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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-74997
1,200,000 SHARES COMMON STOCK
113,330 COMMON STOCK PURCHASE WARRANTS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
A BANK HOLDING COMPANY FOR
CITIZENS NATIONAL BANK OF SOUTHWEST FLORIDA
A PROPOSED NATIONAL BANK
We are Citizens Bancshares of Southwest Florida, Inc., and we are
offering 1,200,000 shares of our common stock at $10.00 per share to raise
capital to form and capitalize Citizens National Bank of Southwest Florida, a
proposed national bank.
We will deposit all subscription funds in an escrow account until we
receive subscriptions for 1,000,000 shares. If we do not receive subscriptions
for 1,000,000 shares by August 17, 1999, we will terminate the offering and
promptly return all subscription funds to subscribers, along with any interest
earned on the funds. We may, however, at our option and without giving notice to
subscribers, extend the offering for three consecutive 90-day periods until May
13, 2000. We may reject all or part of any subscription for any reason.
Investors must purchase a minimum of 500 shares and may purchase up to 20,000
shares.
We are conducting this offering through several of our directors and
officers. These individuals will devote appropriate time and energy to marketing
and selling the shares, but there is no guarantee that we will be able to sell
the 1,000,000 shares necessary to complete the offering.
At the $10.00 offering price, we will receive total proceeds of between
$10,000,000 and $12,000,000 in this offering. Because there is no underwriter
involved in this offering and the directors and officers who will be selling the
shares will not receive any commissions, we will receive the full proceeds of
this offering.
We will also be issuing to our organizers an aggregate of 113,330
warrants to purchase shares of our common stock.
There is currently no public market for our common stock.
INVESTING IN THESE SECURITIES INVOLVES RISK. WE URGE YOU TO READ
CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE 3, ALONG WITH THE REST OF
THIS PROSPECTUS, BEFORE MAKING YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this prospectus is May 19, 1999
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PROSPECTUS SUMMARY
This summary highlights some of the information contained in this
prospectus. It does not contain all of the information that you should consider
before investing in our common stock. To fully understand this offering, you
should read the entire prospectus carefully, including the risk factors and the
financial statements.
THE COMPANY
We plan to operate as a bank holding company and to be the sole
shareholder of Citizens National Bank of Southwest Florida, a proposed national
bank. We will use the proceeds of this offering primarily to purchase all of the
common stock to be issued by Citizens Bank. This will provide Citizens Bank
sufficient capital to pay its pre-opening and organizational expenses and to
begin operations. Citizens Bank will operate as a full service community bank
emphasizing prompt, personalized customer service to meet the financial needs of
individuals and small to medium-sized businesses in and around western Collier
County, Florida. We anticipate that we will receive all necessary regulatory
approvals and be able to begin operations of Citizens Bank in June of 1999. The
main office of Citizens Bancshares and Citizens Bank will be located in the Park
Shore area of Naples in Collier County, Florida. The address of our operations
office, which is located adjacent to the site of our future main office, is 3411
Tamiami Trail North, Suite 200, Naples, Florida 34103, and our telephone number
is (941) 643-4646.
THE OFFERING
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Securities Offered............. 1,200,000 shares of common stock and 113,330
warrants. To complete this offering, we must
sell a minimum of 1,000,000 shares. Each
investor must purchase a minimum of 500
shares and may purchase a maximum of 20,000
shares. We may, however, waive these minimum
and maximum subscription amounts in our sole
discretion. The stock purchase warrants will
be issued to the organizers of Citizens
Bancshares and Citizens Bank. Each warrant
entitles the holder to purchase one share of
common stock at an exercise price of $10.00.
See "Terms of the Offering" at page 7.
Common Stock to be Outstanding
after this Offering............ Between 1,018,000 and 1,218,000 shares,
excluding the 113,330 shares of common stock
issuable upon exercise of the warrants.
Price to Public................ $10.00 per share.
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Offering Conditions............ This offering is subject to the following
conditions:
- investors must subscribe for a total of
at least 1,000,000 shares
- the Federal Reserve Board must approve
our application to become a bank holding
company
- the FDIC must approve Citizens Bank's
application for deposit insurance
- we must not have canceled this offering,
which we reserve the right to do at any
time before we withdraw funds from the
subscription escrow account
Escrow Arrangements............ Until the offering conditions are satisfied,
we will deposit all subscription funds in a
subscription escrow account with First
National Bank of Naples. If the offering
conditions are not satisfied by August 17,
1999, we will promptly return all
subscription funds, along with any interest
earned on the subscription funds, to the
subscribers.
If all of the offering conditions are
satisfied, the escrow agent will at that
time release the subscription funds to us
and the escrow account will be closed. Any
subscription funds we receive after the
offering conditions have been satisfied will
be immediately available to us. See "Terms
of The Offering -- Escrow of Subscription
Funds" at page 8.
Plan of Distribution........... Several of our directors and officers will
market the common stock. Although these
individuals will devote appropriate time and
energy to marketing and selling the shares,
there is no guarantee that the required
minimum of 1,000,000 shares will be sold.
These individuals will not receive any
commissions on the sales. If the offering
conditions are not satisfied by August 17,
1999, we may engage an underwriter to sell
the shares. The underwriter would receive a
commission on sales which would not exceed
10%. See "Terms of The Offering-- Plan of
Distribution" at page 10.
Use of Proceeds................ We will use the proceeds of this offering to
pay expenses associated with the
organization of Citizens Bancshares and
Citizens Bank, to pay expenses associated
with this offering, and to purchase all of
the issued and outstanding capital stock of
Citizens Bank. Citizens Bank will, in turn,
use the proceeds from the sale of its stock
to begin its operations. See "Use of
Proceeds" at page 11.
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RISK FACTORS
An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can afford to lose
your entire investment. You should consider carefully these risk factors
together with all of the other information included in this prospectus before
you decide to purchase shares of our common stock.
IF WE FAIL TO RECEIVE NECESSARY REGULATORY APPROVALS, YOU COULD LOSE A
PORTION OF YOUR INVESTMENT. If and when the stock subscription funds are
released from the subscription escrow account, we will use a portion of the
funds to pay start-up expenses. If we then fail to receive final regulatory
approval, we would seek to dissolve and liquidate Citizens Bancshares. Upon
liquidation, we would return to subscribers all subscription funds, with any
interest earned on the funds, less all expenses we had incurred. See "Terms of
the Offering -- Failure of Bank to Open for Business" at page 9.
WE HAVE NO OPERATING HISTORY UPON WHICH TO BASE AN ESTIMATE OF OUR
FUTURE SUCCESS. Citizens Bank, which initially will be the sole subsidiary of
Citizens Bancshares, is in organization, and neither Citizens Bank nor Citizens
Bancshares has any operating history on which to base any estimate of future
performance. Although we anticipate that Citizens Bank will open for business in
June of 1999, we can offer no assurance as to when, if at all, Citizens Bank
will open. In addition to the possibility that we will fail to receive final
regulatory approval to begin banking operations, our business is subject to the
risks inherent in the establishment of any new business enterprise. Because of
our lack of operating history, you do not have access to the type and amount of
information that would be available to a purchaser of the securities of a
financial institution with an operating history.
WE WILL INCUR SUBSTANTIAL START-UP EXPENSES AND WE DO NOT EXPECT TO BE
PROFITABLE FOR SEVERAL YEARS. Initially, we will merely act as the sole
shareholder of Citizens Bank. Thus, our profitability will be dependent upon the
successful operation of Citizens Bank. Although we anticipate that Citizens Bank
will open for business in June of 1999, we can offer no assurance as to when, if
at all, Citizens Bank will open. Any delay in opening for business will increase
our pre-opening expenses and postpone our realization of potential revenues.
Such a delay would cause our accumulated deficit to increase as a result of
continuing operating expenses, including lease payments, salaries and other
administrative expenses. Once it begins operations, Citizens Bank will incur
losses unless and until its deposit base develops to a level where it is able to
generate significant loan-related and other income to offset operating expenses.
Typically, new banks are not profitable in the first year of operation and
sometimes are not profitable for several years. We will incur substantial
expenses operating Citizens Bank, and we can offer no assurance that Citizens
Bank will be profitable or that future earnings, if any, will meet the levels of
earnings prevailing in the banking industry.
WE WILL BE COMPETING IN COLLIER COUNTY, FLORIDA WITH MANY OTHER,
LARGER, FINANCIAL INSTITUTIONS. Citizens Bank will be a full service community
bank in Collier County, Florida. Competition among financial institutions in
Collier County is intense, and we will compete with other state and national
banks, savings and loan associations, consumer finance companies, credit unions,
money market mutual funds, and other financial institutions which have far
greater financial resources than are available to us. Our relatively small size
may impact our ability to compete effectively with these larger institutions in
offering financial services. In addition, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 has further increased competition by
eliminating interstate branching barriers for certain financial institutions,
making it easier for out-of-state financial institutions to more easily access
the market to be served by Citizens Bank. If we are unable to successfully
compete for deposit, loan and other banking customers effectively, this
inability would have an adverse effect on our potential for growth and
profitability. See "Business of Citizens Bank -- Market Area and Competition" at
page 15.
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IF OUR PROPOSED CHIEF EXECUTIVE OFFICER, MICHAEL MCMULLAN, WERE TO
BECOME UNAVAILABLE, IT COULD DELAY OR PREVENT THE OPENING OF CITIZENS BANK.
Regulatory approval to establish and operate a national bank partially depends
upon the approval by the Office of the Comptroller of the Currency (OCC) of the
bank's proposed chief executive officer. Generally, the chief executive officer
of a start-up financial institution is considered vital to the potential success
of the new institution. In our charter application to the OCC, we proposed
Michael McMullan as Citizens Bank's chief executive officer. If Mr. McMullan
were to become unavailable for any reason, final regulatory approval to begin
banking operations would be delayed until the OCC approved a suitable
replacement. It is possible that we would not be able to find a suitable
replacement for Mr. McMullan. See "Management" at page 25.
INTEREST RATE VOLATILITY COULD SIGNIFICANTLY HARM OUR BUSINESS. Our
results of operations, like those of most other banks and bank holding
companies, will be significantly affected by changes in market interest rates.
Our profitability will depend substantially on our net interest income, which is
the difference between the interest income earned on interest-bearing assets,
such as loans, and the interest paid on interest-bearing liabilities, such as
deposits and borrowings. To the extent that the maturities of these assets and
liabilities differ, rapidly rising or falling interest rates could have a
material effect on our earnings. See "Business of Citizens Bank --
Asset/Liability Management" at page 18.
OUR RELATIVELY LOW LENDING LIMIT MAY LIMIT OUR GROWTH. At least during
our first years of operation, our legally mandated lending limit will be lower
than that of many of our competitors because during this period we will have
less capital than many of our competitors. Initially, we will have a legal
lending limit for unsecured loans of up to $1,455,000 to any one borrower. This
relatively low lending limit may discourage potential borrowers who have greater
borrowing needs, which may restrict our ability to grow. We may try to serve the
needs of these borrowers by selling loan participations to other institutions,
but this strategy may not succeed.
CITIZENS BANK'S LOAN PORTFOLIO WILL INCLUDE COMMERCIAL LOANS, WHICH WE
BELIEVE TO BE SOMEWHAT RISKIER THAN RESIDENTIAL AND CONSUMER LOANS. We
anticipate that approximately 15% of Citizens Bank's loan portfolio will consist
of commercial loans to small- and medium-sized businesses and to professionals.
The value of the collateral held by Citizens Bank as a measure of safety against
loss is more volatile in this loan category than in the categories of real
estate and consumer loans.
BOTH CITIZENS BANCSHARES AND CITIZENS BANK WILL OPERATE IN A HIGHLY
REGULATED ENVIRONMENT AND WILL BE SUBJECT TO SUPERVISION AND EXAMINATION BY
SEVERAL REGULATORY AGENCIES. As a bank holding company, Citizens Bancshares will
be subject to regulation and supervision by the Federal Reserve Board. As a
national bank, Citizens Bank will be subject to regulation and supervision
primarily by the OCC and, to a lesser extent, by the FDIC. Both Citizens
Bancshares and Citizens Bank will be subject to changes in federal and state
law, regulations, governmental policies, income tax laws and accounting
principles. In particular, legislation and regulations deregulating the banking
industry and allowing interstate expansion of financial services firms could
adversely affect our business along with that of the entire banking industry.
See "Supervision and Regulation" at page 21.
OUR SUCCESS WILL DEPEND SIGNIFICANTLY UPON GENERAL ECONOMIC CONDITIONS
IN COLLIER COUNTY. A prolonged economic dislocation or recession affecting
Collier County could cause Citizens Bank's non-performing assets to increase,
causing operating losses, impaired liquidity and the erosion of capital. Such an
economic dislocation or recession could result from a variety of causes,
including natural disasters such as hurricanes, floods or tornadoes, or a
prolonged downturn in various industries upon which the economy of Collier
County depends.
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THE OPERATION OF CITIZENS BANK MAY IN THE FUTURE REQUIRE MORE CAPITAL
THAN WE WILL RAISE IN THIS OFFERING. Although we anticipate that the $10,000,000
minimum amount of capital to be raised by this offering will be sufficient to
support Citizens Bank's capital needs for the next five years, we may in the
future need to obtain additional capital to comply with regulatory capital
requirements. We can give no assurance that we will be able to access the
capital markets in the future in order to obtain additional capital. See
"Supervision and Regulation" at page 21.
IF A MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, YOU MAY NOT BE ABLE
TO SELL YOUR SHARES. Since the size of the offering is relatively small, it is
unlikely that an active and liquid trading market will develop and be
maintained. You should only invest in the common stock if you have a long-term
investment intent. If an active market does not develop, you may not be able to
sell your shares promptly or perhaps at all. At this time, we do not intend to
list the common stock on any national securities exchange or on the Nasdaq Stock
Market.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK FOR AT LEAST
SEVERAL YEARS. We intend to retain our future earnings, if any, to enhance
Citizens Bank's capital structure or to defray its operating costs. Dividend
distributions of national banks are restricted by statute and regulation. Our
future dividend policy will depend on the earnings, capital requirements,
financial conditions and other factors considered relevant by our board of
directors. See "Dividend Policy" at page 13.
THE OFFERING PRICE WAS ARBITRARILY SET BY THE ORGANIZERS AND MAY NOT
ACCURATELY REFLECT THE VALUE OF AN INVESTMENT IN OUR COMMON STOCK. There is no
established market for the common stock or the warrants, nor was there an
established market prior to this offering. The offering price was arbitrarily
determined by the organizers, and does not bear any relationship to Citizens
Bancshares' assets, book value, net worth, or any other recognized criteria of
value. In determining the offering price of the common stock, the organizers
considered the OCC bank capital requirements and general market conditions for
the sale of securities.
MANAGEMENT WILL BE ABLE TO VOTE A SIGNIFICANT PORTION OF THE
OUTSTANDING SHARES OF COMMON STOCK FOLLOWING THE OFFERING, AND THERE MAY BE
INSTANCES IN WHICH THE INTERESTS OF MANAGEMENT ARE DIFFERENT FROM THE INTERESTS
OF OTHER SHAREHOLDERS. Upon completion of the minimum offering, the directors
and executive officers will own a total of 181,500 shares, which will equal
17.8% of the 1,018,000 shares then issued and outstanding. The maximum number of
shares that may be purchased by a single investor is 20,000 shares, or 2.0% of
the number of shares to be outstanding upon completion of the minimum offering,
although we reserve the right to waive this maximum. If management were to act
together, they could have significant influence over the outcome of any
stockholder vote. For example, this voting power could enable management to
deter or prevent takeover attempts that you would like to see happen. See
"Management" at page 25.
CITIZENS BANCSHARES WILL ISSUE THE ORGANIZERS OF CITIZENS BANCSHARES
AND CITIZENS BANK WARRANTS TO PURCHASE SHARES OF CITIZENS BANCSHARES COMMON
STOCK, WHICH IF EXERCISED, WOULD REDUCE YOUR PERCENTAGE OWNERSHIP AND WOULD
INCREASE THE ORGANIZERS' CONTROL OF THE COMPANY AND THE BANK. In consideration
of their efforts in organizing Citizens Bancshares and Citizens Bank and the
attendant personal financial risks assumed by them, Citizens Bancshares will
issue to the organizers warrants to purchase an aggregate of 113,330 shares of
Citizens Bancshares common stock. The warrants will be exercisable at a price of
$10.00 per share and will expire at the end ten years. See "Terms of the
Offering -- Grant of Warrants to Organizers" at page 9.
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OUR ARTICLES OF INCORPORATION CONTAIN PROVISIONS WHICH COULD SERVE TO
DETER OR PREVENT TAKE-OVER ATTEMPTS BY A POTENTIAL PURCHASER OF SHARES OF OUR
COMMON STOCK WHO WOULD BE WILLING TO PAY A PREMIUM OVER THE MARKET PRICE. The
Articles of Incorporation of Citizens Bancshares contain provisions which give
the board of directors the ability to deter or prevent a merger with, or a sale
of control to, a third party, even if the owners of a majority of the common
stock were to favor of such a transaction. Our Articles of Incorporation
authorize the board of directors to issue a series of preferred stock without
shareholder action. Such an issuance of preferred stock could discourage a third
party from attempting to acquire, or make it more difficult for a third party to
acquire, a controlling interest in Citizens Bancshares, and could adversely
affect the voting power or other rights of holders of the common stock. In
addition, the Articles of Incorporation establish a board of directors
classified such that only one-third of the members of our board of directors is
elected each year and each director serves for a term of three years. These
provisions make it difficult for a third party to achieve a change in control of
Citizens Bancshares through the acquisition of a large block of common stock
without approval of the board of directors. As a result of these anti-takeover
provisions, you may be deprived of opportunities to sell some or all of your
shares at prices exceeding market prices. See "Description of Capital Stock --
Anti-Takeover Provisions" at page 33.
IT IS POSSIBLE THAT OUR COMPUTER SYSTEMS, OR THOSE OF OUR DATA
PROCESSING VENDOR OR LOAN CUSTOMERS, WILL FAIL TO OPERATE PROPERLY BEGINNING
JANUARY 1, 2000. As the year 2000 approaches, an important business issue has
emerged regarding existing application software programs and operating systems.
Many existing application software products were designed to accommodate a
two-digit year. For example, "98" is stored on the system to represent 1998. As
a result, any computer programs or equipment that are date dependent may, for
example, recognize a date stored as "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing a
significant disruption of operations. We will utilize a third party vendor to
provide primary banking applications for Citizens Bank, including its core
processing systems. If we, our data processing vendor, or our loan customers do
not successfully and timely achieve Year 2000 compliance, our business, future
prospects, financial condition or results of operations could be materially
adversely affected. See "Business of Citizens Bank--Year 2000" at page 19.
This prospectus contains forward-looking statements. These statements
can be identified by the use of forward-looking words such as "may," "will,"
"expect," "anticipate," "estimate," "continue," or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other "forward-looking"
information. When reading these forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this prospectus. The
risk factors noted in this section and other factors noted throughout this
prospectus, including certain risks and uncertainties, could cause our actual
results to differ materially from those described in any forward-looking
statement.
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THE COMPANY
Citizens Bancshares was incorporated under the laws of the State of
Florida on September 15, 1998, to operate as a bank holding company under the
federal Bank Holding Company Act of 1956. Citizens Bancshares will use the
proceeds of this offering to purchase all of the authorized capital stock of
Citizens Bank, which will conduct a general banking business in Collier County,
Florida. All of the organizers reside in Collier County and all of the
organizers will serve on the initial board of directors of both Citizens
Bancshares and Citizens Bank. See "Management."
On May 6, 1999, Citizens Bancshares received approval of its
application with the Federal Reserve Board to become a bank holding company.
After completing the purchase of all of the issued and outstanding capital stock
of Citizens Bank, Citizens Bancshares will be a registered bank holding company
subject to regulation by the Federal Reserve Board. See "Supervision and
Regulation." It is anticipated that Citizens Bank will open for business in June
of 1999, or as soon thereafter as practicable.
Citizens Bancshares has purchased a former NationsBank branch office
located at 3401 Tamiami Trail North, Naples, Florida 34103. This facility will
serve as the main office of Citizens Bank and of Citizens Bancshares. Citizens
Bancshares has also leased office space adjacent to the main office to serve as
an operations office for both Citizens Bancshares and Citizens Bank. See
"Business of Citizens Bancshares -- Premises." Citizens Bancshares' telephone
number is (941) 643-4646.
TERMS OF THE OFFERING
GENERAL
Citizens Bancshares is offering 1,200,000 shares of its common stock
for cash at a price of $10.00 per share. Investors must purchase a minimum of
500 shares and may purchase a maximum of 20,000 shares, or 1.67% of the total
number of shares being offered. The minimum and maximum subscription amounts may
be waived by Citizens Bancshares in its sole discretion. The purchase price
shall be paid in full upon execution and delivery of a subscription agreement.
All subscriptions tendered by investors are subject to acceptance by the board
of directors of Citizens Bancshares, and Citizens Bancshares reserves the
absolute and unqualified right to reject or reduce any subscription for any
reason prior to acceptance. Subscriptions which are rejected by Citizens
Bancshares will be returned to the subscriber without interest. Any investor
whose subscription is reduced by Citizens Bancshares may withdraw his or her
subscription within ten days after being notified of such reduction by Citizens
Bancshares. Citizens Bancshares reserves the right to cancel this offering for
any reason whatsoever at any time prior to the time it withdraws funds from the
subscription escrow account.
Citizens Bancshares will also be issuing 113,330 stock purchase
warrants to its organizers. The warrants will be exercisable for a period of ten
years, beginning on the date Citizens Bank opens for business, at an exercise
price of $10.00 per share.
Prior to this offering there has been no established public market for
the shares of the common stock or the warrants and we can offer no assurance
that an established market for the common stock will develop. The offering price
of the common stock has been arbitrarily determined and is not a reflection of
Citizens Bancshares' book value, net worth or any other recognized criteria of
value. In determining the offering price, the organizers considered the capital
requirements imposed by the OCC and the general market conditions for the sale
of the securities. There can be no assurance that, if a market should develop
for the common stock, the post-offering market price will equal or exceed the
offering price.
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CONDITIONS OF THE OFFERING
This offering will expire at 5:00 p.m. Eastern Time 90 days from the
date of this prospectus, on August 17, 1999, unless the offering is extended by
Citizens Bancshares. The expiration date may be extended by Citizens Bancshares
without notice to subscribers for up to three consecutive 90-day periods, or not
later than May 13, 2000. The offering is expressly conditioned upon fulfillment
of the following conditions on or prior to the expiration date, as extended. The
offering conditions, which may not be waived, are as follows:
(a) at least $10,000,000 must be deposited with the escrow agent
in the subscription escrow account;
(b) the Federal Reserve Board must approve Citizens Bancshares'
application to become a bank holding company;
(c) the FDIC must approve Citizens Bank's application for deposit
insurance; and
(d) Citizens Bancshares must not have canceled this offering prior
to the time funds are withdrawn from the subscription escrow
account.
ESCROW OF SUBSCRIPTION FUNDS
Until the offering conditions above have been satisfied, Citizens
Bancshares will place all subscription funds and documents tendered by investors
in an escrow account with First National Bank of Naples. The escrow agreement, a
copy of which is included in this prospectus at Appendix A, provides that the
escrow agent will release all subscription funds, along with any interest earned
on the funds, to Citizens Bancshares at such time Citizens Bancshares certifies
to the escrow agent that all of the offering conditions have been met. The
subscription funds will not be insured by the FDIC or any other governmental
agency.
Pending disposition of the subscription escrow account, the escrow
agent is authorized, upon instructions to be given by Polly M. Rogers, the
President of Citizens Bank, to invest subscription funds in investments of the
United States Government and United States Government-backed securities.
Citizens Bancshares will invest the subscription funds and any additional funds
obtained after breaking escrow and prior to the time that Citizens Bancshares
purchases the common stock of Citizens Bank in a similar manner.
If the offering conditions are not satisfied by the expiration date,
the escrow agent will promptly return to the subscribers their proportionate
share of the funds from the escrow account. Citizens Bancshares will also return
to the subscribers their proportionate share of any interest earned on the
funds. If the offering conditions are not satisfied, the expenses incurred by
Citizens Bancshares will be borne by the organizers and not by the subscribers.
No assurance can be given that subscription funds can or will be
invested at the highest rate of return available or that any profits will be
realized from the investment of subscription funds.
If all of the offering conditions are satisfied, and Citizens
Bancshares withdraws the subscription funds from the subscription escrow
account, any and all profits and earnings on the escrow account will belong to
Citizens Bancshares.
First National Bank of Naples, by accepting appointment as escrow agent
under the escrow agreement, in no way endorses the purchase of securities of
Citizens Bancshares by any person.
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FAILURE OF BANK TO OPEN FOR BUSINESS
The OCC requires that a new national bank receive final approval of its
charter and open for business within eighteen months after receiving preliminary
approval from the OCC. The organizers received preliminary approval to charter
Citizens Bank on February 12, 1999. The organizers anticipate that Citizens Bank
will open for business in June of 1999, or as soon thereafter as is practicable.
Because final approval of Citizens Bank's charter is conditioned on Citizens
Bancshares raising $9,700,000 of funds to capitalize Citizens Bank, Citizens
Bancshares expects to issue the shares of common stock before Citizens Bank has
obtained all final regulatory approvals. If Citizens Bancshares issues the
shares of common stock and the OCC does not grant Citizens Bank final regulatory
approval to open for business within eighteen months of Citizens Bank's receipt
of preliminary approval from the OCC, Citizens Bancshares will solicit
shareholder approval to dissolve and liquidate the company. If this were to
occur, Citizens Bancshares would return to subscribers all subscription funds
together with any interest earned thereon, less all expenses incurred by
Citizens Bancshares, including the expenses of this offering and the
organizational and pre-opening expenses of Citizens Bancshares and Citizens
Bank. Therefore, if Citizens Bancshares and Citizens Bank do not receive final
regulatory approvals, subscribers whose funds were originally placed in escrow
and subscribers whose funds were immediately available to Citizens Bancshares
face the risk of loss of a portion of their subscription funds. It is possible
that this return may be further reduced by amounts paid to satisfy claims of
creditors, as discussed in the following paragraph.
Once Citizens Bancshares issues the shares of common stock, the
offering proceeds will be considered part of general corporate funds and thus
may be subject to the claims of creditors of Citizens Bancshares, including
claims against Citizens Bancshares that may arise out of actions of Citizens
Bancshares' officers, directors or employees. It is possible, therefore, that
one or more creditors may seek to attach the proceeds of the offering prior to
Citizens Bank's opening for business. If such an attachment occurred and it
became necessary to pay the offering proceeds to the shareholders because of
failure to obtain all necessary regulatory approvals, the payment process might
be delayed, and if it became necessary to pay creditors from the subscription
funds, the payment to shareholders might be further reduced.
PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS OF CITIZENS BANCSHARES
Upon completion of the minimum offering, the directors and executive
officers will own 181,500 shares of Citizens Bancshares' common stock, or 17.8%
of the 1,018,000 shares to be then issued and outstanding. The directors and
executive officers have represented to Citizens Bancshares that these purchases
will be made for investment purposes only and not with a view to resell the
shares. See "Management."
GRANT OF WARRANTS TO ORGANIZERS
In consideration of their efforts in organizing Citizens Bancshares and
Citizens Bank and the attendant personal financial risks assumed by them, the
organizers will be issued warrants as of the date Citizens Bank opens for
business to purchase an aggregate of 113,330 shares of Citizens Bancshares
common stock.
The warrants will be granted to the organizers in recognition of the
financial risk they have undertaken in connection with the organizational
expenses of this project and of the time expended and devoted to this
organizational effort, including attendance at weekly meetings over a period of
several months. Each of the organizers has personally guaranteed the line of
credit obtained from NationsBank, N.A. The warrants will provide the organizers
with the opportunity to profit from any future increase in the market value of
the common stock. Twenty percent of the warrants issued to each organizer will
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<PAGE> 11
become exercisable on the date that Citizens Bank opens for business and twenty
percent will become exercisable on each of the four succeeding anniversaries of
the date Citizens Bank opens for business. The warrants will have an exercise
price of $10.00 per share and all of the warrants will expire ten years from the
date Citizens Bank opens for business. The following table sets forth the number
of shares underlying the warrants to be issued to each of the organizers:
<TABLE>
<CAPTION>
Shares
Underlying
Organizer Warrants
--------- ----------
<S> <C>
Joe B. Cox.......... 13,333
Earl L. Frye........ 13,333
Stanley W. Hole..... 6,666
John B. James....... 13,333
LaVonne Johnson..... 13,333
Luc C. Mazzini...... 13,333
Polly M. Rogers..... 13,333
Bernard L. Turner... 13,333
Lorenzo Walker...... 13,333
</TABLE>
PLAN OF DISTRIBUTION
Citizens Bancshares may cancel this offering for any reason at any time
prior to the release of subscription funds from the subscription escrow account,
and accepted subscriptions are subject to cancellation in the event that
Citizens Bancshares elects to cancel the offering in its entirety. If the
offering conditions have not been satisfied by the expiration date, this
offering will be terminated and subscription funds promptly returned to the
subscribers, together with their allocated share of profits, if any, earned on
the investment of the subscription funds as described above. See "Terms of the
Offering -- Escrow of Subscription Funds."
Shares of the common stock of Citizens Bancshares will be marketed
exclusively through a number of the directors and officers of Citizens
Bancshares, none of whom will receive any commissions or other form of
remuneration based on the sale of the shares. However, if the offering
conditions have not been satisfied by August 17, 1999, Citizens Bancshares may
engage an underwriter to sell the shares and the underwriter would receive a
commission based upon the sales. It is anticipated that commissions paid to the
underwriter would not exceed 10% of the $10.00 per share sales price and that
other expenses of the underwriting would not exceed an aggregate of $50,000.
Subscriptions to purchase shares of common stock can be made by
completing the subscription agreement attached to this prospectus at page B-1
and delivering the same to Citizens Bancshares at 3411 Tamiami Trail North,
Suite 200, Naples, Florida 34103 or mailing the same in the enclosed
self-addressed, stamped envelope. Full payment of the purchase price must
accompany the subscription. Unless otherwise agreed by Citizens Bancshares, all
subscription amounts must be paid in United States currency by check, bank draft
or money order payable to "First National Bank of Naples, Escrow Agent for
Citizens Bancshares of Southwest Florida, Inc." Failure to pay the full
subscription price will entitle Citizens Bancshares to disregard the
subscription.
No subscription agreement is binding until accepted by Citizens
Bancshares. Citizens Bancshares may refuse to accept any subscription for
shares, in whole or in part, for any reason whatsoever. As soon as
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<PAGE> 12
practicable, but no more than ten business days after receipt of a subscription,
Citizens Bancshares will accept or reject the subscription. Subscriptions not
rejected by Citizens Bancshares within this ten day period shall be deemed
accepted. If Citizens Bancshares refuses to accept all or part of a
subscription, a refund, without interest, of the payment for shares in excess of
the number of shares allocated to the subscriber will be issued by mail to the
subscriber within ten days of the date of the rejection.
After a subscription is accepted and proper payment received, Citizens
Bancshares will not cancel the subscription unless all accepted subscriptions
are canceled. Once a subscription is accepted by Citizens Bancshares, it cannot
be withdrawn by the subscriber. A subscription will be accepted in writing by
Citizens Bancshares in the Form of Acceptance included in this prospectus at
page B-4.
Certificates representing shares of common stock of Citizens
Bancshares, duly authorized and fully paid, will be issued as soon as
practicable after subscription funds are released to Citizens Bancshares from
the subscription escrow account.
USE OF PROCEEDS
The gross proceeds from the sale of shares of common stock offered by
Citizens Bancshares are estimated to be $10,000,000 assuming the sale of a
minimum of 1,000,000 shares, and $12,000,000 assuming the sale of a maximum of
1,200,000 shares. The estimated expenses of this offering are as follows:
<TABLE>
<S> <C>
Registration fees, including state securities
registrations fees and expenses.......................................... $ 5,000
Legal fees and expenses...................................................... 18,000
Accounting fees and expenses................................................. 15,000
Printing and engraving expenses.............................................. 6,000
Advertising.................................................................. 3,500
Mailing and distribution..................................................... 5,000
Miscellaneous................................................................ 4,000
-----------
Total expenses ......................................................... $ 56,500
===========
Net proceeds (minimum offering)........................................ $ 9,943,500
Net proceeds (maximum offering)........................................ $11,943,500
</TABLE>
The net proceeds of this offering, as well as any interest earned on
the subscription funds, will be used by Citizens Bancshares, after breaking
escrow, primarily for the purchase all of the issued and outstanding capital
stock of Citizens Bank. Citizens Bank will, in turn, use the funds as capital to
begin its business operations and to pay expenses incurred in the organization
of Citizens Bancshares and Citizens Bank.
As indicated in the charter application of Citizens Bank filed by the
organizers with the OCC, Citizens Bancshares intends to capitalize Citizens Bank
at $9,700,000. Accordingly, any net proceeds of this offering in excess of
$9,700,000 will be retained by Citizens Bancshares for growth of Citizens Bank
in compliance with OCC regulations regarding the ratio that Citizens Bank's
total assets may bear to its total capital. Citizens Bancshares anticipates that
the proceeds received upon exercise of the warrants, if any, will be used for
working capital purposes. Although management of Citizens Bancshares anticipates
that the proceeds of this offering will be sufficient to support Citizens Bank's
immediate capital needs, if Citizens Bank experiences greater growth than
anticipated it may require the infusion of capital in addition to the proceeds
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<PAGE> 13
of this offering. In that event, management of Citizens Bancshares would seek to
support such growth through debt financing; however, such financing might not be
available on terms acceptable to management.
The following is a schedule of the estimated use by Citizens Bank of
the proceeds from the sale of its common stock to Citizens Bancshares, including
Citizens Bank's estimated operating expenses for its first twelve months of
operation.
<TABLE>
<S> <C>
Organizational and pre-opening expenses
of Citizens Bank including salaries,
lease of operations office and legal
and accounting fees (1)............................ $ 265,000 *
Purchase of land and building for
main office(2)..................................... 1,325,000 *
Furniture, fixtures and equipment (3)................. 558,000 *
Lease expense associated with
operations office.................................. 53,000 +
Salaries and benefits (4)............................. 1,080,000 +
Occupancy expenses (5)
(utilities, property insurance, etc.).............. 55,000 +
General and administrative expenses,
composed primarily of data processing,
marketing and advertising, telephone
and casualty and deposit insurance (5)............. 233,000 +
Investment and loan portfolio (6)..................... 6,131,000
--------------
Total capital......................................... $ 9,700,000
==============
</TABLE>
- -----------------
* Represents expenses which will be incurred prior to the opening of Citizens
Bank.
+ Represents operating expenses which will be incurred during Citizens Bank's
first twelve months of operations.
(1) These expenses will be incurred prior to
the opening of Citizens Bank and are being funded by a credit line in the
amount of $300,000 with NationsBank, N.A. and capital contributions from
the organizers in the aggregate amount of $180,000. A portion of these
costs may be allocated to and expensed by Citizens Bancshares, in which
event the funds available for inclusion in Citizens Bank's investment and
loan portfolio would be increased by an equal amount.
(2) Citizens Bancshares has entered into a loan agreement with NationsBank,
N.A. to fund the purchase of Citizens Bank's main office facility.
(3) Furniture and equipment cost is based on the organizers' estimates and upon
information from suppliers of bank equipment of the costs required to
furnish and equip Citizens Bank for the expected level of operations.
(4) Salaries and benefits are based on management's estimates of the number and
types of employees which will be required during the first twelve months of
operations of Citizens Bank. It is presently anticipated that Citizens Bank
will initially employ 21 individuals, including nine officers.
(5) These expenses are based on the experiences of similar size banks in the
region and on management's previous banking experience.
(6) Although the exact composition of Citizens Bank's investment and loan
portfolio has not been determined, it is currently anticipated that any
remaining proceeds will be used to fund investments in loans, U.S.
government and agency securities, and Federal Funds sold.
The expenses described above are estimates only and assume Citizens
Bank will open for business in June of 1999. Actual expenses may exceed these
amounts. A portion of these expenses will be offset by revenues generated by
Citizens Bank during its first year of operation.
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<PAGE> 14
DIVIDEND POLICY
As Citizens Bancshares and Citizens Bank are both start-up operations,
the board of directors of Citizens Bancshares intends to reinvest earnings for
such period of time as is necessary to ensure the success of the operations of
Citizens Bancshares and Citizens Bank. There are no current plans to initiate
payment of cash dividends, and future dividend policy will depend on Citizens
Bank's earnings, capital requirements, financial condition and other factors
considered relevant by the board of directors of Citizens Bancshares.
Citizens Bank will be restricted in its ability to pay dividends by the
national banking laws and OCC regulations. 12 U.S.C. ss. 56 provides that a
national bank may not pay dividends from its capital. In addition, no dividends
may be made in an amount greater than a national bank's undivided profits,
subject to other applicable provisions of law. Payments of dividends out of
undivided profits is further limited by 12 U.S.C. ss. 60(a), which prohibits a
bank from declaring a dividend on its shares of common stock until its surplus
equals its stated capital, unless there has been transferred to surplus not less
than 1/10 of the bank's net income of the preceding two consecutive half-year
periods (in the case of an annual dividend). 12 U.S.C. ss. 60(b) provides that
the approval of the OCC is required if the total of all dividends declared by
Citizens Bank in any calendar year exceeds the total of its net income for that
year combined with its retained net income for the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Citizens Bancshares is still in the development stage, and will remain
in that stage until the offering of the common stock is complete. Citizens
Bancshares has funded its start-up and organization costs to date through a
$300,000 credit line with NationsBank, N.A. and capital contributions from the
organizers in the amount of $180,000. Total organizational costs, paid and
accrued, as of February 22, 1999 amounted to approximately $145,000. These costs
include consultant fees, legal fees and regulatory application fees. In
addition, the Company has entered into a $1,500,000 loan agreement with
NationsBank to fund the purchase of Citizens Bank's main office facility.
Subscription funds received during this offering will be placed in a
subscription escrow account and invested in investments of the United States
Government and United States Government-backed securities.
In the opinion of Citizens Bancshares, the proceeds of $10,000,000 from
the minimum offering will be adequate to support the growth of both Citizens
Bancshares and Citizens Bank for the first five years of operation. It is not
anticipated that Citizens Bancshares will find it necessary to raise additional
funds to meet expenditures required to operate the business of Citizens
Bancshares and Citizens Bank over the next twelve months. All anticipated
material expenditures for such period have been provided for out of the proceeds
of this offering. See "Use of Proceeds."
The plan of operations for Citizens Bancshares and Citizens Bank is
described in detail elsewhere in this prospectus. See "Business of Citizens
Bancshares" and "Business of Citizens Bank."
BUSINESS OF CITIZENS BANCSHARES
Citizens Bancshares was incorporated under the laws of the State of
Florida on September 15, 1998, for the purpose of organizing and purchasing all
of the outstanding capital stock of Citizens Bank. The organizers received
preliminary approval to charter Citizens Bank on February 12, 1999. Citizens
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<PAGE> 15
Bancshares has been organized as a mechanism to enhance Citizens Bank's ability
to serve its future customers' requirements for financial services. Citizens
Bancshares has received approval of its application with the Federal Reserve
Board to operate as a bank holding company. The holding company structure will
provide flexibility for expansion of Citizens Bancshares' banking business
through acquisition of other financial institutions and provision of additional
banking-related services which the traditional commercial bank may not provide
under present laws. For example, banking regulations require that Citizens Bank
maintain a minimum ratio of capital to assets. In the event that Citizens Bank's
growth is such that this minimum ratio is not maintained, Citizens Bancshares
may borrow funds, subject to the capital adequacy guidelines of the Federal
Reserve Board, and contribute them to the capital of Citizens Bank and otherwise
raise capital in a manner which would be unavailable to Citizens Bank under
existing banking regulations.
Citizens Bancshares has no present plans to acquire any operating
subsidiaries other than Citizens Bank; however, it is expected that Citizens
Bancshares may make additional acquisitions in the event that Citizens Bank
becomes profitable and such acquisitions are deemed to be in the best interests
of Citizens Bancshares and its shareholders. Such acquisitions, if any, will be
subject to certain regulatory approvals and requirements. See "Supervision and
Regulation."
BUSINESS OF CITIZENS BANK
GENERAL
The organizers received preliminary approval from the OCC to charter
Citizens Bank on February 12, 1999. The organizers received approval from the
FDIC of Citizens Bank's application for deposit insurance on April 2, 1999.
Citizens Bank anticipates that it will begin operations in June of
1999, or as soon thereafter as is practicable. Citizens Bank plans to be a full
service commercial bank, except that it will not have trust powers. Citizens
Bank will offer a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, regular interest bearing statement
savings accounts, certificates of deposit, commercial loans, real estate loans,
home equity loans and consumer/installment loans. In addition, Citizens Bank
will provide such consumer services as U.S. Savings Bonds, travelers checks,
cashiers checks, safe deposit boxes, bank by mail services, direct deposit and
automatic teller services.
The philosophy of management of Citizens Bank will be to emphasize
prompt and responsive personal service to members of the business and
professional community of western Collier County, Florida, in order to attract
customers and acquire market share now controlled by other financial
institutions in Citizens Bank's market area. Citizens Bank's prime location and
range of banking services, as well as its emphasis on personal attention and
service, prompt decision making and consistency in banking personnel, will be
major tools in Citizens Bank's efforts to capture market share. In addition,
Citizens Bank's executive officers have substantial banking experience, which
will be an asset in providing both products and services designed to meet the
needs of Citizens Bank's customer base. All of the organizers are active members
of the business community in and around the Collier County area, and continued
active community involvement will provide an opportunity to promote Citizens
Bank and its products and services. The organizers intend to utilize target
marketing and superior selling efforts in order to build a distinct
institutional image for Citizens Bank and to establish a customer base.
14
<PAGE> 16
MARKET AREA AND COMPETITION
Citizens Bank will be located in the Park Shore section of Naples,
Florida, which is approximately three miles north of downtown Naples. The
organizers have identified Citizens Bank's primary service area, the area from
which it is expected that 75% of bank's customer base will be drawn, as western
Collier County, Florida. This area is defined by the Gulf of Mexico to the west,
the Collier County line to the north, State Road 951 to the east, and the
Intercoastal Waterway to the south.
Collier County represents one of the fastest growing metropolitan areas
in the United States. According to information compiled by the Collier County
Community Development & Environmental Services Division, the county population
more than quadrupled from 1975 to 1995. The county's estimated 1997 population
of 202,900 was expected to increase another 30% by the year 2000.
Collier County's economic base is built on services, retail trade,
tourism, finance, insurance, real estate, construction and agriculture. While
historically employment in the county has been seasonal, as a result of winter
tourism, recent population growth has added greater diversity to the county's
economy.
Competition in Citizens Bank's primary service area is intense. At June
30, 1997, Collier County reported total bank and thrift institution deposits of
$3.5 billion and the market was served by 21 financial institutions with a total
of 90 branches in Collier County. The 21 financial institutions represent
seventeen commercial banks and four savings banks. Thirteen regional holding
companies are represented in the county. Of these, NationsBank is the largest,
with a deposit market share of 29.5%, and First Union National Bank of Florida
is second in size, with a market share of 16.5%. The independent community banks
are represented by Community Bank of Naples, Village Bank of Naples, Pelican
National Bank, Gulf Coast National Bank and First National Bank of Naples. In
addition, numerous brokerage firms compete in the market for deposits and
services.
Financial institutions compete with one another primarily for deposits.
A bank's deposit base directly affects the bank's loan activities and general
growth. Primary methods of competition include interest rates on deposits and
loans, service charges on deposit accounts and the offering of unique financial
services products. Citizens Bank will be competing with financial institutions
which have much greater financial resources than Citizens Bank, and which may be
able to offer more and unique services and possibly better terms to their
customers. However, the organizers believe that Citizens Bank will be able to
attract sufficient deposits to enable it to compete effectively with other area
financial institutions. The organizers believe that Citizens Bank will have the
advantage of being locally owned and managed, enabling it to benefit from the
high visibility and excellent business contacts of its organizers.
Citizens Bank will be in competition with existing area financial
institutions other than commercial banks and savings and loan associations,
including insurance companies, consumer finance companies, brokerage houses,
credit unions and other business entities which have recently been invading the
traditional banking markets. Due to the continuing growth of Collier County, it
is anticipated that additional competition will continue from new entrants to
the market.
DEPOSITS
Citizens Bank will offer a full range of interest bearing and
non-interest bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest bearing statement savings accounts and certificates of deposit with
fixed and variable rates and a range of maturity date options. The sources of
deposits will be residents, businesses and employees of
15
<PAGE> 17
businesses within Citizens Bank's market area, obtained through the personal
solicitation of Citizens Bank's officers and directors, direct mail solicitation
and advertisements published in the local media. Citizens Bank will pay
competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, Citizens Bank will implement a
service charge fee schedule competitive with other financial institutions in
Citizens Bank's market area, covering such matters as maintenance fees on
checking accounts, per item processing fees on checking accounts, returned check
charges and the like.
LOAN PORTFOLIO
Citizens Bank will engage in a full complement of lending activities,
including commercial, consumer/installment and real estate loans. Although
management believes that real estate loans will be Citizens Bank's primary
product, constituting approximately 80% of Citizens Bank's loan portfolio,
commercial and consumer/installment loans are expected to comprise significant
portions of Citizens Bank's loan portfolio as well (15% and 5%, respectively).
While adjustable rates for Citizens Bank's real estate loans will be emphasized,
fixed rates will also be offered. Initially, Citizens Bank will have a legal
lending limit for unsecured loans of up to $1,455,000 to any one person.
Management intends to originate loans and to participate with other banks with
respect to loans which exceed Citizens Bank's lending limits. Management does
not believe that loan participations will necessarily pose any greater risk of
loss than loans which Citizens Bank originates. See "Supervision and
Regulation."
Based on the risks associated with Citizens Bank's loan portfolio,
management intends to provide an allowance for loan losses which will be based
on an analysis of the loan portfolio and will reflect an amount which, in
management's judgment, is adequate to absorb losses which have been incurred as
of each balance sheet date. The analysis of the loan portfolio will include, but
will not be limited to, the following:
- growth and composition of the loan portfolio
- current economic conditions
- past loss experience of similar size institutions
- evaluation of potential losses in the current loan portfolio
Lending will be directed principally towards individuals and businesses
whose demands for funds fall within Citizens Bank's legal lending limits and
which are potential deposit customers of Citizens Bank. Citizens Bank does not
anticipate any foreign loans in Citizens Bank's loan portfolio. The following is
a description of each of the major categories of loans anticipated in Citizens
Bank's loan portfolio and the anticipated risks associated with each type of
loan:
Commercial and Industrial Loans
Commercial lending will be directed principally towards businesses
whose demands for funds fall within Citizens Bank's legal lending limits and
which are potential deposit customers of Citizens Bank. This category of loans
includes loans made to individual, partnership, or corporate borrowers, for a
variety of business purposes. Particular emphasis will be placed on loans to
small and medium-sized businesses and to professionals. Risks of these types of
loans depend on the general business conditions of the local economy and the
local business borrower's ability to sell its products and services in order to
generate sufficient business profits to repay Citizens Bank under the agreed
upon terms and conditions. The value of the collateral held by Citizens Bank as
a measure of safety against loss is most volatile in this loan category.
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<PAGE> 18
Consumer Loans
Citizens Bank's consumer loans will consist primarily of installment
loans to individuals for personal, family and household purposes, including
automobile loans. Citizens Bank will also offer lines of credit and term loans
secured by second mortgages on the residences of borrowers for a variety of
purposes including home improvements, education, and other personal
expenditures. Loss or decline of income by the borrower due to layoff, divorce
or unexpected medical expenses represent unplanned occurrences that may
represent risk of default to Citizens Bank. In the event of default, a shortfall
in the value of the collateral may pose a loss to Citizens Bank in this loan
category.
Real Estate Loans
Citizens Bank's real estate loans will consist of residential first and
second mortgage loans, residential construction loans and commercial real estate
loans to a limited degree. These loans will be made consistent with Citizens
Bank's appraisal policy and real estate lending policy which will detail maximum
loan-to-value ratios and maturities. Citizens Bank expects that these
loan-to-value ratios will be sufficient to compensate for fluctuations in the
real estate market to minimize the risk of loss to Citizens Bank.
Residential Mortgage. These loans will be granted to qualified
individuals for the purchase of existing single family residences in Citizens
Bank's market area. Both fixed and variable rate loans will be offered with
competitive terms and fees consistent with national mortgage investor
guidelines. These loans will be made consistent with Citizens Bank's appraisal
policy and real estate lending policy which will detail maximum loan-to-value
ratios and maturities. Management of Citizens Bank expects that these
loan-to-value ratios, which generally will not exceed 80%, will be sufficient to
compensate for fluctuations in the real estate market to minimize the risk of
loss. Mortgage loans that do not conform to Citizens Bank's asset/liability mix
policies will be sold by Citizens Bank in the secondary markets. The risk of
this type of activity depends on the salability of the loan to national
investors and interest rate changes. Delivering these loans to the end investor
on a mandatory basis and meeting the investor's quality control procedures
limits Citizens Bank's risk of making fixed rate mortgage loans. The risk
assumed by Citizens Bank will be conditioned upon Citizens Bank's internal
controls, loan underwriting and market conditions in the national mortgage
market. Citizens Bank will retain loans for its portfolio when it has sufficient
liquidity to fund the needs of the established customers and when rates are
favorable to retain the loans. Although Citizens Bank has not formally adopted
any underwriting or loan policies, the loan underwriting standards and policies
will generally be the same for both loans sold in the secondary market and those
retained in Citizens Bank's portfolio.
Residential Construction. These loans will be made for the
construction of single family residences in Citizens Bank's market area. The
loans will be granted to qualified individuals with down payments of at least
20% of the appraised value or contract price, whichever is less. The interest
rates are expected to fluctuate at 1% to 2% above Citizens Bank's prime interest
rate during the six month construction period. Citizens Bank will also charge a
fee of 1% to 2% in addition to the normal closing costs. These loans generally
command higher rates and fees commensurate with the risk warranted in the
construction lending field. The risk in construction lending is dependent upon
the performance of the builder in building the project to the plans and
specifications of the borrower and Citizens Bank's ability to administer and
control all phases of the construction disbursements. Upon completion of the
construction period, management anticipates that the mortgage would be converted
to a permanent loan and normally sold to an investor in the secondary mortgage
market.
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<PAGE> 19
Commercial Real Estate. To a limited extent, Citizens Bank
anticipates that it will also offer commercial real estate loans to developers
of both commercial and residential properties. In making these loans, Citizens
Bank intends to manage its credit risk by actively monitoring such measures as
advance rate, cash flow, collateral value and other appropriate credit factors.
Management will attempt to reduce credit risk in the commercial real estate
portfolio be emphasizing loans on owner-occupied office and retail buildings
where the loan-to-value ratio, established by independent appraisals, does not
exceed 80%. In addition, Citizens Bank may require personal guarantees of the
principal owners.
While risk of loss in Citizens Bank's loan portfolio is primarily tied
to the credit quality of the various borrowers, risk of loss may also increase
due to factors beyond Citizens Bank's control, such as local, regional and/or
national economic downturns. General conditions in the real estate market may
also impact the relative risk in Citizens Bank's real estate portfolio. Of
Citizens Bank's target areas of lending activities, commercial loans are
generally considered to have greater risk than real estate loans or consumer
installment loans.
The above description of Citizens Bank's loan portfolio represents
management's best estimate as to the types of loans which will comprise its
portfolio and the risks associated with such loans. The board of directors of
Citizens Bank has not adopted any specific loan policies and procedures as of
the date of this prospectus.
INVESTMENTS
In its first year of operation, management of Citizens Bank anticipates
that investment securities will comprise approximately 12% of Citizens Bank's
assets, loans will comprise approximately 45% of Citizens Bank's assets, and
other investments will comprise approximately 31% of Citizens Bank's assets.
Citizens Bank intends to invest primarily in direct obligations of the United
States, obligations guaranteed as to principal and interest by the United
States, obligations of agencies of the United States and certificates of deposit
issued by commercial banks. In addition, Citizens Bank will enter into Federal
Funds transactions with its principal correspondent banks, and anticipates that
it will primarily act as a net seller of such funds. The sale of Federal Funds
amounts to a short-term loan from Citizens Bank to another bank.
ASSET/LIABILITY MANAGEMENT
It will be the objective of Citizens Bank to manage its assets and
liabilities to provide a satisfactory, consistent level of profitability.
Citizens Bank's executive officers and the Asset/Liability Committee of the
board of Directors of the bank will be responsible for monitoring
interest-bearing assets and interest-bearing liabilities to ensure stability of
earnings. It is the overall philosophy of management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management will
seek to invest the largest portion of Citizens Bank's assets in real estate,
commercial and consumer loans.
Citizens Bank's asset/liability mix likely will be monitored on a daily
basis with a monthly report reflecting interest-sensitive assets and
interest-sensitive liabilities being prepared and presented to the board of
directors. The objective of this policy is to control interest-sensitive assets
and liabilities so as to minimize the impact of substantial movements in
interest rates on First National Bank's earnings.
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<PAGE> 20
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. Citizens Bank will be required to purchase correspondent
services offered by larger banks, including check collections, purchase of
Federal Funds, security safekeeping, investment services, coin and currency
supplies, over line and liquidity loan participations and sales of loans to or
participations with correspondent banks.
Citizens Bank anticipates that it will sell loan participations to
correspondent banks with respect to loans which exceed Citizens Bank's lending
limit. As compensation for services provided by a correspondent, Citizens Bank
may maintain certain balances with such correspondents in non-interest bearing
accounts.
DATA PROCESSING
Citizens Bank has entered into a five-year data processing servicing
agreement with The BISYS Group, Inc., which will provide for Citizens Bank to
receive a full range of data processing services, including an automated general
ledger, deposit accounting, commercial, real estate and installment lending data
processing , central information file and ATM processing services. Citizens Bank
has also entered into an agreement with ADP to provide payroll services, and
anticipates entering into an agreement with another third party vendor to
provide investment portfolio accounting.
YEAR 2000
As the year 2000 approaches, an important business issue has emerged
regarding existing application software programs and operating systems. Many
existing application software products were designed to accommodate a two-digit
year. For example, the number "98" is stored on the system to represent the year
1998. As a result, these systems may mistakenly recognize dates beyond 1999. For
example, the number "00" could be interpreted as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations, which could
in turn result in a potentially significant disruption of normal business
activities.
Communications and information systems, including systems which monitor
deposit and lending accounts, are critical to Citizens Bancshares' and Citizens
Bank's business. Citizens Bank will install software and hardware developed by
independent third parties to provide primary banking applications, including
core processing systems. Citizens Bank intends to choose a source for these
systems that has modified or upgraded its computer applications to become Year
2000 compliant. Management intends to obtain a representation from this vendor
that its core processing systems will be fully Year 2000 compliant prior to the
opening of Citizens Bank for business. In addition, Citizens Bancshares and
Citizens Bank intend to implement a Year 2000 compliance program whereby
Citizens Bank will review the Year 2000 issues that may be faced by its other
third-party vendors and loan and deposit customers. As Citizens Bank expects
that all of the hardware and software it purchases will be Year 2000 compliant,
Citizens Bank estimates that it will incur additional expenses of less than
$5,000 in connection with Year 2000 issues. In the event that Citizens
Bancshares, Citizens Bank or its significant vendors or loan customers do not
successfully and timely achieve Year 2000 compliance, Citizens Bank's business,
future prospects, financial condition or results of operations could be
materially adversely affected.
Another area of concern to Citizens Bancshares, Citizens Bank, and
their primary regulator, the OCC, is the effect of Year 2000 issues on Citizens
Bank's loan customers. Failure to address Year 2000 related
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<PAGE> 21
issues could have a significant impact on the ability of certain customers of
Citizens Bank to continue operations. Citizens Bank's loan portfolio could be
negatively impacted if customers are unable to honor loan agreements and
defaults occur as a result of failure to address Year 2000 issues. These
customer relationships will be monitored to ensure that the necessary
modifications to systems will be made on a timely basis. In addition, Citizens
Bank will review Year 2000 related issues as part of its normal underwriting
criteria and loan approval process. Citizens Bank also will include Year 2000
compliance requirements and covenants requiring compliance within its standard
loan agreements. Although Citizens Bancshares and Citizens Bank will take
extensive steps to address Year 2000 customer related issues, there can be no
assurance that all customers will be Year 2000 compliant. Failure of certain
customers to adequately address these issues could result in loan defaults which
would reduce Citizens Bancshares' earnings.
Although Citizens Bancshares and Citizens Bank will take extensive
steps to address Year 2000 related issues, there can be no assurance that all
necessary modifications will be identified and corrected or that unforeseen
difficulties or costs will not arise. In addition, there can be no assurance
that the failure of Citizens Bank's internal systems or the systems provided by
its data processing vendor or other companies on which Citizens Bank's systems
rely will not have a negative impact Citizens Bank's systems or operations.
EMPLOYEES
In its first year of operation, Citizens Bancshares and Citizens Bank
expect to employ 21 individuals on a full-time basis, including nine officers.
Citizens Bank will hire additional persons as needed, including additional
tellers and financial service representatives.
PREMISES
Citizens Bancshares has purchased the facility which will be used as
Citizens Bank's main office site. The facility, a former NationsBank office, is
a single story, 4,500 square foot building located on an approximately 1.05-acre
parcel of land at 3401 Tamiami Trail North. Citizens Bancshares has entered into
a $1,500,000 loan agreement with NationsBank, N.A. to fund the purchase of the
land and building. The facility will have a vault, four offices, four teller
stations, five drive-through lanes, a boardroom conference facility and a loan
operations area.
Citizens Bancshares has also entered into a contract to lease
approximately 3,000 square feet of office space to serve as the operations
offices of Citizens Bancshares and Citizens Bank. The leased premises are
located at 3411 Tamiami Trail North, which is adjacent to the property on which
Citizens Bank's main office facility will be located. Monthly payments of
$4,438.50 are due under the lease agreement.
The organizers plan to open a branch facility in the third quarter of
Citizen's Bank's third year of operations to access projected growth in the
northern portion of Collier County.
MONETARY POLICIES
The results of operations of Citizens Bank will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal
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<PAGE> 22
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Citizens Bank.
SUPERVISION AND REGULATION
GENERAL
Citizens Bancshares and Citizens Bank will operate in a highly regulated
environment, and the business activities of Citizens Bancshares and Citizens
Bank will be supervised by a number of federal regulatory agencies, including
the Federal Reserve Board, the OCC, the Florida Banking Department and the FDIC.
Citizens Bancshares will be regulated by the Federal Reserve Board under
the federal Bank Holding Company Act of 1956, which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with another
bank holding company. The Federal Reserve Board, through its regulations and
published policy statements, has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy, Citizens Bancshares may be required to provide
financial support to its subsidiary bank at a time when, absent such Federal
Reserve Board policy, Citizens Bancshares may not deem it advisable to provide
such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, the restrictions on interstate acquisitions of banks by bank holding
companies were repealed as of September 29, 1995, such that Citizens Bancshares
and any other bank holding company located in Florida is able to acquire a bank
located in any other state, and a bank holding company located outside Florida
can acquire any Florida-based bank, in either case subject to certain deposit
percentage and other restrictions. Beginning on June 1, 1997, the legislation
provides that unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory, adequately
capitalized and managed bank holding companies will be able to consolidate their
multi-state bank operations into a single bank subsidiary and to branch
interstate through acquisitions. De novo branching by an out-of-state bank would
be permitted only if it is expressly permitted by the laws of the host state.
Florida does not permit de novo banking by an out-of-state bank. Therefore, the
only method by which an out-of-state bank or bank holding company may enter
Florida is through an acquisition. The authority of a bank to establish and
operate branches within a state will continue to be subject to applicable state
branching laws.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies. Effective April 21, 1997, the Federal
Reserve Board revised and expanded the list of permissible non-banking
activities, which includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to subsidiaries and
certain outside companies; leasing personal and real property or acting as a
broker with respect thereto; providing management and employee benefits
consulting advice and career counseling services to nonaffiliated banks and
nonbank depository institutions; operating certain nonbank depository
institutions; performing certain trust company functions; providing certain
agency transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity
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<PAGE> 23
financing; providing check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce such
benefits to the public as greater convenience, increased competition and gains
in efficiency that outweigh such possible adverse effects as undue concentration
of resources, decreased or unfair competition, conflicts of interest and unsound
banking practices. Generally, bank holding companies are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board.
Citizens Bancshares is also regulated, to a limited extent, by the
Florida Banking Department under the Florida Financial Institutions Code, which
requires every bank holding company to obtain the prior approval of the Florida
Commissioner of Banking before acquiring more than 5% of the voting shares of
any Florida bank or all or substantially all of the assets of a Florida bank, or
before merging or consolidating with any Florida bank holding company. A bank
holding company is generally prohibited from acquiring ownership or control of
5% or more of the voting shares of any Florida bank or Florida bank holding
company unless the Florida bank or all subsidiaries of the Florida bank holding
company to be acquired have been in existence and continuously operating, on the
date of such acquisition, for a period of three years or more. However, approval
of the Florida Banking Department is not required if the bank to be acquired or
all bank subsidiaries of the Florida bank holding company to be acquired are
national banks.
Citizens Bank, as a subsidiary of Citizens Bancshares, is subject to
restrictions under federal law in dealing with Citizens Bancshares and other
affiliates, if any. These restrictions apply to extensions of credit to an
affiliate, investments in the securities of an affiliate and the purchase of
assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank's total outstanding
loans and extensions of credit to one borrower may not exceed 15% of its capital
and surplus, plus an additional 10% of its capital and surplus, if such
additional amount is fully secured by readily marketable collateral. Loans and
extensions of credit may exceed the general lending limit if they qualify under
one of several exceptions. Such exceptions include certain loans or extensions
of credit arising from the discount of commercial or business paper, the
purchase of bankers' acceptances, loans secured by documents of title, loans
secured by U.S. obligations and loans to or guaranteed by the federal
government.
CAPITAL ADEQUACY REQUIREMENTS
Both Citizens Bancshares and Citizens Bank are subject to regulatory
capital requirements imposed by the Federal Reserve Board and the OCC. The
Federal Reserve Board and the OCC have issued risk-based capital guidelines for
bank holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies on a consolidated basis with Citizens Banks owned by the
holding company. The OCC's risk capital guidelines
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<PAGE> 24
apply directly to national banks regardless of whether they are a subsidiary of
a bank holding company. Both agencies' requirements, which are substantially
similar, provide that banking organizations must have capital equivalent to 8%
of risk weighted assets. The risk weights assigned to assets are based primarily
on credit risks. Both the Federal Reserve Board and the OCC have also
implemented new minimum capital leverage ratios to be used in tandem with the
risk-based guidelines in assessing the overall capital adequacy of banks and
bank holding companies. Under these rules, banking institutions are required to
maintain a ratio of 4% "Tier 1" capital to total assets (net of goodwill). Tier
1 capital includes common shareholders equity, noncumulative perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less certain intangible assets.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements, applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have
well-diversified risk, high asset quality, high liquidity, good earnings and in
general, have to be considered strong banking organizations, rated composite 1
under the CAMELS rating system for banks. Institutions with lower ratings and
institutions with high levels of risk or experiencing or anticipating
significant growth would be expected to maintain ratios 100 to 200 basis points
above the stated minimums.
The OCC has amended the risk-based capital guidelines applicable to
national banks in an effort to clarify certain questions of interpretation and
implementation, specifically with regard to treatment of originated and
purchased mortgage servicing rights and other intangible assets. The OCC's
guidelines provide that intangible assets are generally deducted from Tier 1
capital in calculating a bank's risk-based capital ratio. However, certain
intangible assets which meet specified criteria ("qualifying intangibles") such
as mortgage servicing rights are retained as a part of Tier 1 capital. The OCC
currently maintains that only mortgage servicing rights and purchased credit
card relationships meet the criteria to be considered qualifying intangibles.
The OCC's guidelines formerly provided that the amount of such qualifying
intangibles that may be included in Tier 1 capital was strictly limited to a
maximum of 25% of total Tier 1 capital. The OCC has amended its guidelines to
increase the limitation on such qualifying intangibles from 25% to 50% of Tier 1
capital and further to permit the inclusion of purchased credit card
relationships as a qualifying intangible asset.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The OCC, the Federal Reserve Board and the FDIC have adopted regulations
revising their risk-based capital guidelines to ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse effect
that changes in market interest rates may have on a bank's financial condition
and is inherent to the business of banking. Under these regulations, when
evaluating a bank's capital adequacy, the agencies' capital standards now
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a bank's economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts. Concurrently, the agencies issued a
joint policy statement, effective June 26, 1996, to provide guidance on sound
practices for managing interest rate risk. In the policy statement, the agencies
emphasize the necessity of adequate oversight by a bank's board of directors and
senior management and of a comprehensive risk management process. The policy
statement also describes the critical factors affecting the agencies'
evaluations of a bank's interest rate risk when making a determination of
capital adequacy. The agencies' risk assessment
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<PAGE> 25
approach used to evaluate a bank's capital adequacy for interest rate risk
relies on a combination of quantitative and qualitative factors. Banks that are
found to have high levels of exposure and/or weak management practices will be
directed by the agencies to take corrective action. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt corrective action on the part of
banking regulators with regard to certain classes of undercapitalized
institutions. While the FDICIA does not change any of the minimum capital
requirements, it directs each of the federal banking agencies to issue
regulations putting the monitoring plan into effect. The FDICIA creates five
"capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in the FDICIA and which will be used to
determine the severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of undercapitalization. For
example, an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, any entity controlling a bank (i.e., holding companies) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or the
amount which is necessary to bring the institution into compliance with all
capital standards. In addition, "undercapitalized" institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business. Based on a capitalization of
$9,700,000, management of Citizens Bank believes that Citizens Bank will be a
"well capitalized" institution.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, the OCC
and the FDIC have adopted regulations defining operational and managerial
standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits.
Both the capital standards and the safety and soundness standards which
the Act seeks to implement are designed to bolster and protect the deposit
insurance fund.
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
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<TABLE>
<CAPTION>
TOTAL RISK - TIER 1 RISK - TIER 1
BASED CAPITAL BASED CAPITAL LEVERAGE
RATIO RATIO RATIO
------------- ------------- ---------
<S> <C> <C> <C>
Well capitalized(1)............................. >10.0% > 6.0% > 5.0%
- - -
Adequately Capitalized(1)....................... > 8.0% > 4.0% > 4.0%(2)
- - -
Undercapitalized(3)............................. < 8.0% < 4.0% < 4.0%(4)
Significantly Undercapitalized(3)............... < 6.0% < 3.0% < 3.0%
Critically Undercapitalized..................... - - < 2.0%(5)
</TABLE>
- ---------------------------
(1) An institution must meet all three minimums.
(2) 3.0% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(4) Less than 3.0% for composite 1-rated institutions, subject to
appropriate federal banking agency guidelines.
(5) Ratio of tangible equity to total assets.
The scope of regulation and permissible activities of Citizens
Bancshares and Citizens Bank is subject to change by future federal and state
legislation. In addition, regulators sometimes require higher capital levels on
a case-by-case basis based on such factors as the risk characteristics or
management of a particular institution. Citizens Bancshares and Citizens Bank
are not aware of any attributes of their operating plan that would cause
regulators to impose higher requirements.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CITIZENS BANCSHARES AND CITIZENS BANK
Citizens Bancshares' directors and executive officers and Citizens
Bank's proposed directors and executive officers are as follows:
<TABLE>
<CAPTION>
Position with
Name Company and Bank
---- ----------------
<S> <C>
Michael L. McMullan Chief Executive Officer
and Director
Polly M. Rogers President and Director
Joe B. Cox Chairman
Earl L. Frye Director
Stanley W. Hole Director
John B. James Director
LaVonne Johnson Director
Luc C. Mazzini Director
Craig D. Sherman Senior Lending Officer
Bernard L. Turner Director
Lorenzo Walker Director
Thomas M. Whelan Chief Financial Officer
</TABLE>
Each of the directors listed above other than Mr. McMullan has been a
director of Citizens Bancshares since September 15, 1998 and is an organizer of
Citizens Bancshares and Citizens Bank. Mr. McMullan has served as the Chief
Executive Officer of and a director of Citizens Bancshares since February 28,
1999. All of the directors reside in Collier County, Florida.
Citizens Bancshares has a classified board of directors whereby
one-third of the members will be elected each year at Citizens Bancshares'
Annual Meeting of Shareholders. Upon election, each director of Citizens
Bancshares serves for a term of three years. See "Description of Capital Stock
- -- Board of
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<PAGE> 27
Directors." Citizens Bancshares' officers are appointed by the board of
directors and hold office at the will of the board.
Each of Citizens Bank's proposed directors will serve until Citizens
Bank's first shareholders' meeting, which meeting will be held shortly after
Citizens Bank receives its charter. As Citizens Bancshares will be the sole
shareholder of Citizens Bank, it is expected that each interim director will be
elected to serve as a director of Citizens Bank. After the first shareholders'
meeting, directors of Citizens Bank will serve for a term of one year and will
be elected each year at Citizens Bank's Annual Meeting of Shareholders. Citizens
Bank's officers will be appointed by its board of directors and will hold office
at the will of the board.
MICHAEL L. MCMULLAN, 44, began his career in banking in 1976,
completing the Management Trainee Program at First Tennessee National Bank,
Memphis. He became President of the Mississippi Bank, Canton Division, in 1981.
Subsequently, he managed the retail banking division of Mississippi Bank from
1982 to 1983. He became President of First Mississippi National Bank, Jackson
Division, in 1983. In 1984, he accepted the position of Executive Vice President
and Manager of the Lending Division at Republic Bank of South Austin in Austin,
Texas. In 1990, Mr. McMullan became the commercial banking executive for C & S
Bank of Florida's Jacksonville bank. He was transferred to Naples in 1991, where
he was named Chief Operating Officer of C & S Bank of Florida's Collier County
bank. Subsequent to the merger with NCNB, he was named Senior Banking Executive
and Commercial Banking Manager of NationsBank, Collier County. In 1993, he
accepted the position of Commercial Banking Executive for NationsBank's Broward
County Division and since then has managed the Broward County and Palm Beach
divisions and was Florida Market Manager for NationsBank's Financial Strategies
Group. His most recent position with NationsBank was that of Manager of the
Economic Development Office for the state of Florida. He has served on the board
of directors of the United Way of Jackson, Mississippi and Broward County,
Florida; the Boys and Girls Club of Broward County; the advisory board of the
Economic Development Councils in Collier County and Broward County; and the
Board and Executive Committees of Boy Scouts of America, Central Texas and
Central Mississippi regions. Mr. McMullan received a BBS from the Chair of
Banking at the University of Mississippi in 1976, and in 1979 received an MBA in
Finance and Monetary Policy from Columbia University, New York. He is married
with four children.
POLLY M. ROGERS, 60, is the proposed President of the Citizen Bank and
as such will have as one of her primary responsibilities Private Banking. Her
banking career began in 1970 at The Vanderbilt Bank in Naples. The Vanderbilt
Bank was purchased in 1979 by Exchange Bancorporation, Tampa, Florida, which was
in turn purchased in 1981 by NCNB, now NationsBank, for which Mrs. Rogers served
as Vice President until 1986. In 1986, she was employed by Citizens National
Bank of Naples, a $310 million community bank in Naples, Florida. Mrs. Rogers
served as an Executive Vice President of the bank until April, 1994 when
Citizens Bank merged with Amsouth Bancorporation. While at Citizens Bank, she
managed three banking locations with combined private banking deposits in excess
of $110 million. In July, 1994, Mrs. Rogers became an organizer of Gulf Coast
National Bank. Mrs. Rogers served as President and as a director of Gulf Coast
until July 1996. Mrs. Rogers is very involved in the community and has served on
numerous charitable boards and locally sponsored organizations. She is a member
of Royal Poinciana Golf Club and an active member of The First Baptist Church of
Naples.
JOE B. COX, 59, is a practicing attorney in Naples. Mr. Cox received a
J.D. degree from the University of Tulsa Law School in July 1966. In July 1978,
he opened the Naples branch office of Cummings & Lockwood. As Senior Partner,
Mr. Cox oversees a staff of 23 attorneys and paralegals and a support staff of
28 employees. Mr. Cox is a member of the Oklahoma and Florida Bar Associations,
American Bar Association, and the American College of Trust & Estate Counsel,
and is a well-regarded
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<PAGE> 28
lecturer and author. Mr. Cox's civil activities include serving as Vice Chairman
of the Board of Naples Community Hospital, Chairman of the Board of Naples Day
Surgery, Director of the Naples Area Chamber of Commerce, President of the
Greater Naples Civic Association, Chairman of the Florida Chamber Foundation
Board of Trustees and Vice Chairman of the Federal Judicial Selection Committee,
to which he was appointed by Senator Connie Mack.
EARL L. FRYE, 70, is a banker, realtor and developer who moved to
Naples in 1962 from Cincinnati, Ohio. He joined Wesley G. Downing Real Estate
and one year later became a full partner, changing the name of the company to
Downing-Frye & Associates, Inc. From 1989 to 1992, Mr. Frye was also a broker
and partner of USF&G Realty near Baltimore, Maryland. Mr. Frye was responsible
for developing the first gated community in Naples, Wilderness Country Club. He
also developed one of the first high-rise condominiums in Naples, the 21-story
Meridian, in Park Shore. Mr. Frye is a past President of the Naples Area Board
of Realtors and Director of the Florida Association of Realtors, as well as past
President of the Collier County Society of Real Estate Appraisers. His banking
career began in 1968 when he served as a director of First National Bank and
Trust Company of Collier County, which later merged with Southwest Florida Banks
of Ft. Myers. Southwest Florida Bank later merged with Sovran of Norfolk,
Virginia, which became C&S Sovran. C&S Sovran then merged with NCNB of
Charlotte, North Carolina. Mr. Frye served on all of the above parent boards and
state boards, and was also elected Chairman of First National Bank of Collier
County. He also served on various committees. After the merger of C&S Sovran and
NCNB, which became NationsBank, Mr. Frye served on the Florida/Georgia board of
directors and chaired the trust committee. He has served as Trustee for Naples
Community Hospital, co-chaired a fundraiser to build a satellite known as North
Collier Hospital, Community Foundation of Collier County, and Collier County
Conservancy. Furthermore, he has chaired the commercial United Way Fund Drive
and was instrumental in the formation of Youth Haven.
STANLEY W. HOLE, 67, is Chairman Emeritus of Hole, Montes & Associates,
a Naples-based civil engineering firm of which Mr. Hole was President when he
retired in 1997 after serving for 32 years. The firm's primary emphasis is on
water and wastewater projects and land development projects. Hole, Montes &
Associates was instrumental in the development of Collier County's Water and
Wastewater Master Plans, East and South Naples Sewer Evaluation Survey, and
South Collier County Regional Wastewater Transmission and Effluent Reuse
Systems. Mr. Hole has also served as the Chairman of the South Florida Water
Management District, as Chairman of the Florida Keys Aqueduct Authority and as
chairman of the Regional Planning Council. Throughout his career as a civil
engineer, Mr. Hole has been an active teacher and lecturer, an author of
numerous professional articles and books and has accepted gubernatorial
appointments to various legislative committees concerned with water use and
management issues. His involvement in the community includes membership on
several boards of directors, such as the American Heart Association, Chamber of
Commerce, Economic Development Council, Collier County Education Foundation and
the City of Naples Planning Advisory Board. He is on the board of Naples
Community Hospital; he serves on the Executive Committee, the Bio Ethics
committee and chairs the Building Committee. Mr. Hole received his undergraduate
degree from the University of Miami.
JOHN B. JAMES, 57, retired from NationsBank on December 31, 1997 after
30 years in banking. After receiving a degree from Florida State University, Mr.
James joined Citizens and Southern National Bank, Atlanta, as a management
trainee. He was elected a Vice President of Retail Banking in 1972. In 1978, Mr.
James was promoted to Senior Vice President and Senior Credit Officer for
Georgia affiliate banks. In 1982, he was promoted to Executive Vice President
with responsibility for Corporate and Correspondent Banking in the southeastern
United States. Mr. James transferred to Tampa in 1989 and served as President of
the C&S Hillsborough County Bank. Mr. James has been involved in many civic
activities, including Collier County Educational Foundation Board, The Economic
Development Council of Collier County,
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<PAGE> 29
Pelican Bay Business Association Board, has served as a member of the Chamber of
Southwest Florida Board, the Lee County Public School Foundation Board, and the
Tampa Committee of 100, and has participated in the Leadership Lee and
Leadership Southwest Florida Programs.
LAVONNE JOHNSON, 66, is a retired Planner and Project Director for
Allegheny County, Pennsylvania. She and her husband maintain residences in both
Pittsburgh, Pennsylvania and Marco Island, Florida. Mrs. Johnson began investing
in real estate in Collier County in 1974 and in 1980 constructed a home on Marco
Island. Currently, Mrs. Johnson is a member of the Art League of Marco and the
Association of University Women, and serves as a Certified Tutor through the
literacy program of the Collier County Library system. Mrs. Johnson has served
in various elected capacities in Minnesota, including member of the Board of
Education, County Chairwoman of a political party and delegate to a National
Political Convention. In Pennsylvania, Mrs. Johnson served on several civic
Boards, including those of the Shakespeare Festival, the Opera Theater in
Pittsburgh, the Civic Light Opera Guild and Project Rediscovery, a program which
focuses on capable minority children at risk to drop out of school. Mrs. Johnson
received a B.A. degree in Political Science and Sociology from the University of
Pennsylvania and also received a Master of Public Administration degree from the
University of Pennsylvania.
LUC C. MAZZINI, DDS, 43, is a licensed dentist in both Florida and
Texas and has been practicing General Dentistry for eighteen years. His area of
specialty is cosmetic and implant dentistry. Dr. Mazzini has maintained an
active dental practice in Collier County since 1990. Dr. Mazzini has at various
times served as a member of the Noon Rotary Club of Marco Island, a member of
the Marco Island Chamber of Commerce and a member of the board of directors of
the San Marco Condominium Association. Dr. Mazzini has also enjoyed memberships
in several professional organizations, including the Texas Dental Association,
Greater Houston Dental Society, American Dental Association, Florida Dental
Association and Collier County Dental Association. Dr. Mazzini received a B.S.
degree from the University of Texas and a D.D.S. from Baylor College of
Dentistry.
CRAIG D. SHERMAN, 41, began his banking career in 1979 as director of
Commercial and Installment Lending for Sun Bank, Ft. Lauderdale Beach. He joined
Gulf Coast Bank of Pinellas in 1981 as Vice President and Senior Loan Officer.
Following the acquisition of Gulf Coast Bank by C&S Bank, Mr. Sherman became
employed with First National Bank & Trust Co. of Naples as Vice President and
Commercial Loan Officer. This bank was also later acquired by C&S Bank. Mr.
Sherman joined First Union National Bank, Naples in 1986 as Vice President and
Commercial Lending Officer. In 1989, he became Vice President and Commercial
Lending Officer for Nations Bank, Naples, Florida. In 1992, Mr. Sherman joined
the National Bank of Lee County as Senior Vice President and Senior Loan
Officer. Following the acquisition of the bank by SouthTrust in January of 1994,
Mr. Sherman served as Senior Vice President and subsequently as Vice President
and Commercial Team Lender for SouthTrust in Naples, Florida, until he joined
Citizens Bancshares in May of 1999. Mr. Sherman is a 1979 graduate of Florida
State University with a Bachelor of Science Degree in Finance. He is married to
Jill.
BERNARD L. TURNER, 72, a businessman and developer, has been a resident
of Naples for over 28 years and currently serves as Chairman of the Board of the
Florida Coastal School of Law, Jacksonville, Florida, which he co-founded in
1994. From 1970 to 1994, Mr. Turner served as President and Chancellor at Walden
University, Minneapolis, Minnesota, a fully accredited doctorate level
institution. Locally, Mr. Turner has been involved in a health club partnership,
a land trust, and has developed an office complex valued in excess of
$3,000,000. Mr. Turner was also an organizing director of the former Citizens
National Bank. He has served as Trustee of the Collier County Economic
Development Committee, was the founding Chairman of Creative Living, a
non-profit corporation to provide housing for the needy elderly, and was
appointed by former Florida Governor Bob Graham as a member of the Board of the
State Board of
28
<PAGE> 30
Independent Colleges and Universities. Mr. Turner has previously taught high
school, lectured at various universities, and served as an economist for the
National Industrial Conference Board.
LORENZO WALKER, 78, has been a lifelong member of the Naples community.
After serving in the military, Mr. Walker returned to Naples in 1946 and
assisted in developing the zoning plan for the City of Naples. Along with his
father and brother, Mr. Walker formed Walker Construction Company and began
developing waterfront properties in Naples and Bonita Springs. Mr. Walker later
formed James L. Walker Real Estate Inc., a local real estate brokerage firm. He
has served the community in many different capacities, including Founding
Director of Naples Community Hospital, member of Lee University, member of
Advisory Council of the Lorenzo Walker Institute of Technology, the largest
school in Collier County and is Director Emeritus of International College of
Naples. Mr. Walker has also been active in local and state politics. He has
served on the Board of County Commissioners, as a representative to the Florida
House of Representatives, as Speaker Pro Tem, and as Dean of the Florida House,
the position he held when he retired in 1974. Mr. Walker has significant bank
board experience, having been a founding director and director of FNB Naples
from 1955-1976, a founding director and the Chairman of Citizens National Bank,
Naples, in 1968, a founding director of Vanderbilt Bank and director of the
second Citizens National Bank in 1987.
THOMAS M. WHELAN, 49, began his community banking career in 1972 in
Angola, New York with Evans National Bank. He served as Auditor, Vice President
and Auditor, and Senior Vice President and Cashier during his fourteen years
with Evans National Bank. In 1988, he assumed the Senior Vice President position
responsible for financial and operational functions for The Village Bank, Chapel
Hill, North Carolina. He joined Triangle Bank in Raleigh, North Carolina in 1993
and became Vice President, Director of Banking Services, where he managed
Deposit Support, Loan Support, Check Image, Electronic Banking and Bookkeeping.
During a sixteen-month period, there were seven merger/acquisitions, growth from
$300 million to $800 million in assets and branch growth from fourteen to 38
offices. In 1996, his family relocated to Southwest Florida where he joined
Hendry County Bank as Vice President and Cashier. In May 1997, he was named
President and Chief Executive Officer. Following the acquisition of Hendry
County Bank by Florida Community Bank in February of 1998, he served as
Executive Vice President in charge of Finance, Operations and Branch
Administration, until joining Citizens Bancshares in April of 1999. Mr. Whelan
received his Bachelor of Arts degree in business and management from Ohio
Northern University in 1971. He is a 1982 honors graduate of the BAI School in
Banking at the University of Wisconsin. He is married and has two daughters.
There are no family relationships between any director or executive
officer and any other director or executive officer of Citizens Bancshares.
EXECUTIVE COMPENSATION
Citizens Bancshares and Citizens Bank have entered into an employment
agreement, dated as of April 28, 1999, with each of Michael McMullan and Polly
Rogers, pursuant to which the two serve as Chief Executive Officer and
President, respectively, of Citizens Bank and Citizens Bancshares. The
employment contract with Mr. McMullan provides for a term of three years and an
initial salary at an annual rate of $140,000. The employment contract with Ms.
Rogers provides for a term of one year and an initial salary at an annual rate
of $100,000. Each of the respective salaries may be increased from time to time
in the sole discretion of the board of directors of Citizens Bancshares and each
of the executive officers will also be eligible to receive a bonus which will
not exceed 40% of his or her annual base salary.
The employment agreement provides that Mr. McMullan and Ms. Rogers will
receive options to purchase shares of common stock of Citizens Bancshares at a
price of $10.00 per share pursuant to an incentive stock option plan to be
adopted by Citizens Bancshares. Mr. McMullan will receive 30,000 options, and
Ms. Rogers will receive 20,000 options. Twenty percent of these options will
become exercisable on December
29
<PAGE> 31
31, 1999 and twenty percent will become exercisable on December 31 of each of
the four succeeding years. All options will be exercisable for a period of ten
years.
The employment agreements also provide that Mr. McMullan and Ms. Rogers
will each receive health, disability, and term life insurance, and be eligible
to participate in Citizens Bank's employee benefit plan, if one is adopted by
the board of directors of Citizens Bank. Each of the executive officers will
also be entitled to four weeks vacation each year during which time his or her
salary will be paid in full.
In the event of a "change of control" of Citizens Bancshares, as
defined in the employment contract, each of the executive officers will be
entitled to give written notice to Citizens Bancshares of termination of his or
her employment agreement and to receive a cash payment equal to 250% of his or
her annual salary, and an additional cash payment equal to the excess, if any,
of the aggregate market value of the number of shares of common stock of
Citizens Bancshares subject to options held by the executive officer over the
aggregate exercise price of all such options.
The employment agreements provide that Citizens Bank may terminate the
employment of the executive officers with or without cause, but that in the
latter case the executive officers will each receive a severance payment equal
to that he or she would be entitled to in the event of a change in control, as
described above. In addition, each employment agreement contains a non-compete
provision which provides that in the event the employment contract is terminated
by Citizens Bancshares or Citizens Bank without cause, or by the respective
executive officer, the executive officer may not, without the prior written
consent of Citizens Bank, either directly or indirectly serve as an employee of
any financial institution within Collier or Lee County for a period of twelve
months after such termination.
STOCK OPTION PLAN
Citizens Bancshares' board of directors will adopt an Incentive Stock
Option Plan (the "Plan") to provide for the issuance of stock options to
employees who are contributing significantly to the management or operation of
the business of Citizens Bancshares or its subsidiaries as determined by the
committee administering the Plan. The Plan will be contingent upon approval by
the shareholders of Citizens Bancshares. The Plan will provide for the grant of
options at the discretion of a committee designated by the board of directors to
administer the Plan. The committee must at all times consist of at least two
non-employee directors. The option exercise price must be at least 100% (110% in
the case of a holder of 10% or more of the common stock) of the fair market
value of the stock on the date the option is granted and the options are
exercisable by the holder thereof in full at any time prior to their expiration
in accordance with the terms of the Plan. Stock options granted pursuant to the
Plan will expire on or before (i) the date which is the tenth anniversary of the
date the option is granted, or (ii) the date which is the fifth anniversary of
the date the option is granted in the event that the option is granted to a key
employee who owns more than 10% of the total combined voting power of all
classes of stock of Citizens Bancshares or any subsidiary of Citizens
Bancshares.
Management has not yet determined the exact number of shares which will
be reserved for issuance pursuant to the Plan. Currently, an aggregate of 85,000
options are to be granted in connection with the employment agreements between
Citizens Bancshares and four of its executive officers.
30
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the common stock of
Citizens Bancshares by its directors and executive officers both before and
after completion of the minimum offering of 1,000,000 shares.
<TABLE>
<CAPTION>
After Completion of
Before Offering Minimum Offering
--------------- -------------------
Number of Percent of Number of Percent of
Name of Beneficial Owner Shares Total Shares Total
- ------------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Joe B. Cox.......................... 2,000 11.1% 20,000 2.0%
Earl L. Frye........................ 2,000 11.1% 20,000 2.0%
Stanley W. Hole..................... 2,000 11.1% 10,000 1.0%
John B. James....................... 2,000 11.1% 20,000 2.0%
LaVonne Johnson..................... 2,000 11.1% 20,000 2.0%
Luc C. Mazzini...................... 2,000 11.1% 20,000 2.0%
Michael L. McMullan................. 0 0.0 % 10,000 1.0%
Polly M. Rogers..................... 2,000 11.1% 20,000 2.0%
Craig D. Sherman.................... 0 0.0% 500 *
Bernard L. Turner................... 2,000 11.1% 20,000 2.0%
Lorenzo Walker...................... 2,000 11.1% 20,000 2.0%
Thomas M. Whelan.................... 0 0.0% 1,000 *
------ ----- ------- ----
Total........................ 18,000 100.0% 181,500 17.8%
</TABLE>
- ----------------
* Less than 1%
CERTAIN TRANSACTIONS
Once Citizens Bank opens for business, it may from time to time extend
loans to certain of Citizens Bancshares' directors, their associates, and
members of the immediate families of the directors and executive officers of
Citizens Bancshares. These loans will be made in the ordinary course of business
on substantially the same terms, including interest rates, collateral
requirements, and repayment terms, as those prevailing at the time for
comparable transactions with persons not affiliated with Citizens Bancshares or
Citizens Bank, and will not involve more than the normal risk of collectibility
or present other unfavorable features.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Citizens Bancshares consists of
20,000,000 shares of common stock, $.01 par value per share, and 1,000,000
shares of preferred stock, $.01 par value per share. There are presently 18,000
shares of common stock issued and outstanding, all of which are held by the
organizers. No shares of the preferred stock are issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to elect the members of the
board of directors of Citizens Bancshares and are entitled to vote as a class on
all matters required or permitted to be submitted to the shareholders of
Citizens Bancshares.
31
<PAGE> 33
No holder of any class of stock of Citizens Bancshares has preemptive
rights with respect to the issuance of shares of any class of stock, and the
common stock does not carry cumulative voting rights with respect to the
election of directors.
The holders of common stock are entitled to dividends and other
distributions if, as, and when declared by the board of directors out of assets
legally available therefor. Upon the liquidation, dissolution, or winding up of
Citizens Bancshares, the holder of each share of common stock will be entitled
to share equally in the distribution of Citizens Bancshares' assets. The holders
of common stock are not entitled to the benefit of any sinking fund provision.
The shares of common stock of Citizens Bancshares are not subject to any
redemption provisions, nor are they convertible into any other security or
property of Citizens Bancshares. All outstanding shares of each class of common
stock are, and the shares to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
WARRANTS
Citizens Bancshares is authorized to issue up to 113,330 warrants in
this offering. Each warrant entitles the holder to purchase one share of common
stock at an exercise price of $10.00 per share for a period of ten years
beginning on the date Citizens Bank opens for business. The warrants will become
exercisable in equal amounts beginning on the date Citizens Bank opens for
business and on each of the four succeeding anniversaries of that date.
The warrants have antidilution provisions that take effect in the event
of stock dividends, splits, mergers, and for other similar events.
Citizens Bancshares has reserved sufficient shares of common stock for
issuance upon exercise of the warrants. The reserved shares are included in the
registration statement of which this prospectus is a part. Further, Citizens
Bancshares has filed an undertaking with the SEC that it will maintain an
effective registration statement by filing any necessary post-effective
amendments or supplements to the registration statement throughout the term of
the warrants with respect to the warrants and the shares of common stock
issuable upon exercise of the warrants.
No holder of any warrant will be entitled to vote, receive dividends or
be deemed the holder of common stock for any purpose until the warrant has been
exercised and the common stock purchasable upon the exercise of the warrant has
been delivered.
PREFERRED STOCK
The board of directors may, without approval of Citizens Bancshares'
shareholders, from time to time authorize the issuance of preferred stock in one
or more series for such consideration and, within certain limits, with such
relative rights, preferences and limitations as the board of directors may
determine. The relative rights, preferences and limitations that the board of
directors has the authority to determine as to any such series of preferred
stock include, among other things, dividend rights, voting rights, conversion
rights, redemption rights and liquidation preferences. Because the board of
directors has the power to establish the relative rights, preferences and
limitations of each series of preferred stock, it may afford to the holders of
any such series preferences and rights senior to the rights of the holders of
shares of common stock. Although the board of directors has no intention at the
present time of doing so, it could cause the issuance of preferred stock that
could discourage an acquisition attempt or other transactions that some, or a
majority of, the shareholders might believe to be in their best interests or in
32
<PAGE> 34
which the shareholders might receive a premium for their shares of common stock
over the market price of such shares.
BOARD OF DIRECTORS
The board of directors of Citizens Bancshares consists of ten
directors. The directors are divided into three classes, designated Class I,
Class II and Class III. The term of the initial Class I directors expires at
Citizens Bancshares' first Annual Meeting of Shareholders; the term of the
initial Class II directors expires at Citizens Bancshares' second Annual Meeting
of Shareholders; and the term of the initial Class III directors expires at
Citizens Bancshares' third Annual Meeting of Shareholders. At each Annual
Meeting of Shareholders, successors to the class of directors whose term expires
at the Annual Meeting will be elected for a three-year term. If the number of
directors is changed, an increase or decrease will be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class will hold office for a term that will
coincide with the remaining term of that class, but in no event will a decrease
in the number of directors shorten the term of any incumbent director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors will have the same remaining term as that of his predecessor.
Except in the case of removal from office, any vacancy on the board of directors
will be filled by a majority vote of the remaining directors then in office.
Any director may be removed, with or without cause, at any regular or
special meeting of shareholders called for that purpose, and his position filled
by another person nominated and elected for that purpose by the holders of 75%
of the outstanding shares of Citizens Bancshares' common stock.
The effect of the classified board of directors is to make it more
difficult for a person, entity or group to effect a change in control of
Citizens Bancshares through the acquisition of a large block of Citizens
Bancshares' voting stock.
ANTI-TAKEOVER PROVISIONS
Citizens Bancshares' Articles of Incorporation contain provisions
requiring supermajority shareholder approval to effect certain extraordinary
corporate transactions which are not approved by the board of directors. The
Articles of Incorporation require the affirmative vote or consent of the holders
of at least two-thirds of the shares of each class of common stock of Citizens
Bancshares entitled to vote in elections of directors to approve any merger,
consolidation, disposition of all or a substantial part of the assets of
Citizens Bancshares or a subsidiary of Citizens Bancshares, exchange of
securities requiring shareholder approval or liquidation of Citizens Bancshares
("Covered Transaction"), if any person who together with his affiliates and
associates owns beneficially 5% or more of any voting stock of Citizens
Bancshares ("Interested Person") is a party to the transaction; provided that
75% of the entire board of Directors of Citizens Bancshares has not approved the
transaction. In addition, the Articles of Incorporation require the separate
approval by the holders of a majority of the shares of each class of stock of
Citizens Bancshares entitled to vote in elections of directors which are not
beneficially owned, directly or indirectly, by an Interested Person, of any
merger, consolidation, disposition of all or a substantial part of the assets of
Citizens Bancshares or a subsidiary of Citizens Bancshares, or exchange
33
<PAGE> 35
of securities requiring shareholder approval ("Business Combination"), if an
Interested Person is a party to such transaction; provided, that such approval
is not required if :
- the consideration to be received by the holders of the stock of
Citizens Bancshares meets certain minimal levels determined by a
formula under the Articles of Incorporation (generally the highest
price paid by the Interested Person for any shares which he has
acquired),
- there has been no reduction in the average dividend rate from that
which was obtained prior to the time the Interested Person became
such, and
- the consideration to be received by shareholders who are not
Interested Persons shall be paid in cash or in the same form as
the Interested Person previously paid for shares of such class of
stock. These Articles, as well as the Article establishing a
classified board of directors, may be amended, altered, or
repealed only by the affirmative vote or consent of the holders of
at least 75% of the shares of each class of stock of Citizens
Bancshares entitled to vote in elections of directors.
The effect of these provisions is to make it more difficult for a
person, entity or group to effect a change in control of Citizens Bancshares
through the acquisition of a large block of Citizens Bancshares' voting stock.
STATUTORY ANTI-TAKEOVER PROVISIONS
The State of Florida has statutory provisions relating to business
combinations between a Florida corporation and an "interested shareholder" that
outline the statutory requirements to effect such transactions. In its Articles
of Incorporation, Citizens Bancshares has elected not to be governed by these
provisions and, therefore, these statutory anti-takeover provisions do not apply
to Citizens Bancshares.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS
As allowed under Florida law, Citizens Bancshares' Articles of
Incorporation provide that a director shall not be personally liable to Citizens
Bancshares or its shareholders for monetary damages for breach of duty of care
or any other duty owed to Citizens Bancshares as a director, except that such
provision shall not eliminate or limit the liability of a director (a) for any
appropriation, in violation of his duties, of any business opportunity of
Citizens Bancshares, (b) for acts or omissions which involve intentional
misconduct or a knowing violation of law, (c) for unlawful corporate
distributions, or (d) for any transaction from which the director received an
improper personal benefit.
Article VI of Citizens Bancshares' Bylaws provides that Citizens
Bancshares shall indemnify a director who has been successful in the defense of
any proceeding to which he was a party or in defense of any claim, issue or
matter therein because he is or was a director of Citizens Bancshares, against
reasonable expenses incurred by him in connection with such defense.
Citizens Bancshares' Bylaws also provide that Citizens Bancshares is
required to indemnify any director, officer, employee or agent made a party to a
proceeding because he is or was a director, employee or agent against liability
incurred in the proceeding if he acted in a manner he believed in good faith or
to be in or not opposed to the best interests of Citizens Bancshares and, in the
case of any criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful. Determination concerning whether or not the applicable
standard of conduct has been met can be made by:
34
<PAGE> 36
- a disinterested majority of the board of directors,
- a majority of a committee of disinterested directors,
- independent legal counsel, or
- an affirmative vote of a majority of shares held by disinterested
shareholders.
No indemnification may be made to or on behalf of a director, officer, employee
or agent:
- in connection with a proceeding by or in the right of Citizens
Bancshares in which such person was adjudged liable to Citizens
Bancshares, or
- in connection with any other proceeding in which such person was
adjudged liable on the basis that personal benefit was improperly
received by him.
Citizens Bancshares may, if authorized by its shareholders by a
majority of votes which would be entitled to be cast in a vote to amend Citizens
Bancshares' Articles of Incorporation, indemnify or obligate itself to indemnify
a director, officer, employee or agent made a party to a proceeding, including a
proceeding brought by or in the right of Citizens Bancshares.
To the extent that indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Citizens Bancshares by the provisions described above, or otherwise,
Citizens Bancshares has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Citizens
Bancshares or Citizens Bank is a party or of which any of their properties are
subject; nor are there material proceedings known to Citizens Bancshares or
Citizens Bank to be contemplated by any governmental authority; nor are there
material proceedings known to Citizens Bancshares or Citizens Bank, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of Citizens Bancshares or Citizens Bank, or any associate of any
of the foregoing is a party or has an interest adverse Citizens Bancshares or
Citizens Bank.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock
offered hereby have been passed upon for Citizens Bancshares by Smith, Gambrell
& Russell, LLP, Atlanta, Georgia, counsel to Citizens Bancshares.
EXPERTS
The financial statements of Citizens Bancshares of Southwest Florida,
Inc. as of February 22, 1999 included in this prospectus have been audited by
Hill, Barth & King, Inc., independent auditors, as stated in their report, which
is included herein, and has been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
Citizens Bancshares has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933 with respect to the shares of
35
<PAGE> 37
common stock offered hereby. This prospectus does not contain all of the
information included in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Citizens Bancshares
and the common stock, please refer to the Registration Statement and the
exhibits and schedules thereto. You may request a copy of the Registration
Statement by contacting Citizens Bancshares either at its address at 3411
Tamiami Trail North, Suite 200, Naples, Florida 34103, or at its telephone
number at (941) 643-4646.
Citizens Bancshares intends to furnish its shareholders annual reports
containing audited financial statements.
36
<PAGE> 38
FINANCIAL STATEMENTS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
February 22, 1999
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report ......................... F-2
Balance Sheet ........................................ F-3
Statement of Operations .............................. F-4
Statement of Shareholders' Equity .................... F-5
Statement of Cash Flows .............................. F-6
Notes to Financial Statements ........................ F-7-9
</TABLE>
F-1
<PAGE> 39
Board of Directors
Citizens Bancshares of Southwest Florida, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying balance sheet of Citizens Bancshares of
Southwest Florida, Inc. (the Company) as of February 22, 1999 and the related
statements of operations, shareholders' equity and cash flows for the period
from June 15, 1998 (date of inception) to February 22, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Bancshares
of Southwest Florida, Inc. as of February 22, 1999 and the results of its
operations and its cash flows for the period from June 15, 1998 (date of
inception) to February 22, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. As discussed in Note G to the
financial statements, the company's ability to continue as a going concern is
dependent on approval from the Office of the Comptroller of the Currency for a
National Banking Charter and a successful public offering of the Company's
common stock. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ HILL, BARTH & KING, INC.
Certified Public Accountants
Naples, Florida
February 22, 1999
F-2
<PAGE> 40
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
BALANCE SHEET
February 22, 1999
<TABLE>
<CAPTION>
<S> <C>
A S S E T S
CURRENT ASSETS
Cash $ 206,330
Prepaid expenses 17,622
Deferred offering costs 16,905
-----------
TOTAL CURRENT ASSETS 240,857
-----------
NET PROPERTY AND EQUIPMENT - NOTE B 1,429,237
OTHER ASSET
Deposits 5,320
-----------
$ 1,675,414
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 8,577
Loans payable - NOTE C 1,600,000
Accrued interest payable 34,309
-----------
TOTAL LIABILITIES 1,642,886
Shareholders' Equity - NOTE F
Preferred stock, par value $.01 per share,
1,000,000 shares authorized; 0 shares
issued and outstanding 0
Common stock, par value $.01 per share,
20,000,000 shares authorized; 18,000 shares issued
and outstanding 180
Additional paid-in capital 179,820
Deficit accumulated during the development stage (147,472)
-----------
TOTAL SHAREHOLDERS' EQUITY 32,528
-----------
$ 1,675,414
===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 41
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Period from June 15, 1998 (date of inception) to February 22, 1999
<TABLE>
<S> <C>
INCOME
Interest income $ 2,220
EXPENSES
Consulting fees 24,500
Interest expense 4,475
License and permits 18,881
Rent 22,633
Professional fees 57,998
Legal fees 5,865
Insurance expense 4,597
Other expenses 10,743
---------
TOTAL EXPENSES 149,692
---------
NET LOSS $(147,472)
=========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 42
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
Period from June 15, 1998 (date of inception) to February 22, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance
June 15, 1998 $ 0 $ 0 $ 0 $ 0
(date of inception)
Proceeds from
issuance of
common stock 180 179,820 0 180,000
Net loss 0 0 (147,472) (147,472)
---- -------- --------- ---------
Balance (deficit)
February 22, 1999 $180 $179,820 $(147,472) $ 32,528
==== ======== ========= =========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 43
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Period from June 15, 1998 (date of inception) to February 22, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (147,472)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 80
Increase in prepaid expenses (17,622)
Increase in other assets (22,225)
Increase in accounts payable 8,577
Increase in accrued interest payable 34,309
-----------
NET CASH USED IN OPERATING ACTIVITIES (144,353)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,429,317)
-----------
NET CASH USED IN INVESTING ACTIVITIES (1,429,317)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on short-term notes 1,600,000
Proceeds from sale of stock 180,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,780,000
-----------
NET INCREASE IN CASH 206,330
CASH
Beginning of period 0
-----------
End of period $ 206,330
===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 44
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 22, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Citizens Bancshares of Southwest Florida, Inc. (the Company) was
incorporated under the laws of the State of Florida. The Company's activities to
date have been limited to the organization of Citizens National Bank of
Southwest Florida (the Bank), as well as preparation for a $12,000,000 common
stock offering (the Offering). A substantial portion of the proceeds of the
Offering will be used by the Company to provide the initial capitalization of
the Bank. The start-up of the Bank is contingent upon receiving the approval of
various banking regulatory authorities and also a successful completion of the
Offering.
Nature of Business:
The Bank intends to offer a full range of commercial and consumer
banking services primarily within the Naples, Florida area.
Use of Estimates:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Deferred Offering Costs:
Deferred offering costs consist primarily of legal and accounting fees
related to the initial public stock offering and will be offset against the
offering proceeds when received.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment at February 22, 1999 consists of the following:
<TABLE>
<S> <C>
Building $1,361,137
Leasehold improvements 350
Furniture and fixtures 60,639
Equipment 7,191
----------
1,429,317
Less accumulated depreciation 80
----------
TOTAL $1,429,237
==========
</TABLE>
Depreciation is computed on the straight-line method over the estimated
useful lives of the depreciable assets. Depreciation expense was $80 for the
period ended February 22, 1999. For the period ended February 22, 1999, the
Company capitalized interest of approximately $30,190 related to the purchase
and renovation of the facility to ready the premise for operations.
F-7
<PAGE> 45
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 22, 1999
NOTE C - LOANS PAYABLE
The Company has obtained a $300,000 line of credit payable to a bank, guaranteed
by the organizers of the Company to pay organizational and pre-opening expenses
of the Bank and the Company. As of February 22, 1999, the Company had borrowed
$100,000 under this agreement. The line of credit bears interest at the LIBOR
rate plus 2.25% (7.493% as of 2/17/99) and varies as LIBOR varies and matures in
October 1999. The foregoing line of credit and any unpaid accrued interest will
be repaid from the offering proceeds.
The Company has also obtained a $1,500,000 loan payable to a bank,
secured by a building that was purchased with the proceeds. The loan bears
interest at a fixed rate of 7.125% per annum. The foregoing loan and unpaid
accrued interest are due in April 1999.
NOTE D - INCOME TAXES
Deferred taxes are recognized for temporary differences between the
basis of assets and liabilities for financial statement and income tax purposes.
The tax effect of the differences that gave rise to a deferred tax asset of
$51,615 and corresponding valuation allowance of ($51,615) at February 22, 1999
relate primarily to the capitalization of preoperating start-up costs which are
amortized over a five year term from the date operations commence for tax
purposes.
NOTE E - COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating lease for 2,959 square feet of
space for its executive offices. The base annual lease payment is $53,262 plus
applicable sales tax; increased annually by 4% on the anniversary date of the
lease during the initial term on any option period agreed to under the lease.
The lease has an initial term of three years and may be renewed for two
additional terms of three years. The company has also entered into a thirty-six
month lease on the bank's phone system. Lease payments under this lease
arrangement are $615 per month.
Future minimum rental commitments as of February 22, 1999 are as
follows:
<TABLE>
<S> <C>
Year ending -
December 31, 1999 $ 51,250
December 31, 2000 63,573
December 31, 2001 55,819
December 31, 2002 1,302
--------
TOTAL $171,944
========
</TABLE>
F-8
<PAGE> 46
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 22, 1999
NOTE F - STOCK OPTIONS AND WARRANTS
The Board of Directors of the Company intend to adopt an Incentive
Stock Option Plan to provide for the issuance of stock options to employees who
are contributing significantly to the management or operation of the company.
Options will be granted at 100% of the market value of the stock on the date the
option is granted. No shares have been reserved for issuance under this plan
thus far.
The Board of Directors of the Company have entered into a Stock
Purchase Warrant Agreement in consideration for the organizer's efforts in
organizing the Company and the Bank and the attendant personal financial risks
assumed by each organizer. The Company intends to issue warrants to purchase two
shares of Common Stock for each three shares of Common Stock purchased by each
organizer prior to completion of the Offering. Warrants will vest in equal
increments over a five year period commencing on the date the Bank opens for
business. Warrants will be exercisable at $10.00 per share and will expire 10
years from date of issue. The company has reserved 113,330 shares of its Common
Stock for issuance thereunder.
NOTE G - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
a net loss of $147,472 during the development stage, from June 15, 1998 (date of
inception) to February 22, 1999. The ability of the Company to continue as a
going concern is dependent on approval from the Office of the Comptroller of the
Currency for a National Banking Charter and a successful public offering of the
Company's common stock. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
F-9
<PAGE> 47
APPENDIX A
[ESCROW AGREEMENT]
Citizens Bancshares of Southwest Florida, Inc.
3411 Tamiami Trail North, Suite 200
Naples, Florida 34103
February 5, 1999
First National Bank of Naples
2150 Goodlette Road
Naples, Florida 34102
Attention: Garrett S. Richter
President and CEO
Gentlemen:
Citizens Bancshares of Southwest Florida, Inc., a Florida corporation
(the "Company"), proposes to offer for sale up to 1,200,000 shares of its $.01
par value common stock (the "Common Stock"), which shares shall be registered
under the Securities Act of 1933, as amended, by the filing of a Registration
Statement on Form SB-2 with the Securities and Exchange Commission. Shares will
be offered at a price of $10.00 each. The minimum subscription per subscriber is
500 shares.
(1) The Company hereby appoints and designates you as Escrow Agent for the
purposes set forth herein. By your signature hereto, you acknowledge
and accept said appointment and designation and agree to be bound by
the terms of this agreement (the "Escrow Agreement"). The Company
understands that you, by accepting said appointment and designation, in
no way endorse the merits of the offering of the shares described
herein. The Company agrees to notify any person acting on its behalf
that your position as Escrow Agent does not constitute such an
endorsement, and to prohibit said persons from the use of your name as
an endorser of such offering. The Company further agrees to allow you
to review any sales literature in which your name appears and which is
used in connection with such offering.
(2) The Company shall deliver all payments received in purchase of the
shares (the "Subscription Funds") to you in the form in which they are
received by noon of the next business day after their receipt by the
Company, and the Company shall deliver to you within five calendar days
copies of written acceptances of the Company for shares in the Company
for which the Subscription Funds represent payment. Upon receipt of
such written acceptance by the Company, you shall deposit such funds
into the escrow account. The Company shall also deliver to you copies
of completed Subscription Agreements for each subscriber, along with
such subscriber's name, address, number of shares subscribed and social
security or taxpayer identification number.
A-1
<PAGE> 48
(3) Subscription Funds shall be held and disbursed by you in accordance
with the terms of this Agreement.
(4) In the event any Subscription Funds are dishonored for payment for any
reason, you agree to orally notify the Company immediately thereof and
to confirm same in writing and to return the dishonored Subscription
Funds to the Company in the form in which they were delivered to you.
(5) (a) As used herein, the term "Total Receipts" shall mean the sum
of all Subscription Funds delivered to you pursuant to
Paragraph 2 hereof, less all Subscription Funds returned
pursuant to Paragraph 4 hereof.
(b) As used herein, the term "Expiration Date" shall mean the date
which marks the 90th day after the date of the Prospectus;
provided, however, in the event that you are given oral
notification, followed in writing, by the Company that it has
elected to extend the offering for an additional period of 90
days after the initial period, then the Expiration Date shall
mean the date which marks the 180th day after the date of the
Prospectus; provided further, in the event that you are given
oral notification, followed in writing, by the Company that it
has elected to extend the offering for an additional period of
90 days after the first extension, then the Expiration Date
shall mean the date which marks the 270th day after the date
of the Prospectus; provided further, in the event that you are
given oral notification, followed in writing, by the Company
that it has elected to extend the offering for an additional
period of 90 days after the second extension, then the
Expiration Date shall mean the date which marks the 360th day
after the date of the Prospectus.
(6) (a) If Total Receipts equal $10,000,000 on or before the
Expiration Date, you shall, on the Closing Date, no later than
10:00 A.M., Eastern Daylight Time, upon receipt of 24-hour
written instructions from the Company, remit all amounts
representing Subscription Funds, plus any profits or earnings
thereon after deducting your fees, if any, held by you
pursuant hereto in accordance with such instructions.
(b) If (i) Total Receipts are less than $10,000,000 as of 5:00
P.M., Eastern Daylight Time on the Expiration Date, or (ii)
the offering is canceled by the Company at any time prior to
the Expiration Date, then you shall promptly remit to each
subscriber at the address set forth in his Subscription
Agreement an amount equal to the amount of his Subscription
Funds thereunder, adjusted for his allocated share of any net
profits earned on the investment of the Subscription Funds as
set forth in Paragraph 7, below. The Company hereby agrees to
provide to you in writing the specific allocations of net
profits attributable to each subscriber hereunder and the
names and addresses of each subscriber.
(7) Pending disposition of the Subscription Funds under this Agreement, you
are authorized, upon oral instructions, followed in writing, given by
Polly M. Rogers, to invest Subscription Funds in Federal Funds, in
short-term direct obligations of the United States government, in
short-term FDIC or FSLIC insured certificates of deposit, but in any
case with maturities of 90 days or less. For purposes of Paragraph 6
above, the specific allocations of net profits attributable to each
subscriber shall be determined by the Company as follows: each
subscriber's allocated share of earnings on the Subscription Funds,
after deducting your fees, if any, shall be that fraction (i) the
numerator of which is the dollar amount of such subscriber's accepted
subscription multiplied by the number of days between the date of
acceptance of the purchaser's subscription and the date of the
offering's
** Interest will be paid at the rate of daily Federal Funds less 75 basis points
A-2
<PAGE> 49
termination, inclusive (the subscriber's "Time Subscription Factor"),
and (ii) the denominator of which is the aggregate Time Subscription
Factors of all purchasers depositing Subscription Funds in the escrow
account.
(8) Your obligations as Escrow Agent hereunder shall terminate upon your
transferring all funds you hold hereunder pursuant to the terms of
Paragraphs (4) through (6) herein, as applicable.
(9) As used herein, "Closing Date" shall mean the third business day
following the date of receipt by you of Total Receipts aggregating
$10,000,000 and executed Subscription Agreements and copies of written
acceptances of the Company in connection therewith.
(10) You shall be protected in acting upon any written notice, request,
waiver, consent, certificate, receipt, authorization, or other paper or
document which you believe to be genuine and what it purports to be.
(11) You shall not be liable for anything which you may do or refrain from
doing in connection with this Escrow Agreement, except your own gross
negligence or willful misconduct.
(12) You may confer with legal counsel in the event of any dispute or
question as to the construction of any of the provisions hereof, or
your duties hereunder, and you shall incur no liability and you shall
be fully protected in acting in accordance with the opinions and
instructions of such counsel. Any and all expenses and legal fees in
this regard are payable from the Subscription Funds unless paid by the
Company.
(13) In the event of any disagreement between the Company and any other
person resulting in adverse claims and demands being made in connection
with any Subscription Funds involved herein or affected hereby, you
shall be entitled to refuse to comply with any such claims or demands
as long as such disagreement may continue, and in so refusing, shall
make no delivery or other disposition of any Subscription Funds then
held by you under this Agreement, and in so doing you shall be entitled
to continue to refrain from acting until (a) the right of adverse
claimants shall have been finally settled by binding arbitration or
finally adjudicated in a court assuming and having jurisdiction of the
Subscription Funds involved herein or affected hereby or (b) all
differences shall have been adjusted by agreement and you shall have
been notified in writing of such agreement signed by the parties
thereto. In the event of such disagreement, you may, but need not,
tender into the registry or custody of any court of competent
jurisdiction all money or property in your hands under the terms of
this Agreement, together with such legal proceedings as you deem
appropriate and thereupon to be discharged from all further duties
under this Escrow Agreement. The filing of any such legal proceeding
shall not deprive you of your compensation earned prior to such filing.
You shall have no obligation to take any legal action in connection
with this Agreement or towards its enforcement, or to appear in,
prosecute or defend any action or legal proceeding which would or might
involve you in any cost, expense, loss or liability unless
indemnification shall be furnished.
(14) You may resign for any reason, upon thirty days written notice to the
Company. Upon the expiration of such thirty day notice period, you may
deliver all Subscription Funds and copies of Subscription Agreements in
your possession under this Escrow Agreement to any successor Escrow
Agent appointed by the Company, or if no successor Escrow Agent has
been appointed, to any court of competent jurisdiction. Upon either
such delivery, you shall be released from any and all liability under
this Escrow Agreement. A termination under this paragraph shall in no
way change the terms of paragraphs 12 and 13 affecting reimbursement of
expenses, indemnity and fees. You shall have
A-3
<PAGE> 50
the right to deduct from the Subscription Funds transferred to any
successor Escrow Agent any outstanding and unpaid expenses or fees.
(15) You agree to charge your customary and normal fee for your services
hereunder. A copy of the current schedule is attached hereto. The fee
schedule may be modified from time to time. The acceptance fee and
expenses shall be paid in advance or at closing by the Company. Any
subsequent fees and expenses will be paid by the Company upon receipt
of invoice.
(16) All notices and communications hereunder shall be in writing and shall
be deemed to be duly given if sent by registered or certified mail,
return receipt requested, to the respective addresses set forth herein.
You shall not be charged with knowledge of any fact, including but not
limited to performance or non-performance of any condition, unless you
have actually received written notice thereof from the Company or its
authorized representative clearly referring to this Escrow Agreement.
(17) The rights created by this Escrow Agreement shall inure to the benefit
of, and the obligations created hereby shall be binding upon the
successors and assigns of you and the parties hereto. Notwithstanding
the foregoing, the Company may not assign its rights hereunder without
your prior written consent.
(18) This Escrow Agreement shall be construed and enforced according to the
laws of the State of Florida.
(19) This Escrow Agreement shall terminate and you shall be discharged of
all responsibility hereunder at such time as you shall have completed
your duties hereunder.
(20) This Escrow Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
(21) This Escrow Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the transactions
described herein and supersedes all prior agreements or understandings,
written or oral, between the parties with respect thereto. Further,
this Escrow Agreement may only be amended by a written amendment signed
by the parties hereto.
(22) If any provision of this Escrow Agreement is declared by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and
effect without being impaired or invalidated in any way.
(23) The Company shall provide you with its Employer Identification Number
as assigned by the Internal Revenue Service. Additionally, the Company
shall complete and return to you any and all tax forms or reports
required to be maintained or obtained by you. In the event that
Subscription Funds are returned to subscribers pursuant to paragraph 6
hereof, you shall, based upon the information available to you, file
with the Internal Revenue Service and send to each subscriber a Form
1099-INT with respect to contributions of interest to subscribers. All
interest or other income earned under this Escrow Agreement which is
payable to the Company pursuant to paragraph 6 hereof shall be
allocated and paid as directed by the Company and reported to the
Internal Revenue Service as having been so allocated and paid.
A-4
<PAGE> 51
(24) Your signature hereto is your consent that a signed copy hereof may be
filed with the various regulatory authorities of the State of Florida
and with any Federal Government agencies or regulatory authorities.
Please indicate your acceptance of this Agreement by executing a copy
of this letter and returning it to the undersigned.
Respectfully,
CITIZENS BANCSHARES OF
SOUTHWEST FLORIDA, INC.
By: /s/ Polly M. Rogers
-----------------------------------
Polly M. Rogers, President
Attest:
- -------------------------
(CORPORATE SEAL)
ACCEPTED AND AGREED:
First National Bank of Naples
By: /s/ Garrett Richter
-----------------------------------
Name: Garrett S. Richter
Title: President & CEO
A-5
<PAGE> 52
APPENDIX B
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
SUBSCRIPTION AGREEMENT
To: Citizens Bancshares of Southwest Florida, Inc.
3411 Tamiami Trail North, Suite 200
Naples, Florida 34103
Gentlemen:
You have informed me that Citizens Bancshares of Southwest Florida,
Inc. (the "Company"), is offering up to 1,200,000 shares of its $.01 par value
Common Stock (the "Common Stock") at a price of $10.00 per share as described in
and offered pursuant to the Prospectus furnished to the undersigned herewith
(the "Prospectus"). In addition, you have informed me that the minimum
subscription is 500 shares.
i. SUBSCRIPTION. Subject to the terms and conditions
hereof, the undersigned hereby tenders this subscription, together with payment
in United States currency by check, bank draft or money order payable to "First
National Bank of Naples, Escrow Agent for Citizens Bancshares of Southwest
Florida, Inc." or any other consideration satisfactory to the Company (the
"Funds"), representing the payment of $10.00 per share for the number of shares
of the Common Stock indicated below.
ii. ACCEPTANCE OF SUBSCRIPTION. It is understood and
agreed that the Company shall have the right to accept or reject this
subscription in whole or in part, for any reason whatsoever. The Company shall
reject this subscription, if at all, in writing within ten business days after
receipt of this subscription. The Company may reduce the number of shares for
which the undersigned has subscribed, indicating acceptance of less than all of
the shares subscribed on its written form of acceptance.
iii. ACKNOWLEDGMENTS. The undersigned hereby acknowledges
that he or she has received a copy of the Prospectus and agrees to be bound by
the terms of this Agreement and the Escrow Agreement.
iv. REVOCATION. The undersigned agrees that once this
Subscription Agreement is accepted by the Company, it may not be withdrawn by
him or her. Therefore, until the earlier of the expiration of five business days
after receipt by the Company of this Subscription Agreement or acceptance of
this Subscription Agreement by the Company, the undersigned may withdraw this
subscription and receive a full refund of the subscription price. The
undersigned agrees that, except as provided in this Section 4, he or she shall
not cancel, terminate or revoke this Subscription Agreement or any agreement of
the undersigned made hereunder and that this Subscription Agreement shall
survive the death or disability of the undersigned.
By executing this Subscription Agreement, the subscriber is not waiving any
rights he or she may have under federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934.
B-1
<PAGE> 53
Please fill in the information requested below, make your check payable
to "First National Bank of Naples, Escrow Agent for Citizens Bancshares of
Southwest Florida, Inc." and mail the Subscription Agreement, the Stock
Certificate Registration Instructions and your check to the attention of Polly
M. Rogers, President, Citizens Bancshares of Southwest Florida, Inc., 3411
Tamiami Trail North, Suite 200, Naples, Florida 34103.
- ------------------------ --------------------------------------
No. of Shares Subscribed (Signature of Subscriber)
$
----------------------- --------------------------------------
Funds Tendered ($10.00 Name (Please Print or Type)
per share subscribed)
Date:
----------------------------------
Phone Number:
(Home)
---------------------------------
(Office)
-------------------------------
Residence Address:
---------------------------------------
---------------------------------------
---------------------------------------
City, State and Zip Code
---------------------------------------
Social Security Number or other
Taxpayer Identification Number
B-2
<PAGE> 54
STOCK CERTIFICATE REGISTRATION INSTRUCTIONS
Name _________________________________________
Additional Name if Tenant in Common or Joint Tenant ____________________________
Mailing Address: _________________________________________
_________________________________________
_________________________________________
Social Security Number or other Taxpayer Identification Number ________________
Number of Shares to be registered in above name(s): _____________
Legal form of ownership:
<TABLE>
<S> <C>
___ Individual ___ Joint Tenants with Rights of Survivorship
___ Tenants in Common ___ Uniform Gift to Minors
___ Other _____________________
</TABLE>
INFORMATION AS TO BANKING INTERESTS
1. As a prospective shareholder I would be interested in the following
services checked below:
<TABLE>
<CAPTION>
PERSONAL BUSINESS
<S> <C> <C> <C>
(a) Checking Account ___ ___
(b) Savings Account ___ ___
(c) Certificates of Deposit ___ ___
(d) Individual Retirement Accounts ___ ___
(e) Checking Account Overdraft Protection ___ ___
(f) Consumer Loans (Auto, etc.) ___ ___
(g) Commercial Loans ___ ___
(h) Equity Line of Credit ___ ___
(i) Mortgage Loans ___ ___
(j) Revolving Personal Credit Line ___ ___
(k) Safe Deposit Box ___ ___
(l) Automatic Teller Machines (ATM's) ___ ___
</TABLE>
2. I would like our new bank to provide the following additional services:
(a)
(b)
B-3
<PAGE> 55
FORM OF ACCEPTANCE
Citizens Bancshares of Southwest Florida, Inc.
3411 Tamiami Trail North, Suite 200
Naples, Florida 34103
[Date]
To: [Subscriber]
Dear Subscriber:
Citizens Bancshares of Southwest Florida, Inc. (the "Company")
acknowledges receipt of your subscription for _____ shares of its $.01 par value
common stock and your check for $__________.
The Company hereby accepts your subscription for the purchase of _____
shares of its common stock, at $10.00 per share, for an aggregate of
$__________, effective as of the date of this letter.
Your stock certificate(s) representing shares of common stock duly
authorized and fully paid will be issued to you as soon as practicable after all
subscription funds are released to the Company from the subscription escrow
account, all as described in the Subscription Agreement executed by you and in
the prospectus furnished to you. In the event that (i) the offering is canceled,
or (ii) the minimum number of subscriptions (1,000,000 shares) is not obtained,
or (iii) the Company shall not have received approval from the Federal Reserve
Board to become a bank holding company, or (iv) Citizens National Bank of
Southwest Florida shall not have received approval for deposit insurance from
the Federal Deposit Insurance Corporation, your subscription funds will be
returned to you, adjusted for net profits from the investment of such funds, if
any, as described in the prospectus.
If this acceptance is for a lesser number of shares than that number
subscribed by you as indicated in your Subscription Agreement, your payment for
shares of common stock in excess of the number of shares accepted hereby will be
refunded to you by mail, without interest, within ten days of the date hereof.
Respectfully,
CITIZENS BANCSHARES OF
SOUTHWEST FLORIDA, INC.
By:
-----------------------------------
Polly M. Rogers, President
B-4
<PAGE> 56
================================================================================
THE ONLY INFORMATION AUTHORIZED BY CITIZENS BANCSHARES REGARDING THIS OFFERING
IS CONTAINED IN THIS PROSPECTUS. ANY OTHER STATEMENTS OR REPRESENTATIONS MADE TO
YOU BY A DEALER, SALESMAN, ORGANIZER OF CITIZENS BANCSHARES, OR ANY OTHER
INDIVIDUAL MUST NOT BE RELIED UPON AS BEING AUTHORIZED BY CITIZENS BANCSHARES.
THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF MAY 19, 1999.
THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT
SEEKING AN OFFER TO BUY SECURITIES OF CITIZENS
BANCSHARES IN ANY JURISDICTION WHERE THE OFFER
OR SALES ARE NOT PERMITTED.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................................................................1
Risk Factors......................................................................................................3
The Company.......................................................................................................7
Terms of the Offering.............................................................................................7
Use of Proceeds..................................................................................................11
Dividend Policy..................................................................................................13
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.........................................................................................13
Business of Citizens Bancshares..................................................................................13
Business of Citizens Bank........................................................................................14
Supervision and Regulation.......................................................................................21
Management.......................................................................................................25
Security Ownership of Certain Beneficial
Owners and Management.........................................................................................31
Certain Transactions.............................................................................................31
Description of Capital Stock.....................................................................................31
Limitations on Liability and Indemnification
of Officers and Directors.....................................................................................34
Legal Proceedings................................................................................................35
Legal Matters....................................................................................................35
Experts..........................................................................................................35
Additional Information...........................................................................................36
Index to Financial Statements...................................................................................F-1
Appendix A - Escrow Agreement
Appendix B - Subscription Materials
</TABLE>
---------------------------
UNTIL AUGUST 17, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS,
1,200,000 SHARES OF COMMON STOCK
113,330 COMMON STOCK PURCHASE WARRANTS
CITIZENS
BANCSHARES OF
SOUTHWEST
FLORIDA, INC.
A Bank Holding Company for
CITIZENS NATIONAL BANK OF
SOUTHWEST FLORIDA
A Proposed National Bank
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
May 19, 1999
================================================================================
