration
Statement or any Preliminary Prospectus or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by
3
<PAGE>
or on behalf of any Underwriter through the Representative, expressly for
use in the preparation thereof as hereinafter set forth in Section 15.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial condition
and the results of operations of the Company and the Subsidiaries, at the
indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial information and the selected
financial data included in the Prospectus present fairly in accordance with
GAAP (other than the "__________" information) the information shown
therein and have been compiled on a basis consistent with that of the
audited and unaudited financial statements from which they were derived.
(vii) Except as is disclosed in the Prospectus, there is no action or
proceeding pending or, to the knowledge of the Company, threatened against
the Company, any of its Subsidiaries or any of their respective officers or
any of their properties, assets or rights before any court or
administrative or governmental agency or other body which reasonably would
be expected to (A) result in any material adverse change in the financial
condition, or in the earnings, business, affairs, properties, business
prospects or results of operations of the Company and its Subsidiaries
taken as a whole ("Material Adverse Change" or "Material Adverse Effect,"
as the case may be), whether or not arising in the ordinary course of
business, (B) adversely affect the performance of this Agreement or the
consummation of the transactions herein contemplated, except as disclosed
in the Prospectus and for which the Company maintains a reserve in an
amount which it believes is adequate to cover potential liabilities, or (C)
be required to be disclosed in the Registration Statement.
(viii) The Company and each of its Subsidiaries are not in violation
of any law, ordinance, governmental rule or regulation or court decree to
which they may be subject which violation reasonably would be expected to
have a Material Adverse Effect.
(ix) The Company and its Subsidiaries have (A) to the best of our
knowledge, good and marketable title to all of the real properties and (B)
valid title to all other assets reflected in the consolidated financial
statements hereinabove described or as described in the Prospectus as being
owned by them, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except those securing indebtedness described in such financial
statements or as described in the Prospectus or which do not materially
affect the present or proposed use of such properties or assets or would
not cause a Material Adverse Effect. The Company and its Subsidiaries
occupy their leased properties under valid, subsisting and binding leases
with only such exceptions as in the aggregate are not material and do not
interfere with the conduct of the business of the Company and its
Subsidiaries. There exists no default under the provisions of any lease,
contract or other obligation to which the Company is a party which may
result in a Material Adverse Change.
4
<PAGE>
(x) The Company and its Subsidiaries have filed all federal, state and
other tax returns and reports which have been required to be filed and have
paid all taxes indicated by said returns and all assessments received by
them to the extent that such taxes have become due and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its Subsidiaries that might have a Material
Adverse Effect. All material tax liabilities are adequately provided for on
the books of the Company and its Subsidiaries.
(xi) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, as they may be amended or
supplemented, and except as set forth in the Registration Statement, (A)
there has not been any Material Adverse Change nor, to the knowledge of the
Company, is any such change threatened, (B) there has not been any
transaction entered into by the Company or its Subsidiaries that is
material to the earnings, business, affairs, properties, business prospects
or operations of the Company and its Subsidiaries taken as a whole, other
than transactions in the ordinary course of business and changes and
transactions contemplated by the Registration Statement and the Prospectus,
as they may be amended or supplemented, (C) other than changes in the
amounts outstanding under the Company's and its Subsidiaries' revolving
credit facilities, there has not been any material change in the capital
stock, long term debt or material liabilities of the Company or its
Subsidiaries, and (D) there has not been any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or any
of its Subsidiaries. Neither the Company nor any Subsidiary has any
contingent obligations or liabilities which are required to be but are not
disclosed in the Registration Statement and the Prospectus.
(xii) The filing of the Registration Statement and related Prospectus
and the execution and delivery of this Agreement have been duly authorized
by the Board of Directors of the Company; this Agreement constitutes a
valid and legally binding obligation of the Company enforceable in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other laws affecting creditors' rights generally and by general
principles of equity and federal and state securities laws. The Company is
not in breach or violation of or default under any indenture, mortgage,
deed of trust, lease, contract, note or other agreement or instrument to
which it is a party or by which it or any of its properties is bound and
which breach, violation or default would reasonably be expected to have a
Material Adverse Effect. The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not result in a
breach or violation of any of the material terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease,
contract, note or other agreement or instrument to which the Company or any
Subsidiary is a party, or of the Company's or any Subsidiary's Certificate
of Incorporation or bylaws or any law, decree, order, rule, writ,
injunction or regulation applicable to the Company or any Subsidiary of a
court or of any regulatory body or administrative agency or other
governmental body having jurisdiction over the Company and its Subsidiaries
except for such breaches, violations or defaults as would not reasonably be
expected to have a Material Adverse Effect.
5
<PAGE>
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and performance of its obligations
hereunder (except such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or
Blue Sky laws, and filing the Prospectus under Rule 424(b)) has been
obtained or made and is in full force and effect.
(xiv) The Company and each Subsidiary hold all material licenses,
authorizations, charters, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses and
neither the Company nor any Subsidiary has received notice of any
proceeding relating to the revocation or modification of any of such
licenses, authorizations, charters, certificates or permits. The Company
and its Subsidiaries own or otherwise possess rights to the patents, patent
rights, licenses, inventions, copyrights, trademarks, service marks and
trade names presently employed by them in connection with the businesses
now operated by them as described in the Prospectus, and neither the
Company nor any of its Subsidiaries has infringed or received any notice of
infringements of or conflict with asserted rights of others with respect to
any of the foregoing, except where such infringement or conflict would not
reasonably be expected to result in a Material Adverse Effect.
(xv) Grant Thornton, independent auditors, who have certified certain
of the financial statements filed with the Commission and included as part
of the Registration Statement and Prospectus, are independent public
accountants within the meaning of the Act, the Rules and Regulation S-X of
the Commission and Rule 101 of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
(xvi) There are no agreements, contracts or other documents of a
character required to be described in the Registration Statement or the
Prospectus or required by Form SB-2 to be filed as exhibits to the
Registration Statement or incorporated by reference in the Registration
Statement which are not described, filed or incorporated as required.
(xvii) No labor dispute is pending or, to the knowledge of the
Company, threatened by the Company's or any Subsidiary's employees which
could result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's employees and, to the Company's
knowledge, no agreement is imminent.
(xviii) Except as contemplated by Section 2 hereof and as disclosed in
the Prospectus and permitted by the Rules, the Company has not (itself or
through any person) taken and will not take, directly or indirectly, any
action designed to or which might reasonably be expected to, cause or
result in a violation of Section 5 of the Act or Regulation M under the Act
or in stabilization or manipulation of the price of the Company's common
stock.
6
<PAGE>
(xix) Without limiting the generality of any of the foregoing
representations and warranties and except to the extent no Material Adverse
Effect would reasonably be expected to occur, (a) none of the operations of
the Company or its Subsidiaries is in violation of any material
environmental law, regulation or any permit; (b) neither the Company nor
any of its Subsidiaries has been notified that it is under investigation or
under review by any governmental agency with respect to compliance
therewith or with respect to the generation, use, treatment, storage or
release of hazardous material; (c) neither the Company nor any of its
Subsidiaries have any material liability in connection with the past
generation, use, treatment, storage, disposal or release of any hazardous
material; (d) there is no hazardous material that may reasonably be
expected to pose any material risk to safety, health, or the environment,
on, under or about any property owned, leased or operated by the Company or
any of its Subsidiaries or, to the knowledge of the Company, any property
adjacent to any such property; and (e) there has heretofore been no release
of any hazardous material on, under or about such property, or, to the
knowledge of the Company, any such adjacent property. None of the present
or, to the knowledge of the Company, past property of the Company or any of
its Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or on the
Comprehensive Environmental Response Compensation Liability Information
System List ("CERCLIS") or any similar state list of sites requiring
remedial action. Neither the Company nor any of its Subsidiaries is subject
to any state Environmental Property Transfer Act, or to the extent that any
such statute is applicable to any property, the Company and its
Subsidiaries have fully complied with their obligations under such
statute(s), and neither has any outstanding obligations or liabilities
under any state Environmental Property Transfer Act.
(xx) The Company and its Subsidiaries maintain insurance of the types
and in the amounts customary for their businesses, including, but not
limited to, insurance covering liability and real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(xxi) Neither the Company nor any Subsidiary has at any time during
the last five years (a) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation
of law, or (b) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(xxii) Each executive officer, director and substantially all of the
stockholders of the Company has executed a lock-up agreement, a form of
which is attached hereto as Exhibit "A" (the "Lock-Up Agreement").
(b) Any certificate signed by any officer of the Company and delivered to
you or counsel for the Underwriters shall be deemed a representation and
warranty by the Company to the Underwriters as to the matters covered thereby.
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2. PURCHASE, SALE AND DELIVERY OF THE UNDERWRITTEN SHARES. On the basis of
the representations, warranties and covenants herein contained, and subject to
the terms and conditions herein set forth, the Company agrees to sell each
Underwriter, severally and not jointly, and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $________ per share, the number of
the Underwritten Shares set forth on Schedule I attached hereto, subject to
adjustment in accordance with Section 12 hereof.
Payment for the Underwritten Shares shall be made by wire transfer of
immediately available U.S. Funds to a designated account of the Company, to the
order of the Company, against delivery of certificates for the Shares to the
Representative for the accounts of the several Underwriters. Delivery of
certificates shall be to the Representative c/o First Colonial Securities Group,
Inc. ("First Colonial"), 1499 W. Palmetto Park Rd., Suite 312, Boca Raton,
Florida 33486, or at such other address as First Colonial may designate in
writing. Payment will be made at the offices of First Colonial, or at such other
place as shall be agreed upon by First Colonial and the Company, at
approximately 9:00 a.m., eastern time, on __________, 199__, such time and date
being herein referred to as the "Closing Date." The certificates for the
Underwritten Shares will be delivered in such denominations and in such
registrations as First Colonial reasonably requests in writing and will be made
available for inspection at such locations as First Colonial may reasonably
request at least one full business day prior to the Closing Date.
In addition, on the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants the Option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The Option may be exercised in whole or in part on
one occasion upon written notice (or oral notice, subsequently confirmed in
writing) given not more than forty five (45) days following the date of this
Agreement, by First Colonial, on behalf of the Representative of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the Option and the names and
denominations in which the Option Shares are to be registered. Closing on the
purchase of the Option Shares (the "Option Closing Date"), if any, shall occur
no later than three (3) business days following the date upon which notice of
exercise of the Option is given to the Company, and shall take place at the
offices of First Colonial, or at such other place as shall be agreed upon by
First Colonial and the Company. Subject to Section 12, the number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
the total number of shares of the common stock being purchased by such
Underwriter bears to 1,100,000 shares, adjusted by you in such manner as to
avoid fractional shares. The Option may be exercised only to cover
over-allotments in the sale of the Underwritten Shares by the Underwriters.
First Colonial, on behalf of the Representative of the several Underwriters, may
cancel such option at any time prior to its expiration by giving written notice
(or oral notice, subsequently confirmed in writing) of such cancellation to the
Company. To the extent, if any, that the Option is exercised, payment for the
Option Shares shall be made by wire transfer of immediately available U.S. Funds
to a designated account of the Company, to the order of the Company.
Certificates for the Option Shares shall be delivered in the same manner and
upon the same terms as the Underwritten Shares.
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3. OFFERING BY THE UNDERWRITERS. It is understood that the Public Offering
of the Underwritten Shares is to be made as soon as the Representative deems it
advisable to do so after the Registration Statement has become effective. The
Underwritten Shares are to be initially offered to the public at the public
offering price set forth in the Prospectus. The Representative may from time to
time thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representative for the
Underwriters in the offering and sale of the Shares, in accordance with an
Agreement Among Underwriters which has been entered into by you and the several
other Underwriters.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with each of
the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will not, either before or after
effectiveness, file any amendment thereto or supplement to the Prospectus
(including a prospectus filed pursuant to Rule 424(b) which differs from the
Prospectus on file at the time the Registration Statement becomes effective) or
file any documents under the Exchange Act before the earlier to occur of (A) the
35th day following the Effective Date or (B) the closing date of the
Underwriters' purchase of the Option Shares if such document would be deemed to
be incorporated by reference into the Registration Statement, the Preliminary
Prospectus or the Prospectus of which the Representative shall not previously
have been advised and furnished with a copy or to which the Representative shall
have reasonably objected in writing or which is not in compliance with the Act
or Rules.
(b) The Company will advise the Representative promptly of any request of
the Commission or other securities regulatory agency ("Other Securities
Regulator") for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose, or comparable action taken or initiated by any Other
Securities Regulator, and the Company will use its reasonable efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will use its reasonable efforts with the Representative in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions (including foreign jurisdictions) as the Representative may
reasonably designate, and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not so qualified or required to file such a consent.
The Company will, from time to time, prepare and file such statements, reports,
and other documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representative may reasonably request for
distribution of the Shares.
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<PAGE>
(d) The Company will deliver to, or upon the order of, the Representative,
from time to time, as many copies of any Preliminary Prospectus or the
Prospectus as the Representative may reasonably request. The Company will
deliver to, or upon the order of, the Representative, on the Trade Date and
thereafter from time to time during the period necessary to effect the
distribution of the Shares as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representative may reasonably
request. The Company will deliver to the Representative at or before the Closing
Date, one (1) manually signed copy of the Registration Statement and all
amendments thereto including all exhibits filed therewith (including any
document filed under the Exchange Act and deemed to be incorporated by reference
into the Registration Statement, the Preliminary Prospectus or the Prospectus)
and will deliver to the Representative such number of copies of the Registration
Statement, but without exhibits, and of all amendments thereto, as the
Representative may reasonably request.
(e) During the time necessary to effect the distribution of the Shares, the
Company shall comply with all requirements imposed upon it by the Act, as now
and hereafter amended, and by the Rules, as from time to time in force, so far
as is necessary to permit the continuance of sales of or dealings in the Shares
as contemplated by the provisions hereof and the Prospectus. If, during the
period necessary to effect the distribution of the Shares, any event shall occur
as a result of which, in the judgment of the Company or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law or to file under the Exchange Act any document
which would be deemed to be incorporated by reference in the Prospectus in order
to comply with the Act or the Exchange Act, the Company promptly will notify the
Representative and, subject to the Representative's prior review, prepare and
file with the Commission and any appropriate Other Securities Regulator an
appropriate amendment or supplement to the Prospectus (at the expense of the
Company) so that the Prospectus as so amended or supplemented will not, in light
of the circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(f) The Company will make generally available to its security holders in
the manner contemplated by Rule 158(b) under the Act, as soon as it is
practicable to do so, but in any event not later than the 90th day after the end
of the fiscal quarter first occurring one year after the Effective Date, an
earnings statement in reasonable detail, covering a period of at least twelve
consecutive months beginning after the Effective Date, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and will advise you
in writing when such statement has been so made available.
(g) For a period of three years from the date of this Agreement, the
Company will furnish to the Representative (a) concurrently with furnishing of
such reports to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer; (b) concurrently with
furnishing to its stockholders, a balance sheet of the Company as at the end of
such fiscal year, together with statements of earnings, stockholders' equity and
cash flow of the Company for such fiscal year, all in reasonable detail and
accompanied by a copy of the
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certificate or report thereon of independent public accountants; (c) as soon as
they are available, copies of all reports (financial or other) mailed to
stockholders; (d) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission; (e) every press
release which was released or prepared by the Company; and (f) any additional
information of a public nature concerning the Company or its business which you
may reasonably request. During such period, if the Company shall have active
subsidiaries the foregoing financial statements shall be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary (as defined by the Act) which is not so consolidated.
(h) Promptly after the Company is advised thereof, it will advise the
Representative, and confirm in writing, that the Registration Statement and any
amendments shall have become effective.
(i) The Company will use the net proceeds from the sale of the Shares
substantially in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
(j) Other than as permitted by the Act and the Rules, the Company will not
distribute any prospectus or offering materials in connection with the offering
and sale of the Shares and prior to the Closing Date or the Option Closing Date
will not issue any press releases or other communications directly or indirectly
and will hold no press conferences with respect to the Company, the financial
condition, results of operations, business, properties, assets or liabilities of
the Company, or the offering of the Shares, without the prior written consent of
First Colonial.
(k) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar for its common stock
and will use its best efforts to maintain the listing of the Shares on The
Nasdaq National Market.
(l) Except as contemplated hereby or by the Prospectus, the Company will
not, for a period of one hundred eighty (180) days after the Effective Date of
the Registration Statement, offer to sell, contract to sell, sell or otherwise
dispose of any shares of the Company's common stock or securities convertible
into shares of the Company's common stock without the prior written consent of
First Colonial, which consent will not be unreasonably withheld.
(m) The foregoing covenants and agreements shall apply to any successor of
the Company, including without limitation, any entity into which the Company
might consolidate or merge.
5. COSTS AND EXPENSES. Whether or not the Registration Statement becomes
effective, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to Underwriters copies of the Registration Statement,
any Preliminary Prospectus, the Prospectus, this Agreement, the Agreement Among
Underwriters, the Selling Agreement, Underwriters' Questionnaire and Power of
Attorney, and the Blue Sky Survey and any supplements thereto; the filing fees
of the
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Commission; the filing fees incident to securing any required review by the NASD
of the terms of the sale of the Shares on behalf of, and any disbursements made
by, the Representative, the cost of printing certificates representing the
Shares; and the cost and charges of any transfer agent or registrar. Any
transfer taxes imposed on the sale of the Shares to the Underwriters will be
paid by the Company. The Company will pay all costs expenses and fees, including
attorney fees and out-of-pocket expenses, reasonably incurred in connection with
serving as the Representative and performing the obligations hereunder. The
Company shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under State securities or
Blue Sky laws) except that, if the Public Offering shall not be consummated
because the conditions in Section 8 hereof are not satisfied, or because this
Agreement is terminated by the Representative pursuant to Section 7 hereof, or
by reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms is due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for all costs and expenses, including attorney fees and
out-of-pocket expenses, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder, but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein, are
subject to the accuracy, as of the Closing Date and as of the Option Closing
Date, of the representations and warranties and agreements of the Company
contained herein, to the performance by the Company of its obligations hereunder
and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
10:00 a.m., eastern time, on the date of this Agreement, unless a later time and
date is agreed to by the Representative, and no stop order or other order
suspending the effectiveness thereof or the qualification of the Shares under
the State securities or Blue Sky laws of any jurisdiction shall have been issued
and no proceeding for that purpose shall have been taken or, to the knowledge of
the Company, shall be contemplated or threatened by the Commission or any Other
Securities Regulator. If the Company has elected to rely upon Rule 430A of the
Rules, the price of the Shares and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
shall have been transmitted to the Commission for filing pursuant to Rule 424(b)
of the Act within the prescribed time period, and prior to the Closing Date the
Company shall have provided evidence satisfactory to the Representative of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A under the Act. All requests for additional information
on the part of the Commission or any other government or regulatory authority
with jurisdiction (to be included in the Registration Statement or Prospectus or
otherwise) shall be complied with to the satisfaction of the Commission or such
authorities.
(b) The Representative shall have received on the Closing Date and on the
Option Closing Date the opinion of Jamieson, Moore, Peskin & Spicer, counsel for
the Company, with
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<PAGE>
respect to the Company, with respect to matters set forth below in subparagraphs
(i) through (ix) dated the Closing Date and the Option Closing Date, addressed
to the Underwriters in form and substance satisfactory to Greenberg Traurig,
P.A., counsel to the Underwriters, to the effect that:
(i) The Company and the Subsidiaries have been duly organized and are
validly existing in good standing under the laws of the state(s) or similar
foreign jurisdictions (with respect to the Subsidiaries) of their
organization with corporate power to own their properties and conduct their
business as described in the Registration Statement and Prospectus; the
Company and the Subsidiaries are duly qualified to transact business in
those jurisdictions listed in such counsel's opinion (which list shall
include, with respect to the Company, each state in which the Company or
each foreign jurisdiction in which the Subsidiaries own properties as shown
in the Prospectus); and all of the outstanding shares of capital stock of
the Company have been duly authorized and, upon payment for and delivery of
the Shares and the countersigning of the certificates representing the
Shares by a duly authorized signatory, the Shares will be duly issued,
fully paid and non-assessable, and except as set forth in the Prospectus
and the Registration Statement, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock of the Company are
outstanding.
(ii) The Company has authorized and, to the knowledge of such counsel,
outstanding the capital stock set forth under the caption "Description of
Capital Stock" in the Registration Statement and Prospectus, except for
issuances subsequent to the date of the Prospectus, if any, pursuant to
reservations, commitments, employee benefit plans, the recapitalization
contemplated by the Registration Statement or other existing agreements;
all of the Shares conform to the description thereof contained in the
Prospectus; the Underwritten Shares to be sold pursuant to this Agreement
have been duly authorized and, upon payment for and delivery of the Shares
and the countersigning of the certificates representing the Shares by a
duly authorized signatory, the Shares will be validly issued, fully paid
and non-assessable when issued and paid for as contemplated by this
Agreement; there are no preemptive or other restrictive rights to subscribe
for or to purchase or any restriction upon the voting or transfer of the
Shares pursuant to the Company's Certificate of Incorporation, bylaws,
other governing documents or, to such counsel's knowledge, any material
agreement or other instrument to which the Company is a party or by which
it is bound; and, to such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of
any class of the Company's capital stock.
(iii) The Registration Statement has been declared effective under the
Act and to the knowledge of such counsel no stop order proceedings with
respect thereto have been instituted by the Commission or threatened and
all filings required by Rule 424 and Rule 430A of the Rules have been made.
(iv) The Registration Statement, all Preliminary Prospectuses, the
Prospectus and each amendment or supplement thereto, as of their respective
dates they were filed,
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<PAGE>
appeared on their face to comply as to form in all material respects with
the requirements of the Act and the Rules, except that such counsel need
express no opinion as to the information supplied by the Underwriters or
the financial statements, schedules and other financial or statistical
information included therein.
(v) Except as set forth in the Registration Statement and the
Prospectus, to the best of our knowledge, there are no contracts,
agreements or understandings known to such counsel between the Company and
any person granting such person the right to require the Company to file a
Registration Statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities being registered pursuant to a
Registration Statement filed by the Company under the Act, except for any
rights under employee stock compensation plans, which registration rights
are not exercisable with respect to the transactions contemplated by this
Agreement, and except as set forth in the Prospectus.
(vi) To the knowledge of such counsel, the Company's execution and
delivery of, and performance of its obligations under, this Agreement do
not (A) violate the Company's and its Subsidiaries' respective charter or
bylaws, (B) breach or otherwise violate any existing obligation of or
restriction on the Company or its Subsidiaries under any order, judgment or
decree of any federal or Delaware court or government authority binding on
the Company or its Subsidiaries that we have, in the exercise of customary
professional diligence, recognized as applicable to the Company or its
Subsidiaries or to transactions of the type contemplated by this Agreement,
except that we do not express an opinion regarding any federal securities
laws or Blue Sky or state securities laws. The execution and delivery by
the Company of, and performance of its obligations under, the Agreement, do
not violate any Delaware or federal statute or regulation that we have, in
the exercise of customary professional diligence, recognized as applicable
to the Company or its Subsidiaries or to transactions of the type
contemplated by the Agreement, except that we do not express an opinion
regarding any federal securities laws or Blue Sky or state securities laws.
(vii) This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company.
(viii) No approval, consent, order or permit of Delaware or any U.S.
Federal governmental authority is required on the part of the Company for
the execution and delivery of this Agreement or for the issuance and sale
of the Shares by the Company herein contemplated (other than required by
NASD regulation or state securities and Blue Sky laws, as to which such
counsel need express no opinion) except such as have been obtained or made,
specifying the same.
In addition to the matters set forth above, such counsel shall also include
a statement to the effect that such counsel has participated in the
preparation of the Registration Statement and the Prospectus and, based on
such participation, no facts have come to the attention of such counsel
which appeared on their face to cause such counsel to believe
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<PAGE>
that any part of the Registration Statement or any amendment thereto (other
than the financial statements and other financial and statistical data
contained therein, as to which such counsel may express no belief), as of
its effective date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (other than the financial
statements and other financial data contained therein, as to which such
counsel may express no belief), contains any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Such counsel does not know of any legal or
governmental proceedings required to be described in the Registration
Statement or the Prospectus which are not described as required or of any
contracts or documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required; it
being understood that such counsel need express no opinion as to the
financial statements or other financial data contained in the Registration
Statement or the Prospectus. Such counsel may state that its opinion is
limited to the applicable law of the United States of America, the State of
Delaware General Corporation Law and the general corporate law of
jurisdictions under which the Subsidiaries are organized, and that such
counsel renders no opinion with respect to the law of any other
jurisdiction. Such opinion may state further that whenever such opinion is
based on factual matters to such counsel's knowledge or known to such
counsel, such counsel has relied exclusively on certificates of officers
(after discussion of the contents thereof with such officers) of the
Company or certificates of others as to the existence or nonexistence of
factual matters on which such opinion is predicated but has no reason to
believe that any such certificate is untrue or inaccurate in any material
respect.
Such opinion shall contain only those qualifications as Greenberg
Traurig, P.A., counsel to the Underwriters, may reasonably request or
allow.
(c) The Representative shall have received from Greenberg Traurig, P.A.,
counsel to the Underwriters, an opinion dated the Closing Date, substantially to
the effects specified in subparagraph (iii) and (iv) of paragraph (b) of this
Section 7, and that the Company is a validly organized and existing corporation
under the laws of the State of Delaware. In rendering such opinion, Greenberg
Traurig, P.A., may rely as to all matters governed other than by Federal law on
the opinions of counsel referred to in paragraph (b) of this Section 7. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the Registration Statement or any amendment
thereto at the time the Registration Statement or amendment became effective or
the Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as of their respective dates contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, not misleading (except that such counsel need
express no view as to financial statements, schedules and other financial or
statistical information included therein).
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<PAGE>
(d) The Representative shall have received at or prior to the Closing Date
from Greenberg Traurig, P.A., a memorandum or summary, in form and substance
satisfactory to the Representative, with respect to the qualification or
exemption therefrom for offering and sale by the Underwriters of the Shares
under the State securities or Blue Sky laws of such jurisdictions as the
Representative may reasonably have designated.
(e) The Representative shall have received on the Closing Date and on the
Option Closing Date, as the case may be, signed letters from Grant Thornton,
addressed to the Underwriters dated as of the Effective Date and again dated as
of the Closing Date and as of the Option Closing Date, as the case may be, with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and the Prospectus. All such
letters shall be in form and substance satisfactory to the Representative and
Greenberg Traurig, P.A., counsel to the Underwriters.
(f) The Representative shall have received on the Closing Date and on the
Option Closing Date, as the case may be, a certificate or certificates of the
President & Chief Executive Officer and Vice President and Chief Financial
Officer of the Company to the effect that, on and as of the Closing Date and on
and as of the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission.
(ii) He does not know of any litigation instituted or threatened
against the Company or any of its Subsidiaries of a character required to
be disclosed in the Registration Statement which is not so disclosed; he
does not know of any material contract required to be filed as an exhibit
to the Registration Statement which is not so filed; and the
representations and warranties of the Company contained in Section 1 hereof
are true and correct in all material respects as of the Closing Date.
(iii) He has examined the Registration Statement and the Prospectus
and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement and the
Prospectus were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of he circumstances in which they were made, not
misleading and, in his opinion, since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment.
(g) The Company shall have furnished to the Representative such additional
information and further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representative may reasonably have requested.
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(h) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any Material Adverse Change.
(i) The Shares shall have been approved for listing on The Nasdaq National
Market, subject to official notice of issuance.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representative and Greenberg Traurig, P.A., counsel
for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Company of such termination in writing or by
confirmed telefax at or prior to the Closing Date. In such event, the Company
and the Underwriters shall not be under any obligation to each other (except to
the extent provided in Sections 6, 9 and 10 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the Shares are subject to the conditions that (a) at
or before 10:00 a.m., eastern time, on the date of this Agreement, or such later
time and date as the Company and the Representative may from time to time
consent to in writing or by confirmed telefax, the Registration Statement shall
have become effective, and (b) at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued or
proceedings therefor initiated or threatened. If either of the conditions
hereinabove provided for in this Section 8 shall not have been fulfilled when
and as required by this Agreement to be fulfilled, this Agreement may be
terminated by the Company by notifying the Representative of such termination in
writing or by confirmed telefax at or prior to the Closing Date.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
the Rules and the Exchange Act from and against any and all losses, claims,
damages, liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any breach of any
representation, warranty, agreement, or covenant of the Company, or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse each Underwriter and each such controlling person for
legal and other expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement made in, or omission or
alleged omission from, the Registration
17
<PAGE>
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representative specifically for use
in the preparation thereof, it being understood and agreed that the only such
information furnished by any Underwriter consists of the information described
as such in Section 15 below; and provided further, that with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from any Preliminary Prospectus, the indemnity agreement contained in this
Section 9(a) shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased the
Shares concerned, to the extent that a prospectus relating to such Shares was
required to be delivered by such Underwriter under the Act in connection with
such purchase and any such loss, claim, damage or liability of such Underwriter,
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Shares to such person, a
copy of the Prospectus as then amended or supplemented (excluding any documents
incorporated by reference therein) if the Company had previously furnished
copies thereof to such Underwriter. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company, within the meaning of the Act, the Rules and the Exchange Act from and
against any losses, claims, damages or liabilities to which the Company, or any
such director, officer, or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company, or any such director,
officer, or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in such case only to the extent that such
untrue statement, or alleged untrue statement or omission or alleged omission
has been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with information furnished to the Company by or through the Representative
expressly for use in the preparation thereof, which information is described in
Section 15. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action or proceeding, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 9, except to the extent that the indemnifying party is
substantially prejudiced by the omission of such notification. In case any such
action or proceeding is brought against any party,
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<PAGE>
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding. Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, (ii) the indemnifying party has failed to
assume the defense and employ counsel, or (iii) the named parties to any such
action (including any impleaded parties) include such indemnified party and the
indemnifying party, as the case may be, and such indemnified party shall have
been advised in writing by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party, in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that (A) the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such indemnified parties, which firm shall be designated in writing by the
indemnified parties, and that (B) all such fees and expenses shall be reimbursed
as they are incurred. Subject to the foregoing provisions of this Section 9(c),
the indemnifying party shall not be liable for the costs and expenses of any
settlement of any action without the consent of the indemnifying party.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9 is for
any reason held to be unavailable to an indemnified party under subsection (a)
or (b) above in respect to any losses, claims, damages, liabilities or expenses
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the parties in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion as
the total
19
<PAGE>
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by the Company bears to the underwriting
discounts and commissions received by the Underwriters. The relative fault of a
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any such action or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriters
have otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute shall be several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 9 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company, and the officers of
the Company herein or in certificates delivered pursuant hereto, and the
indemnity and contribution agreements contained in Sections 9 and 10 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriters or any controlling
person, or by or on behalf of the Company or any of its officers, directors or
controlling persons, and shall survive delivery of the Underwritten Shares and,
if appropriate, the Option Shares to the Representative or termination of this
Agreement.
10. DEFAULT BY UNDERWRITERS. If any Underwriter shall fail to purchase and
pay for the Shares which such Underwriter has agreed to purchase and pay for
hereunder (otherwise than by reason of any default on the part of the Company),
you, as the Representative of the Underwriters, shall use your best efforts to
procure within twenty-four hours thereafter one or
20
<PAGE>
more of the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed upon and upon the terms set forth herein, the Shares
which the defaulting Underwriter or Underwriters failed to purchase. If during
such twenty-four hours you, as such Representative, shall not have procured such
other Underwriters, or any others, to purchase the Shares agreed to be purchased
by the defaulting Underwriter or Underwriters, then (a) if the aggregate number
of Shares with respect to which such default shall occur does not exceed 10% of
the Shares which the Underwriters are obligated to purchase hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
number of Shares which they are obligated to purchase hereunder, to purchase the
Shares which such defaulting Underwriter or Underwriters failed to purchase, or
(b) if the aggregate number of Shares with respect to which such default shall
occur exceeds 10% of the Company's common stock covered hereby, the Company or
you, as the Representative of the Underwriters will have the right, by written
notice given within the next twenty-four hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriters or the Company except to the extent provided in
Section 9 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 12, the time of closing may be postponed for such
period, not to exceed seven days, as you, as the Representative, may determine
in order that the required changes in the Registration Statement, the Prospectus
or in any other documents or arrangements may be effected. The term
"Underwriters" includes any person substituted for a defaulting Underwriter. Any
action taken under Section 12 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
11. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided in, will be mailed, delivered or telefaxed and confirmed
as follows: if to the Underwriters, c/o the Representative as follows: to First
Colonial, Attention: Ben Lichtenberg, Director of Investment Banking; with a
copy to Greenberg Traurig, P.A., Attention Morris C. Brown, Esq., 777 South
Flagler Drive Suite 300 East, West Palm Beach, FL 33401; if to the Company, to
Admiralty Bancorp, Inc., Attention: Ward Kellogg, President; 4400 PGA Boulevard,
Palm Beach Gardens, FL 33410 with a copy to Jamieson, Moore, Peskin & Spicer,
Attention Robert A. Schwartz, Esq. 177 Madison Avenue, Morristown, New Jersey
07960.
12. TERMINATION. This Agreement may be terminated by notice to the Company
as follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Change which
would, in your reasonable judgment, materially make it impracticable to market
the Shares in the manner contemplated by the Prospectus, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make the offering or delivery of the Shares impracticable,
(iii) suspension of trading or general trading halts in securities on the New
York Stock Exchange, the American Stock Exchange, The Nasdaq National Market or
the over-the-counter market or limitation on prices (other than limitations on
hours or numbers of days or trading) for securities on either such Exchange, The
Nasdaq National Market or the over-the-counter market, (iv) the enactment,
publication, decree or other
21
<PAGE>
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by either federal or state authorities, or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse effect on
the securities markets in the United States; or
(b) as provided in Sections 7 and 12 of this Agreement.
13. INFORMATION FURNISHED BY UNDERWRITERS. The information set forth in the
Prospectus: (a) in the last paragraph on the cover page, (b) on the inside front
cover regarding stabilization, and (c) (i) in the table under the caption
"Underwriting" on page 50, listing the Underwriters and the number of shares
each has agreed to purchase, and (ii) in the second paragraph below said table
on page 50, relating to the concession to dealers and the reallowance to certain
other dealers under the caption "Underwriting" in the Prospectus, constitute the
written information furnished by or on behalf of any Underwriters referred to in
paragraph (a) (v) of Section 1 hereof and in paragraphs (a) and (b) of Section 9
hereof.
14. SUCCESSORS. This Agreement has been and is made solely for the benefit
of the Underwriters, the Company and their respective successors, executors,
administrators, heirs, and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Shares merely because of such purchase.
15. MISCELLANEOUS. The Representative will act for the several Underwriters
in connection with this offering, and any action under this Agreement taken by
the Representative will be binding upon all of the Underwriters.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Florida, without giving effect to the choice of law or
conflict of law principles thereof.
22
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
ADMIRALTY BANCORP, INC.
By:
----------------------------------
Name: Ward Kellogg, President and
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST COLONIAL SECURITIES
GROUP, INC.
By:
-------------------------------------
Name: Ben Lichtenberg
Title: Director of Investment Banking
As Representative of the several Underwriters named in Schedule I hereto
23
<PAGE>
SCHEDULE I
Name No. of Underwritten Shares
- ---- --------------------------
Total [FIRM SHARES]
<PAGE>
EXHIBIT "A"
August 25, 1998
First Colonial Securities Group, Inc.
As Representative of the several
Underwriters named in Schedule I hereto.
1499 W. Palmetto Park Rd., Suite 312
Boca Raton, FL 33486
RE: AGREEMENT NOT TO SELL ADMIRALTY BANCORP, INC. STOCK
Ladies and Gentlemen:
This letter is provided, at the request of Admiralty Bancorp, Inc. (the
"Company"), for the benefit of the Company and the Underwriters in connection
with the proposed public offering of 1,100,000 shares of the Company's Common
Stock (plus an additional 165,000 shares if the Underwriters choose to exercise
their over-allotment option) pursuant to a Registration Statement on Form SB-2
(File No. 333-60307). As an inducement to the Underwriters to (a) enter into an
Underwriting Agreement with the Company and (b) consummate the transactions
contemplated in such Underwriting Agreement, the undersigned hereby represents
and agrees as follows:
1. Upon the closing of the Company's initial public offering, the
undersigned will beneficially own the number of shares of the Company's Common
Stock set forth below opposite the signature of the undersigned (the "Shares"),
and no others.
2. The undersigned agrees that, for a period of 180 days from the effective
date of the Registration Statement, except for bona fide gifts to persons who
agree with you in writing to be bound by this letter, the undersigned will not
offer, sell or otherwise dispose of any of the Shares, directly or indirectly,
without written consent of First Colonial Securities Group, Inc., as
Representative of the Underwriters, which consent will not be unreasonably
withheld; except that (a) such Shares may be pledged as collateral against loans
of the undersigned without such written consent, and (b) if loans secured by
Shares are called, the undersigned and any applicable pledgee will have the
right to sell the shares pledged on such loans to the extent necessary to
satisfy such loans.
Shares of Common Stock Very truly yours,
_______________________
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADMIRALTY BANCORP, INC.
The undersigned, being of legal age, does hereby set forth this amended and
restated certificate of incorporation as follows:
FIRST: The name of the Corporation is Admiralty Bancorp, Inc.
SECOND: The registered agent of the Corporation is:
United Corporate Services, Inc.
15 East North Street
Dover, DE 19901
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the corporation
laws of the State of Delaware.
FOURTH: (A) The total authorized capital stock of the Corporation shall be
7,000,000 shares, consisting of 5,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock which may be issued in one or more
classes or series. The shares of Common Stock and the shares of
Preferred Stock of each class or series shall be without nominal or par
value, except that the amendment authorizing the initial issuance of
any class or series of Preferred Stock, adopted by the Board of
Directors as provided herein, may provide that shares of any class or
series shall have a specified par value per share, in which event all
of the shares of such class or series shall have the par value per
share so specified.
(B) There is hereby established a class of equity interests which
shall be named "Common Stock, Class A" which shall consist of 1,000,000
shares, without par value (the "Class A Common Stock"). The Class A
Common Stock shall possess all such rights and privileges as are
afforded to capital stock by law and shall also possess the following
rights, privileges and limitations:
(1) Dividends:
(a) The holder of each share of Class A Common Stock shall
be entitled to receive out of any funds legally available
therefor, when and as declared by the Board of Directors,
preferential dividends thereon at the annual rate of ten percent
(10%) per annum based upon a $10.00 per share stated value, and
no more, payable semi-annually on June 30 and December
<PAGE>
31 or on such other date or dates as may be determined by the
Board of Directors. Those dividends shall be non-cumulative and
may be paid either in cash or in shares of the Company's Class B
Common Stock, at the discretion of the Company's Board of
Directors. The Board of Directors shall determine the form of
payment of any dividend no later than 10 days prior to the record
date established for such dividend.
(b) No dividends shall be declared or paid or set apart for
payment on the Company's Class B Common Stock (described below)
for any period unless the most recently required dividend is paid
on the Class A Common Stock. Holders of shares of the Class A
Common Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of the
non-cumulative dividends, as herein provided, on the Class A
Common Stock, unless specially declared by the Board of
Directors.
(2) Voting Rights.
Holders of Class A Common Stock shall have the right to vote
at any meeting of stockholders or otherwise and shall be entitled
to notice of any such meeting. Each share of Class A Common Stock
is entitled to one vote per share, and unless otherwise required
by law, the Class A Common Stock will vote with the Class B
Common Stock together as a single class.
(3) Conversion Rights.
(a) Voluntary Conversion. Each share of Class A Common Stock
is convertible, at the option of the holder, into one share of
Class B Common Stock, at any time or from time to time.
(b) Involuntary Conversion. In addition to the foregoing
voluntary conversion rights, Company has the right to require a
holder of Class A Common Stock to convert the Class A Common
Stock into Class B Common Stock, at the rate of one share of
Class B Common Stock for each share of Class A Common Stock held,
in the event that the Class B Common Stock trades at $15.00 or
higher and does not trade below $15.00 for the next 20
consecutive trading days. Upon the end of such 20 consecutive
trading day period, Company may issue a notice of mandatory
conversion requiring the conversion of shares of the Class A
Common Stock to Class B Common Stock within 20 days.
The conversion rate set forth in (a) and (b) above is
subject to adjustment in the event of payment of certain stock
dividends, stock split-ups or combinations or other similar
recapitalizations, to ensure that a holder of the Class A Common
<PAGE>
Stock does not have his interests in the Company diluted through
such transaction. No adjustment in the conversion rate is
required unless it would result in at least a 1% increase or
decrease in that rate; however, any adjustment not made is
carried forward.
(C) There is hereby established a class of equity interests
which shall be named "Common Stock, Class B" which shall consist
of 4,000,000 shares, without par value (the "Class B Common
Stock"). The Class B Common Stock shall possess all such rights
and privileges as are afforded to capital stock by law. With
regard to any items upon which the Class B Common Stock shall be
required or entitled to vote, the Class B Common Stock shall vote
together with the Class A Common Stock as a single class, except
as otherwise required by law.
(D) The Board of Directors of the Corporation is expressly
authorized from time to time to adopt and to cause to be executed
and filed without further approval of the shareholders,
amendments to this Certificate of Incorporation authorizing the
issuance of one or more classes or series of Preferred Stock for
such consideration as the Board of Directors may fix. In an
amendment authorizing any class or series of Preferred Stock, the
Board of Directors is expressly authorized to determine:
(1) The distinctive designation of the class or series
and the number of shares which will constitute the class or
series, which number may be increased or decreased (but not
below the number of shares then outstanding in that class or
above the total shares authorized herein) from time to time
by action of the Board of Directors;
(2) The dividend rate of the class or series, whether
dividends will be cumulative, and, if so, from what date or
dates;
(3) The price or prices at which, and the terms and
conditions on which, the shares of the class or series may
be redeemed at the option of the Corporation;
(4) Whether or not the shares of the class or series
will be entitled to the benefit of a retirement or sinking
fund to be applied to the purchase or redemption of such
shares and, if so entitled, the amount of such fund and the
terms and provisions relative to the operation thereof;
(5) Whether or not the shares of the class or series
will be convertible into, or exchangeable for, any other
shares of stock of the Corporation or other securities, and
if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or
exchange;
<PAGE>
(6) The rights of the shares of the class or series in
the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(7) Whether or not the shares of the class or series
will have priority over, parity with, or be junior to the
shares of any other class or series in any respect, whether
or not the shares of the class or series will be entitled to
the benefit of limitations restricting the issuance of
shares of any other class or series having priority over or
on parity with the shares of such class or series and
whether or not the shares of the class or series are
entitled to restrictions on the payment of dividends on, the
making of other distributions in respect of, and the
purchase or redemption of shares of any other class or
series of Preferred Stock and/or Common Stock ranking junior
to the shares of the class or series;
(8) Whether the class or series will have voting
rights, in addition to any voting rights provided by law,
and if so, the terms of such voting rights; and
(9) Any other preferences, qualifications, privileges,
options and other relative or special rights and limitations
of that class or series.
FIFTH: (A) A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Law.
(B) (1) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil or criminal,
administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a
director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not, in itself, create a
presumption that the person did not act in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was
unlawful.
(2) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in
respect of any claims, issues or matters as to which such person shall
have been adjudged to be liable to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery or
such other court shall deem proper.
(3) The right to indemnification conferred in this Article Fifth
shall also include the right to be paid by the Corporation the
expenses incurred in connection any such proceeding in advance of its
final disposition to the fullest extent permitted by the Delaware
General Corporation Law.
<PAGE>
(4) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the
Corporation and such other persons serving at the request of the
corporation as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise to such extent
and to such effect as is permitted by the Delaware General Corporation
Law and the Board of Directors shall determine to be appropriate.
(C) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any expenses, liability or loss incurred by such person in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the Delaware General Corporation Law.
(D) The right to indemnification conferring in this Article Fifth
shall be a contract right. The rights and authority conferred in this
Article Fifth shall not be exclusive of any other right which any person
may otherwise have or hereafter acquire.
(E) No amendment, modification or repeal of this Article Fifth,
nor the adoption of any provision of this Certificate of Incorporation or
the By-laws of the Corporation, nor, to the fullest extent permitted by
the Delaware General Corporation Law, any amendment, modification or
repeal of law shall eliminate or reduce the effect of this Article Fifth
or adversely affect any right or protection then existing hereunder in
respect of any acts or omissions occurring prior to such amendment,
modification, repeal or adoption.
SIXTH: (A) The number of directors constituting the entire Board of Directors
shall not be less than three nor more than twenty-five as fixed from time
to time by vote of the majority of the entire Board. The Board of
Directors shall be divided into three (3) classes, as nearly identical in
number as the then total number of directors constituting the entire
board permits, with the term of office of one class expiring each year.
Upon adoption of this provision, the Board shall select the class into
which each Director is assigned. At the first annual meeting of
stockholders after adoption of this provision, directors of the first
class shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class shall be elected
to hold office for a term expiring at the second succeeding annual
meeting and directors of the third class shall be elected to hold office
for a term expiring at the third succeeding annual meeting. Any vacancies
in the Board of Directors for any reason, and any directorships resulting
from any increase in the number of directors, may be filled by the Board
of Directors, acting by a majority of the directors then in office,
although less than a quorum,
<PAGE>
and any directors so chosen shall hold office until the next election
of the class for which such directors shall have been chosen and until
their successors shall be elected and qualified. At each annual meeting
of stockholders the successors to the class of directors whose term
shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting.
(B) None of the present or future directors of the Corporation
may be removed without cause by the shareholders of the Corporation. If
cause exists, directors may be removed by the affirmative vote of the
majority of the Board of Directors or the affirmative vote of at least
80% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors. The term
"cause" as used herein is defined to mean (i) conviction of the
director of a felony, (ii) declaration by order of a court that the
director is of unsound mind; (iii) breach of fiduciary duty involving
personal profit which is proven by clear and convincing evidence to
have been committed in bad faith; or (iv) violation of any final cease
and desist order issued by any regulatory agency having jurisdiction
over the Corporation or its business. The Board of Directors shall have
the power to remove directors and to suspend directors pending a final
determination that cause exists for removal.
SEVENTH: (A) Advance notice of nomination for the election of directors, other
than by the Board of Directors or a committee thereof, shall be given
within the time and in the manner provided in the Corporation's Bylaws.
(B) Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted
by a majority of the Whole Board or as otherwise provided in the
Bylaws. The term "Whole Board" shall mean the total number of
authorized directorships (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption) (the "Whole Board").
EIGHTH: (A) The Board of Directors may, if it deems it advisable, oppose a
tender or other offer for the Corporation's securities whether the
offers are in cash or in the securities of a corporation or otherwise,
or any other proposed Business Combination (as defined below). When
considering whether to oppose an offer, the Board of Directors may, but
is not legally obligated to, consider any relevant factors; by way of
illustration, but not limitation, the Board of Directors may, but shall
not be legally obligated to, consider any and all of the following:
(1) Whether the offer price is acceptable based on the
historical and present operating results or financial condition
of the Corporation, or based on the current value of the
Corporation in a freely negotiated transaction.
<PAGE>
(2) Whether a more favorable price could be obtained for the
corporation's securities in the future.
(3) The impact which an acquisition of the Corporation would
have on the employees, creditors, customers and suppliers of the
Corporation and any subsidiary and on the communities which they
serve.
(4) The reputation and business practices of the offeror and
its management and affiliates as they would affect the employees,
creditors, customers and suppliers of the Corporation and its
subsidiaries and the future value of the Corporation's stock.
(5) The value of the securities, if any, which the offeror
is offering in exchange for the Corporation's securities, based
on an analysis of the worth of the Corporation as compared to the
corporation or other entity whose securities are being offered.
(6) Any antitrust or other legal and regulatory issues that
are raised by the offer.
(7) Any other relevant factors, including the long-term as
well as the short-term interests of the Corporation and its
shareholders, whether or not such other factors are monetary or
non-monetary in nature, or are shareholder or non-shareholder
considerations.
(B) If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose
including, but not limited to, any or all of the following: advising
shareholders not to accept the offer; litigation against the offeror;
filing complaints with all governmental and regulatory authorities;
acquiring the Corporation's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or granting
options with respect thereto; establishing employee stock ownership
plans; and obtaining a more favorable offer from another individual or
entity.
(C) Nothing contained herein shall be deemed to limit or restrict
the powers of the Board of Directors, or to enlarge the duties of the
Board of Directors, as provided in Section 141 of the Delaware General
Business Law or otherwise in Delaware law, or to create director
liability for taking any action authorized hereunder.
NINTH: (A) No proposed transaction resulting in a Business Combination (as
defined below) shall be valid unless first approved by the affirmative
vote, cast in person or by proxy, of the holders of record of eighty
<PAGE>
percent (80%) of the outstanding shares of the voting stock of the
Corporation entitled to vote thereon; provided, however, that if any
such action has been approved prior to the vote of shareholders by a
majority of the Corporation's Board of Directors, the affirmative vote
of the holders of a majority of the shares of capital stock then
entitled to vote and voting on such matters shall be required.
(B) This Article Fourth may not be amended except by the
affirmative vote, cast in person or by proxy, of the holders of record
of eighty percent (80%) of the outstanding shares of the capital stock
of the Corporation entitled to vote thereon.
(C) "Business Combination" as used herein shall mean any of the
following proposed transactions, when entered into by the Corporation
or a subsidiary of the Corporation with, or upon a proposal by or on
behalf of, a related entity or person:
(1) the merger or consolidation of the Corporation or any
subsidiary of the Corporation;
(2) the sale, exchange, transfer or other disposition (in
one or a series of transactions) of substantially all of the
assets of the Corporation or any subsidiary of the Corporation;
or
(3) any offer for the exchange of securities of another
entity for the securities of the Corporation.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this __ day of August, 1998.
--------------------------------------
Bruce A. Mahon
Chairman of the Board and
Chief Executive Officer
RESTATED ARTICLES OF INCORPORATION
OF
ADMIRALTY BANK
The undersigned, for the purpose of restating its Articles of Incorporation
pursuant to the Florida Business Corporation Act, hereby restates its Articles
of Incorporation as follows:
ARTICLE I
The name of the corporation shall be ADMIRALTY BANK and its place of
business shall be at 4400 PGA Boulevard, Suite 200, Palm Beach Gardens, Florida,
in the County of Palm Beach and State of Florida.
ARTICLE II
The general nature of the business to be transacted by this corporation
shall be that of a general banking business with all the rights, powers and
privileges granted and conferred by the Florida Banking Code, regulating the
obligations, powers and management of banking corporations.
ARTICLE III
The total number of shares authorized to be issued by the corporation shall
be 2,000,000. Such shares shall be of a single class and shall have a par value
of $1.00 per share.
ARTICLE IV
The term for said corporation shall be perpetual unless terminated pursuant
to the Florida Banking Code.
ARTICLE V
The number of directors shall not be fewer than five (5) and shall be
determined by the Board of Directors, from time to time, in the manner provided
in the Bylaws. A majority of the full Board of Directors may, at any time during
the year following the annual meeting of shareholders in which such action has
been authorized, increase the number of directors by not more than two (2) and
appoint persons to fill the resulting vacancies.
<PAGE>
ARTICLE VI
The provisions of the Florida Business Corporation Act relating to
control-share acquisitions, Fla. Stat. ss.607.0902 and any successor statute,
shall not be applicable to this corporation.
IN WITNESS of the foregoing, the undersigned has executed these Restated
Articles of Incorporation this ____________ day of August, 1998.
--------------------------------------
Bruce A. Mahon
Chairman of the Board of Directors
September 4, 1998
Re. Admiralty Bancorp, Inc.
Registration Statement on Form SB-2
-----------------------------------
Admiralty Bancorp, Inc.
4400 PGA Boulevard, Suite 200
Palm Beach Gardens, New Jersey 33410
Dear Sirs:
We have acted as counsel for Admiralty Bancorp, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form SB-2 (the "Registration Statement") being filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, relating to an aggregate of 1,265,000 shares of Class B common stock,
no par value, of the Company (the "Class B Common Stock").
In so acting, we have examined, and relied as to matters of fact upon, the
originals, or copies certified or otherwise identified to our satisfaction, of
the Certificate of Incorporation and By-laws of the Company and such other
certificates (including certificates of officers of the Company), records,
instruments and documents, and have made such other and further investigations,
as we have deemed necessary or appropriate to enable us to express the opinion
set forth below. In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, we are of the opinion that upon issuance and
delivery by the Company of the Class B Common Stock, such Class B Common Stock
will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ JAMIESON, MOORE, PESKIN & SPICER
------------------------------------
Jamieson, Moore, Peskin & Spicer
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 13, 1998, accompanying the
consolidated financial statements of White Eagle Financial Group, Inc. and
Subsidiary (Predecessor Company) contained in Amendment No. 1 to the
Registration Statement and Prospectus (file No. 33-60307). We consent to the use
of the aforementioned report in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
West Palm Beach, Florida
September 8, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated July 21, 1998, accompanying the financial
statements of Admiralty Bancorp, Inc. contained in Amendment No. 1 to the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus (file No.
33-60307), and to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
September 8, 1998
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