As filed with the Securities and Exchange Commission on January 19, 2000
Registration No. 333- 91817
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
COMMERCEFIRST BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Maryland 6021 52-2180744
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
705 Melvin Avenue
Suite 104
Annapolis, Maryland 21401
410.280.6673
(Address and telephone number of principal executive offices)
Richard J. Morgan, President and
Chief Executive Officer
CommerceFirst Bancorp, Inc.
705 Melvin Avenue
Suite 104
Annapolis, Maryland 21401
410.280.6673
(Name, address, including zip code, and telephone number agent for service)
Copies to:
Noel M. Gruber, Esquire Stephen C. Hosea, Esquire
David H. Baris, Esquire Garth E. Beall, Esquire
Kennedy, Baris & Lundy, L.L.P McNamee, Hosea, Jernigan & Kim, P.A.
4701 Sangamore Road, Suite P-15 6411 Ivy Lane, Suite 200
Bethesda, Maryland 20816 Greenbelt, Maryland 20770
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Title of Shares to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration Fee
Registered registered Offering Price Per Unit Aggregate Offering Price
===========================================================================================================================
<S> <C> <C> <C> <C>
Common stock 1,000,000 $10.00 $10,000,000 $2,780.00
===========================================================================================================================
</TABLE>
(1) Registration fee calculated in accordance with Rules 457(a).
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
800,000 SHARES OF COMMON STOCK
MINIMUM PURCHASE - 100 SHARES
COMMERCEFIRST BANCORP, INC.
CommerceFirst Bancorp, Inc. is being organized to be the holding
company for a state chartered commercial bank in the process of organization,
CommerceFirst Bank, to be headquartered in Annapolis, Maryland. CommerceFirst
Bancorp, Inc. is often referred to as "CommerceFirst" in this prospectus.
CommerceFirst is offering to sell up to 800,000 shares of its common
stock at a price of $10.00 per share. CommerceFirst may also sell up to an
additional 200,000 shares of common stock if the number of shares subscribed for
exceeds the number of shares offered. No shares will be sold unless acceptable
subscriptions for at least 650,000 shares are received.
This offering will continue until March 31, 2000, unless extended in
the discretion of the Board of Directors. Until your subscription is accepted
all funds will be placed in an escrow account at Bank of America, N.A.
-----------------
SHARES OF COMMERCEFIRST'S COMMON STOCK ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR
OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. INVESTING IN
COMMON STOCK INVOLVES INVESTMENT RISKS.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
Total - Minimum number Total - Maximum number
Per share of shares subscribed for of shares subscribed for
--------- ------------------------ ------------------------
<S> <C> <C> <C>
Price to public $10.00 $6,500,000 8,000,000
Gross proceeds of the offering $10.00 $6,500,000 $8,000,000
Underwriting discounts and commissions None N/A N/A
Net proceeds of the offering (before N/A $6,500,000 $8,000,000
</TABLE>
The date of this prospectus is ___________, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Summary..............................................................3
Risk Factors.........................................................6
The Offering........................................................11
Use of Proceeds.....................................................15
Business of CommerceFirst...........................................16
Capitalization of CommerceFirst.....................................17
Business of CommerceFirst Bank......................................17
Management's Plan of Operation......................................21
Supervision and Regulation..........................................22
Management..........................................................27
Executive Compensation and Certain
Transactions with Management.....................................32
Shares Eligible for Future Sale.....................................35
Description of Capital Stock........................................35
Litigation..........................................................37
Legal Matters.......................................................37
Experts.............................................................37
Additional Information About CommerceFirst .........................37
Index to Financial Statements.......................................38
2
<PAGE>
SUMMARY
This summary presents selected information from this prospectus. You
should carefully read this entire document in order to understand this offering.
Items in this summary include page references that direct you to more complete
descriptions in this document of the topics discussed.
THE OFFERING
General. CommerceFirst Bancorp, Inc. is offering to sell up to 800,000
shares of its common stock at an offering price of $10.00 per share.
CommerceFirst may also sell up to an additional 200,000 shares of common stock
if the number of shares subscribed for exceeds the number of shares offered. No
shares will be sold unless acceptable subscriptions for at least 650,000 shares
are received. Share subscriptions for which the purchase price will be paid by
submitting shares purchased with organizer contributions will be counted in
determining whether the minimum is met. See "Management's Plan of Operation"
(page 21). Directors and officers of CommerceFirst and CommerceFirst Bank may,
but are not obligated to, purchase more shares than they currently expect to
purchase if necessary to meet the minimum subscription required for completion
of the offering. See "Risk Factors" (page 6) and "Management" (page 27).
The minimum number of shares which may be subscribed for by any person
is 100. The maximum number of shares which any person, or group of affiliated or
related persons may subscribe is 5% of the total number of shares sold in the
offering, or 32,500 shares ($325,000) if the minimum number of shares is sold,
40,000 shares if the maximum number of shares is sold, and 50,000 shares
($500,000) if all of the oversubscription shares are sold. CommerceFirst may,
however, permit larger subscriptions in its discretion. It is currently the
intention of the CommerceFirst to permit larger subscriptions for certain of the
organizers. A person subscribing for 5% or more of the common stock may be
required to file applications with state or federal bank regulatory agencies as
a condition of the purchase. CommerceFirst reserves the right to reduce, or
reject, in whole or in part, any subscription which would require prior
regulatory application or approval if such approval is not obtained prior to the
termination of the offering. "The Offering - General" (page 11).
The offering is being conducted through the efforts of the organizing
directors and officers of CommerceFirst and CommerceFirst Bank, with the limited
assistance of Koonce Securities, Inc., a registered broker dealer, in order to
comply with the securities laws of the jurisdictions in which the common stock
will be offered. See "The Offering - Manner of Distribution" (page 14).
Proceeds of the Offering. If the maximum number of the shares being
offered is sold, the gross proceeds of the offering will be $8,000,000 and the
net proceeds of the offering will be $7,890,000, after estimated expenses of the
offering. If the minimum number of shares being offered are sold, the gross
proceeds of the offering will be $6,500,000, and the net proceeds will be
$6,390,000, after expenses. If all of the oversubscription shares are sold, then
the gross proceeds will be $10,000,000, and the net proceeds will be $9,890,000
after expenses.
Use of Proceeds. The first $6,000,000 of the net proceeds of the
offering will be used to purchase all of the then-issued shares of common stock
of CommerceFirst Bank. If applicable federal or state bank regulatory agencies
require or permit a different minimum capitalization for CommerceFirst Bank,
CommerceFirst may, but is not required to, purchase all of the then-issued
shares of common stock of CommerceFirst Bank for that greater or lesser amount.
Net proceeds in excess of $6,000,000 (or such other minimum amount that the
federal or state bank regulatory agencies may require or permit) will be
invested in short term U.S. government securities or other investments
authorized for bank holding companies, until such proceeds are used as working
capital or contributed to CommerceFirst Bank. In addition to acting as the
holding company for CommerceFirst Bank, CommerceFirst may engage in non-banking
activities permissible for bank holding companies, including but not limited to
leasing and mortgage banking activities. Whether or not CommerceFirst
contributes additional proceeds of the offering to CommerceFirst Bank will
depend on the total amount raised.
CommerceFirst Bank will use the funds contributed by CommerceFirst to
furnish and equip its facilities, to provide working capital, and for its
general corporate purposes, including use in its lending and investment
activities. See "Use of Proceeds" (page 15).
Termination of the Offering. The offering will run until March 31,
2000, unless the Board of Directors of CommerceFirst elects to extend the
offering to a date not later than
<PAGE>
June 30, 2000. See "The Offering - General" (page 11).
Procedure for Subscribing to Shares. To subscribe for shares, you
should complete the subscription agreement accompanying this prospectus and
submit it, along with payment in full for the shares, to Koonce Securities,
Inc., the subscription agent for the offering, prior to the expiration of the
offering. You should carefully follow the instructions contained in this
prospectus under the caption "The Offering" and those included on the order
form. See "The Offering - Method of Subscription (page 11).
<PAGE>
Escrow Account. Until a subscription is accepted, subscription funds
will be held in an in an escrow account under the control of an independent
escrow agent. If the offering is not completed, or if your subscription is not
accepted in whole or in part, your funds will be returned without interest or
deduction, except that interest will be paid to the extent that law, regulation
or administrative policy of the investor's state of residence specifically
requires. See "The Offering - Escrow Account; Release of Funds" (page 12).
<PAGE>
COMMERCEFIRST BANCORP, INC.
COMMERCEFIRST BANCORP, INC.
705 Melvin Avenue
Suite 104
Annapolis, Maryland 21401
410.280.6673
CommerceFirst Bancorp, Inc. was incorporated under Maryland law on July
9, 1999, to be the bank holding company for CommerceFirst Bank. CommerceFirst
Bank is in the process of being chartered as a Maryland commercial bank and will
be headquartered in Annapolis, Maryland. Subject to receipt of regulatory
approvals, CommerceFirst Bank will be a member of the Federal Reserve System.
CommerceFirst will initially use $6,000,000 (or other minimum amount that may be
required or permitted by the applicable federal or state bank regulatory
agencies) of the proceeds of this offering to purchase all of the then-issued
shares of the common stock of CommerceFirst Bank. In addition to serving as the
holding company for CommerceFirst Bank, CommerceFirst may engage in other
business activities permitted for bank holding companies. See "Use of Proceeds"
(page 15) and "CommerceFirst Bancorp, Inc. Supervision and Regulation" (page
22).
Neither CommerceFirst nor CommerceFirst Bank has commenced operations
and neither will do so unless this offering is completed and the approvals of
the Maryland Department of Financial Regulation, Board of Governors of the
Federal Reserve System and Federal Deposit Insurance Corporation are received.
As of December 31, 1999 CommerceFirst's assets were $150,786, consisting of
cash and equipment, and its total shareholders' equity was $48,817.
CommerceFirst's organizational activities have been funded by the
purchase of organizer shares by each of the 13 organizers. Each organizer
purchased 25 shares of common stock at a price of $1,000 per share, or an
aggregate of $325,000 and 325 shares of common stock. Organizers will purchase
additional shares of common stock at $1,000 per share as necessary to provide
additional funds for CommerceFirst's organizational activities prior to the
completion of this offering. Each of these shares will be used for the purchase
of 100 shares of common stock in the offering. The shares to be purchased in the
offering with the organizers shares will be counted in determining whether the
minimum number of shares is subscribed for in the offering. See "Management's
Plan of Operation" (page 21).
CommerceFirst Bank has not yet engaged in any business operations and
is in the process of obtaining the approvals necessary to commence operations as
a commercial bank. It is anticipated that CommerceFirst Bank, which will have a
primary market area in Anne Arundel County, Maryland, will open in the second
quarter of 2000, although we cannot be sure as to the date actual operations
will begin. See "Business of CommerceFirst" (page 16).
CommerceFirst and CommerceFirst Bank are being organized by a group of
individuals active in business, professional, banking, financial and charitable
activities in Anne Arundel, Prince George's, Howard and Calvert Counties,
Maryland, and the surrounding areas, and Citizens Incorporated, the registered
bank holding company for The Citizens National Bank of
<PAGE>
Evans City, a $336 million asset financial institution based in Evans City,
Pennsylvania, with which CommerceFirst Bank expects to work cooperatively in the
future. See - "Management - Other Organizers of CommerceFirst and CommerceFirst
Bank" (page 32). Many of the organizers and proposed Directors and Officers of
CommerceFirst and CommerceFirst Bank have significant prior experience and
contacts from service with other successful community banks. See "Management"
(page 27). We currently intend to seek to establish branch offices of
CommerceFirst Bank as rapidly as possible in order to more effectively service
anticipated customer relationships, and better compete in a highly competitive
environment, including the establishment of two branch offices within thirty-six
months of opening for business. There can be no assurance that we will be able
to establish any additional branches, that any of the anticipated relationships
will materialize, or that CommerceFirst Bank will be able to compete
successfully.
Organizer Warrants. Upon completion of the offering, and subject to
regulatory approval, the organizers of CommerceFirst and CommerceFirst Bank will
receive warrants to purchase a number of shares of common stock equal to 15% of
the total number of shares sold in the offering (97,500 shares if the minimum
number of shares are sold, 120,000 shares if the maximum number of shares are
sold and 150,000 shares if all of the oversubscription shares are sold). In
general, the warrants will have a term of ten years and will vest over a three
year period. If not exercised, the warrants will be subject to mandatory
exercise or termination after the organizer ceases to be a director of
<PAGE>
CommerceFirst Bank or CommerceFirst. The warrants will have an exercise price
equal to $10.00 per share. See "Executive Compensation and Certain Transactions
with Management -- Warrant Plan" (page 34).
Stock Options. Upon completion of the offering, and subject to
regulatory approval and approval a majority of the outstanding common stock
after this offering, CommerceFirst intends to adopt a Stock Option Plan to
attract and retain highly qualified personnel. The plan would be administered by
a committee appointed by the Board and would provide incentive options available
for grant to officers and key employees of CommerceFirst and CommerceFirst Bank.
The exercise price under each incentive stock option would not be less than 100%
of the fair market value of the shares on the date the option is granted. The
plan would have a ten year term, and the term of the options would be limited to
ten years. See "Executive Compensation and Certain Transactions with Management
- - Incentive Stock Option Plan" (page 33).
<PAGE>
RISK FACTORS
An investment in the common stock involves various risks. You should
carefully consider the risk factors listed below. These risk factors may cause
CommerceFirst's future earnings to be lower or its financial condition to be
less favorable than it expects. In addition, other risks which we are not aware
of, or which we do not believe are material, may cause our earnings to be lower,
or hurt our future financial condition. You should read this section together
with the other information in this prospectus .
AN ACTIVE PUBLIC MARKET WILL PROBABLY NOT EXIST FOR OUR COMMON STOCK
AFTER THE OFFERING, AND THEREFORE SHAREHOLDERS MAY NOT BE ABLE TO EASILY SELL
THEIR COMMON STOCK.
While the common stock will be freely transferable by most
shareholders, we do not expect that there will be an active market for trading
the common stock following the offering. We cannot be sure that an active or
established trading market will develop following completion of the offering, or
if one develops, that it will continue, or whether the price of the common stock
will be higher or lower than the offering price. While we currently intend to
list the common stock on The Nasdaq National Market, The Nasdaq SmallCap Market
or another securities market as soon as it meets the listing requirements, the
common stock will not be listed immediately after completion of the offering.
Additionally, even if qualified, future events may cause us to elect not to seek
listing on Nasdaq or another market. There can be no assurance that trading in
the over-the-counter market or through brokers or market makers will develop. As
a result, an investment in the common stock may be relatively illiquid. See "The
Offering - Limited Market for Common Stock" (page 13).
COMMERCEFIRST AND COMMERCEFIRST BANK DO NOT HAVE A PROVEN HISTORY OF
SUCCESSFUL OPERATIONS OR PROFITABILITY, AND WE CANNOT GIVE ANY ASSURANCE THAT WE
WILL EVER BE PROFITABLE.
CommerceFirst and CommerceFirst Bank are in the process of
organization, and neither has any prior operating history. CommerceFirst had a
loss of $276,183 for the period July 9, 1999 to December 31, 1999. CommerceFirst
will not have any initial business activities other than acting as the holding
company for CommerceFirst Bank and investing the proceeds of the offering, and
its profitability will primarily depend on the results of operations of its
principal asset, CommerceFirst Bank. Although the organizing directors and
executive officers have significant experience and contacts in the market in
which CommerceFirst Bank will operate, it is expected that CommerceFirst Bank
will incur operating losses during its initial years of operation, and may not
achieve significant profitability, if at all, for at least three years. No
assurance can be given as to CommerceFirst Bank's long-term profitability. The
cost of opening branch offices may further delay profitability. There can be no
assurance that CommerceFirst Bank will receive approval to establish its first
two branches as planned. See "Business of CommerceFirst" (page 16).
OUR ORGANIZATIONAL DOCUMENTS HAVE PROVISIONS WHICH MAY PREVENT AN
ACQUISITION OF THE COMPANY EVEN IF A MAJORITY OF SHAREHOLDERS FAVOR THE
ACQUISITION.
CommerceFirst's Articles of Incorporation and Bylaws contain provisions
which may be seen as having an "antitakeover" effect. These provisions, which
include provisions that require: the request of shareholders owning 50% of the
outstanding shares to call a special meeting of shareholders; the vote of 80% of
the outstanding shares to approve certain business combinations and amendments
to the Articles of Incorporation and Bylaws, in addition to the statutory two
thirds vote requirement; a classified board of directors; and the absence of
cumulative voting in the election of directors, may have the effect of
entrenching the current management. As a result of these provisions, shareholder
efforts to make changes in the conduct of CommerceFirst's business or to sell
the company may be defeated, even if such shareholders hold a majority of the
common stock, or if such efforts are in the best interests of a majority of
shareholders. The overall effect of these provisions could:
<PAGE>
o make CommerceFirst less attractive to a potential acquiror;
o deter a non-negotiated offer to acquire CommerceFirst which a majority of
shareholders might view as being in their best interests, and which could
include substantial premium over the market price for the common stock;
o result in a lower market price of the common stock.
See "Management" (page 27) and "Description of Capital Stock - Certain
Provisions of the Articles of Incorporation" (page 36)
DIRECTORS AND OFFICERS OF COMMERCEFIRST AND COMMERCEFIRST BANK WILL OWN
AT LEAST 33%, AND POSSIBLY MORE THAN 50%, OF THE OUTSTANDING COMMON STOCK. AS A
RESULT OF THEIR OWNERSHIP, THEY COULD DECIDE THE OUTCOME OF MATTERS SUBMITTED TO
SHAREHOLDER VOTE, INCLUDING THE ELECTION OF DIRECTORS AND VOTES ON SOME
ACQUISITIONS OF THE COMPANY, WITHOUT THE VOTES OF OTHER SHAREHOLDERS. THE
RESULTS OF THE VOTE MAY BE CONTRARY TO THE DESIRES OR INTERESTS OF THE PUBLIC
SHAREHOLDERS.
Directors and Officers of CommerceFirst and CommerceFirst Bank and
their affiliates intend to purchase at least 330,000 shares of common stock in
the offering. These persons may purchase a greater or lesser number of shares in
the offering. If such persons purchase the number of shares indicated, then at
least 33% of the common stock (if all of the oversubscription shares are sold),
and as much as 50.77% of the common stock (if the minimum number of shares are
sold) will be owned by Directors and Officers of CommerceFirst and CommerceFirst
Bank and their affiliates. This level of ownership may enable these persons to
elect the entire Board of Directors, if they voted together. See "Management"
(page 27).
By voting against a proposal submitted to shareholders, the Directors
and Officers of CommerceFirst and CommerceFirst Bank, as a group, would be able
to block approval of any proposal submitted to shareholders which requires an
80% vote of shareholders (such as certain votes under Maryland's statute
regarding business combinations with certain "interested stockholders"), and
make approval more difficult for proposals requiring the vote of two thirds of
shareholders (such as mergers, share exchanges, certain asset sales, and
amendments to CommerceFirst's Articles of Incorporation). See "Management" (page
27) and "Description of Capital Stock - Certain Provisions of the Articles of
Incorporation" (page 36).
COMMERCEFIRST BANK'S LOAN PORTFOLIO WILL CONSIST MAINLY OF COMMERCIAL
AND COMMERCIAL REAL ESTATE RELATED LOANS, WHICH HAVE A HIGHER DEGREE OF RISK
THAN OTHER TYPES OF LOANS.
CommerceFirst Bank intends to operate primarily as a commercial bank,
providing lending services, mainly to various types of small and medium size
businesses and professional organizations. These types of loans are generally
considered to have a higher degree of risk of default or loss than other types
of loans, such as residential real estate loans, because repayment may be
affected by general economic conditions, interest rates, the quality of
management of the business, and other factors which may cause a borrower to be
unable to repay its obligations. See "Business of CommerceFirst Bank - Primary
Business Area and Proposed Services" (page 17).
THE BOARD OF DIRECTORS DETERMINED THE OFFERING PRICE AT AN ARBITRARY
AMOUNT, IN ITS DISCRETION.
The subscription price of the common stock has been arbitrarily
determined by the Board of Directors of CommerceFirst, and no independent
investment banking firm was retained to assist in such determination. The $10.00
per share price bears no relationship to the assets, earnings, book value or
other established measure of value; rather, in fixing the price the Board
considered, a variety of factors, including:
o the subscription prices of securities offered by other newly organized
financial institutions and bank holding companies,
o the amount of capital sought to be raised, and
o the number of outstanding shares desired. No specific weight was given to
any factor.
THE PER SHARE BOOK VALUE OF THE COMMON STOCK FOLLOWING THE OFFERING
WILL BE WILL BE LESS THAN THE SUBSCRIPTION PRICE.
If all of the shares being offered are sold (except for the shares
subject to the oversubscription allotment), the pro forma book value per share
at
7
<PAGE>
December 31, 1999 would be $9.65 per share. The post-offering book value is less
than the offering price of $10.00 per share, and accordingly, investors will
experience dilution of $0.35, or 3.5%, per share, calculated on the basis of the
difference between the offering price and book value. See "Capitalization of
CommerceFirst" (page 17). Post-offering book value will be further reduced as a
result of the incurrence, after December 31, 1999, of additional expenses in
connection with the organization of CommerceFirst and CommerceFirst Bank.
THERE CAN BE NO ASSURANCE THAT COMMERCEFIRST WILL HAVE SUFFICIENT
EARNINGS TO BE LEGALLY ABLE TO PAY DIVIDENDS.
CommerceFirst Bank will initially be the principal revenue producing
operation of CommerceFirst. As a result, CommerceFirst's ability to pay
dividends will largely depends on receiving dividends from CommerceFirst Bank.
The amount of dividends that CommerceFirst Bank may pay is limited by state and
federal laws and regulations. We expect that CommerceFirst Bank will incur
losses during its initial phase of operations, and therefore, it is not
anticipated that any dividends will be paid by CommerceFirst Bank or
CommerceFirst for at least three years and in the foreseeable future. Even if
CommerceFirst Bank or CommerceFirst have earnings in an amount sufficient to pay
dividends, the Board of Directors may decide to retain earnings for the purpose
of financing growth. No assurance can be given that CommerceFirst Bank's
earnings, if any, will ever permit the payment of any dividends to CommerceFirst
or that CommerceFirst's earnings, if any, will ever permit the payment of
dividends to shareholders. See "Description of Capital Stock - Limitations on
Payment of Dividends" (page 35) and "The Offering - Limited Market for Common
Stock" (page 13).
THERE IS NO ASSURANCE THAT COMMERCEFIRST WILL BE ABLE TO SUCCESSFULLY
COMPETE WITH OTHERS FOR ITS BUSINESS.
CommerceFirst and CommerceFirst Bank will compete for loans, deposits,
and investment dollars with other banks and other kinds of financial
institutions and enterprises, such as securities firms, insurance companies,
savings and loan associations, credit unions, mortgage brokers, and private
lenders, many of which have substantially greater resources. Recent legislation
expanding the array of firms that can own banks may result in increased
competition for CommerceFirst and CommerceFirst Bank. The differences in
resources and regulations may make it harder for CommerceFirst and CommerceFirst
Bank to compete profitably, reduce the rates that they can earn on loans and
investments, increase the rates they must offer on deposits and other funds, and
adversely affect CommerceFirst's overall financial condition and earnings. See
"Business of CommerceFirst Bank - Competition (page 17) and "Supervision and
Regulation" (page 22).
NO BROKER HAS AGREED TO PURCHASE ANY OF THE COMMON STOCK AND
COMMERCEFIRST MAY NOT BE ABLE TO COMPLETE THE OFFERING. COMMERCEFIRST'S RESULTS
MAY BE ADVERSELY AFFECTED IF ONLY THE MINIMUM NUMBER OF SHARES IS SOLD.
The common stock is being sold directly, through the efforts of the
organizing Directors and Officers of CommerceFirst, with the limited assistance
of a registered broker-dealer for the purpose of compliance with the securities
laws of the jurisdictions in which the shares are being offered. No
broker-dealer which assists in the offering will have any obligation to
purchase, or find purchasers for, any shares of common stock. See "The Offering
- - Manner of Distribution" (page 14).
Because the offering is not underwritten, there can be no assurance
that the minimum number of shares will be sold. If the minimum number of shares
is not subscribed for, subscriber funds will be returned, without deduction, but
subscribers will have lost the use of their funds while the offering is being
conducted. See "The Offering - Escrow Account; Release of Funds" (page 12) and
"Acceptance and Refunding of Subscriptions" (page 13).
If only the minimum number of shares are sold, CommerceFirst and
CommerceFirst Bank will have less capital to fund initial operating losses,
operations and expansion activities. While we believe that the proceeds of the
sale of the minimum number of shares will be sufficient to finance
CommerceFirst's business plans, the capital levels resulting from the sale of
only the minimum number of shares, in combination with adverse business
conditions, could result in restricted or slower growth for CommerceFirst Bank,
8
<PAGE>
slower establishment of branches or non-banking activities, and lower
shareholder returns. CommerceFirst could be required to raise additional capital
earlier than it would if it sold the maximum number of shares.
9
<PAGE>
MANAGEMENT CAN SELL ADDITIONAL SHARES OF COMMON STOCK WITHOUT
CONSULTING SHAREHOLDERS AND WITHOUT OFFERING SHARES TO EXISTING SHAREHOLDERS,
WHICH COULD RESULT IN DILUTION OF SHAREHOLDERS' INTERESTS IN COMMERCEFIRST.
CommerceFirst's articles of incorporation authorize 4,000,000 shares of
common stock, 800,000 of which are offered in this offering (1,000,000 including
the oversubscription shares). The Board of Directors is authorized to issue
additional shares of common stock, at such times and for such consideration as
it may determine, without shareholder action. The existence of authorized shares
of common stock could have the effect of rendering more difficult or
discouraging hostile takeover attempts, or of facilitating a negotiated
acquisition and could affect the market for and price of the common stock. Any
future offering of capital stock could have a dilutive effect on holders of
common stock. See "Description of Capital Stock" (page 35).
INVESTORS WILL BE RELYING ON THE JUDGMENT AND DISCRETION OF THE
DIRECTORS AND OFFICERS TO DEVELOP AND OPERATE COMMERCEFIRST'S AND COMMERCEFIRST
BANK'S BUSINESS.
As newly organized institutions which do not have existing operations,
facilities or business lines, CommerceFirst and CommerceFirst Bank will rely
upon their Officers and Directors to locate, establish and outfit appropriate
quarters for CommerceFirst Bank, hire staff, develop and implement marketing and
business development strategies and evaluate lines of businesses in addition to
CommerceFirst Bank's core commercial banking functions. We cannot be sure that
the Board of Directors, which, subject to the requirements of safe and sound
banking practices, will have substantial discretion in these matters, will be
successful in this regard.
MANAGEMENT WILL HAVE DISCRETION IN ALLOCATING A SUBSTANTIAL PORTION OF
THE PROCEEDS OF THE OFFERING.
Subject to the anticipated requirement that at least $6,000,000 (or
such other minimum amount that the federal or state bank regulatory agencies may
require or permit) be contributed to the capital of CommerceFirst Bank, and the
requirements of safe and sound banking practices, the Board of Directors of
CommerceFirst Bank and CommerceFirst will have substantial discretion in
determining the use of offering proceeds. The discretion of the Board of
Directors and management to allocate the proceeds of the offering may result in
the use of the proceeds for non-banking activities permitted for bank holding
companies which are not specifically identified in this prospectus.
THE LOSS OF THE SERVICES OF ANY KEY EMPLOYEES COULD ADVERSELY AFFECT
INVESTOR RETURNS.
The business of CommerceFirst and CommerceFirst Bank will be
service-oriented, and their success will therefore depend to a large extent upon
the services of Richard J. Morgan, President and Chief Executive Officer, and
Lamont Thomas, Executive Vice President and Chief Operating Officer. The loss of
the services of Mr. Morgan or Mr. Thomas could adversely affect the business of
CommerceFirst and CommerceFirst Bank. See "Management" (page 27).
THE ABILITY TO RECOVER MONEY DAMAGES FROM THE DIRECTORS AND OFFICERS OF
COMMERCEFIRST IS LIMITED BY THE ARTICLES OF INCORPORATION.
The articles of incorporation of CommerceFirst provide that to the full
extent permitted by Maryland law, an officer or director of CommerceFirst will
not be liable to CommerceFirst or its shareholders for monetary damages. See
"Management" (page 27). This could result in monetary loss to CommerceFirst and
its shareholders as a result of the default of its Officers or Directors without
the ability to obtain compensation for that loss from the Officers or Directors.
COMMERCEFIRST'S PROFITABILITY WILL DEPEND ON ECONOMIC POLICIES AND FACTORS
BEYOND ITS CONTROL.
The operating income and net income of CommerceFirst Bank will depend
to a great extent on "rate differentials," i.e., the difference between the
interest yields CommerceFirst Bank receives on its loans, securities and other
interest bearing assets and the interest rates it pays on its interest bearing
deposits and other liabilities. These rates are highly sensitive to many factors
which are beyond the control of
10
<PAGE>
CommerceFirst Bank, including general economic conditions and the policies of
various governmental and regulatory authorities, including the Board of
Governors of the Federal Reserve System. See "Supervision and Regulation
CommerceFirst Bank" (page 23).
GOVERNMENT REGULATION WILL SIGNIFICANTLY AFFECT COMMERCEFIRST'S
BUSINESS, AND MAY RESULT IN HIGHER COSTS AND LOWER SHAREHOLDER RETURNS.
The banking industry is heavily regulated. Banking regulations are
primarily intended to protect the federal deposit insurance funds and
depositors, not shareholders. CommerceFirst Bank will be regulated and
supervised by the Maryland Department of Financial Regulation, the Board of
Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation. CommerceFirst will be subject to regulation and supervision by the
Board of Governors of the Federal Reserve System. Changes in the laws,
regulations and regulatory practices affecting the banking industry could impose
additional costs on CommerceFirst, or could hurt its ability to compete
profitably with other financial institutions. See "Supervision and Regulation"
(page 22).
COMMERCEFIRST CAN DECIDE TO NOT ACCEPT ALL OR A PART OF YOUR
SUBSCRIPTION. UNTIL THAT DECISION IS MADE, YOU WILL NOT HAVE USE OF YOUR FUNDS.
CommerceFirst will have broad discretion in determining which
subscriptions, other than those of Directors and Officers of CommerceFirst and
CommerceFirst Bank, to accept, in whole or in part, including in the event the
offering is oversubscribed. In deciding which subscriptions to accept,
CommerceFirst may consider the order in which subscriptions are received, a
subscriber's potential to do business with, or to direct business to,
CommerceFirst Bank, and the desire to have a broad distribution of stock
ownership. As a result, a subscriber cannot be assured of receiving the full
number of shares subscribed for, and may forego use of all or a portion of such
subscriber's funds pending allocation of available shares. (See "The Offering -
General" (page 11) and " Acceptance and Refunding of Subscriptions" (page 13).
IF COMMERCEFIRST BANK DOES NOT OPEN WHEN EXPECTED, ORGANIZATION COSTS
MAY INCREASE AND SHAREHOLDER RETURNS MAY BE ADVERSELY AFFECTED.
11
<PAGE>
Delays in leasing satisfactory premises for CommerceFirst Bank's main
office, or in effecting renovations to such premises, could result in the
opening being delayed. Delay may also be experienced as a result of the process
of obtaining regulatory approvals. Delay in the commencement of operations by
CommerceFirst Bank may result in increased aggregate organizational expense,
reduced funds available for the conduct of CommerceFirst's business, and
possibly reduced returns.
12
<PAGE>
THE OFFERING
GENERAL
CommerceFirst is offering to sell up to 800,000 shares of its common
stock, at a price of $10.00 per share. CommerceFirst also reserves the right to
sell up to an additional 200,000 shares of common stock if the volume of
subscriptions exceeds the number of shares offered. No shares will be sold
unless acceptable subscriptions for a minimum of 650,000 shares are received,
and all regulatory approvals required for CommerceFirst Bank to open are
received. It is expected that Directors and Officers of CommerceFirst and
CommerceFirst Bank and their affiliates will purchase at least 330,000 shares of
common stock, representing approximately 50.77% of the common stock if the
minimum number of shares are sold, 41.25% percent if the maximum number of
shares are sold, and 33% if all of the oversubscription shares are sold. See
"Management" (page 27).
Subscriptions to purchase shares must be received no later than 5:00
p.m., Eastern time, on March 31, 2000, unless the offering is terminated earlier
or extended by CommerceFirst. CommerceFirst reserves the right to terminate the
offering at any time prior to March 31, 2000, or to extend the termination date
for periods of up to thirty (30) days each, without notice to subscribers;
however, under no circumstances will the offering be extended beyond June 30,
2000. See "The Offering - Method of Subscription" (page 11).
Investors must subscribe for the purchase of a minimum of 100 shares
(for a minimum investment of $1,000), subject to CommerceFirst's right to permit
smaller subscriptions in its discretion. The maximum number of shares any person
or group of affiliated persons will be permitted to purchase is five percent
(5%) of the total number of shares sold in the offering (32,500 shares if the
minimum number of shares is sold, 40,000 shares if the maximum number of shares
are sold, 50,000 shares if all of the oversubscription shares are sold).
CommerceFirst reserves the right, however, to permit larger purchases in its
discretion. It is the current intention of CommerceFirst to permit certain of
the organizers to purchase five (5%) or more of the total number of shares sold
in the offering. See "The Offering - Regulatory Limitation" (page 14) and
"Management" (page 27). In considering whether to permit larger or smaller
subscriptions, CommerceFirst may consider the number of shares purchased by a
subscriber in other capacities, the potential of the subscriber to do business
with, or direct business to, CommerceFirst Bank, and other factors relating to a
particular subscription, and the number of shares which have not been subscribed
for at the time a subscription is accepted. In determining whether to accept a
larger subscription, CommerceFirst may also consider the identity of the
subscriber and the subscriber's intentions with respect to the operation,
management and direction of CommerceFirst.
COMMERCEFIRST RESERVES THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTION
IN WHOLE OR IN PART. IN DETERMINING WHETHER TO ACCEPT ANY SUBSCRIPTION, IN WHOLE
OR IN PART, THE DIRECTORS MAY, IN THEIR SOLE DISCRETION, TAKE INTO ACCOUNT THE
ORDER IN WHICH SUBSCRIPTIONS ARE RECEIVED, A SUBSCRIBER'S POTENTIAL TO DO
BUSINESS WITH, OR TO DIRECT CUSTOMERS TO, COMMERCEFIRST BANK AND COMMERCEFIRST'S
DESIRE TO HAVE A BROAD DISTRIBUTION OF STOCK OWNERSHIP, AS WELL AS LEGAL OR
REGULATORY RESTRICTIONS. NOTWITHSTANDING COMMERCEFIRST'S UNFETTERED RIGHT OF
REJECTION, ONCE RECEIVED BY COMMERCEFIRST, ALL SUBSCRIPTIONS ARE IRREVOCABLE BY
THE SUBSCRIBER.
METHOD OF SUBSCRIPTION
Investors who wish to participate in the offering and invest in
CommerceFirst may do so by completing and signing the subscription agreement
accompanying this prospectus and delivering the completed subscription agreement
to Koonce Securities, Inc. prior to the termination of the offering, together
with payment in full of the offering price of all shares subscribed for. Payment
in full must be by (a) check or bank draft drawn upon a U.S. bank; or (b)
postal, telegraphic or express money order, in either case, payable to "Bank of
America, N.A., Escrow Agent for CommerceFirst Bancorp, Inc.". The offing price
will be deemed to have been received only upon (i) clearance of any uncertified
check, or (ii) receipt of any certified check or bank draft drawn upon a U.S.
bank or of any postal, telegraphic or express money order. A postage paid,
addressed envelope is included for the return of subscription agreement. If
paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, investors who wish
to pay the offering price by means of uncertified personal check are urged to
make payment sufficiently in advance of the termination of the offering to
ensure that such payment
<PAGE>
is received and clears by such date. All funds received in payment of the
subscription price will be deposited at Bank of America, N.A. in the
CommerceFirst Bancorp, Inc. Escrow Account and, until closing of the offering,
will be invested at the direction of CommerceFirst .
The address to which subscription agreements and payment of the
offering price should be delivered is:
Koonce Securities, Inc. (CommerceFirst Bancorp, Inc.)
6550 Rock Spring Drive
Suite 600
Bethesda, Maryland 20817
Telephone No.: (800) 368-2806 or (301) 897-9700
If the aggregate amount paid by a subscriber is insufficient to
purchase the number of shares that such person indicates are being subscribed
for, or if a subscriber does not specify the number of shares to be purchased,
then such subscriber will be deemed to have subscribed to purchase shares to the
full extent of the payment tendered (subject only to the reduction to the extent
necessary to comply with any regulatory limitation or conditions imposed by
CommerceFirst in connection with the offering). If the amount paid by a
subscriber exceeds the amount necessary to purchase the number of shares for
which such subscriber has indicated an intention to subscribe, then such
subscriber will be deemed to have subscribed to purchase shares to the full
extent of the excess payment tendered (subject only to reduction to the extent
necessary to comply with any regulatory limitation or conditions imposed by
CommerceFirst in connection with the offering). Notwithstanding the foregoing,
CommerceFirst reserves the right to reject, in whole or in part, any
subscription. In determining whether to accept any subscription, in whole or in
part, the Directors may, in their sole discretion, take into account the order
in which subscriptions are received, a subscriber's potential to do business
with, or to direct customers to, CommerceFirst Bank and CommerceFirst's desire
to have a broad distribution of stock ownership, as well as legal or regulatory
restrictions.
FAILURE TO INCLUDE THE FULL OFFERING PRICE WITH THE APPLICATION MAY
CAUSE COMMERCEFIRST TO REJECT THE SUBSCRIPTION.
The method of delivery of subscription agreements and payment of the
offering price will be at the election and risk of persons participating in the
offering, but if sent by mail, it is recommended that subscription agreements
and payments be sent by registered mail, return receipt requested, and that a
sufficient number of days be allowed to ensure delivery and clearance of payment
prior to the termination date.
All questions concerning the timeliness, validity, form and eligibility
of subscription agreements received will be determined by CommerceFirst, whose
determinations will be final and binding. CommerceFirst in its sole discretion
may waive any defect or irregularity, or permit any defect or irregularity to be
corrected within such time as it may determine, or reject the purported
subscription. Subscription agreements will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as CommerceFirst determines in its sole discretion. Neither CommerceFirst nor
any broker-dealer utilized by CommerceFirst will be under any duty to give
notification of any defect or irregularity in connection with the submission of
subscription agreements or incur any liability for failure to give such
notification.
Subscriptions for common stock which are received by CommerceFirst or
its broker-dealer may not be revoked by subscribers.
ESCROW ACCOUNT; RELEASE OF FUNDS
In connection with the sale of common stock by CommerceFirst, an escrow
account has been established at Bank of America, N.A. All funds submitted with
subscription agreements will be forwarded to Bank of America, N.A. by noon of
the following business day, for deposit in the escrow account. Koonce Securities
has agreed to deposit funds submitted with the subscriptions agreement into the
escrow account. Koonce Securities will receive a fee of $18.00 per deposit in
connection with depositing the funds submitted with the subscription agreements.
Subscription funds may be invested temporarily in short-term government
obligations and investments which are permissible under
<PAGE>
Commission rule 15c2-4. The funds in the escrow account will be held by Bank of
America, N.A. and will not be released until the acceptance by CommerceFirst of
subscriptions for not less than 650,000 shares and all regulatory approvals are
received. In determining whether the minimum number of shares has been
subscribed for, shares to be acquired by organizers using organizer shares as
payment will be counted. See "Management's Plan of Operation" (page 21).
In the event that the offering is not completed because the minimum
number of shares are not subscribed for, all regulatory approvals are not
received, or otherwise, all subscription funds will be returned to investors,
without interest or deduction, except that interest will be paid to the extent
that law, regulation or administrative policy of an investor's state of
residence specifically requires.
Whether or not the offering is completed and shares sold, all interest
and other amounts earned on funds held in escrow representing accepted
subscriptions will be retained by CommerceFirst. By submitting a subscription,
subscribers will forego interest they otherwise could have earned on the funds
for the period during which their funds are held in escrow. Notwithstanding the
foregoing, interest will be paid to the extent that law, regulation or
administrative policy of an investor's state of residence specifically requires
in the event that the offering is not completed. Prior to the time the offering
is completed or terminated, CommerceFirst will be entitled to request, from time
to time, that the escrow agent distribute accrued earnings on the escrowed funds
to CommerceFirst for general corporate purposes.
ACCEPTANCE AND REFUNDING OF SUBSCRIPTIONS
Subscription agreements are not binding on CommerceFirst until accepted
by CommerceFirst, which reserves the right to reject, in whole or in part, in
its sole discretion, any subscription agreement or, if the offering is
oversubscribed, to allot a lesser number of shares than the number for which a
person has subscribed. In determining the number of shares to allot to each
subscriber in the event the offering is oversubscribed, the Directors, in their
sole discretion, may take into account the order in which subscriptions are
received, a subscriber's potential to do business with, or to direct customers
to, CommerceFirst Bank, and CommerceFirst's desire to have a broad distribution
of stock ownership, as well as legal or regulatory restrictions. CommerceFirst
will decide which subscription agreements to accept within three days after the
termination of the offering. Once made, a subscription is irrevocable by the
subscriber during the period of the offering, including extensions, if any.
In the event CommerceFirst rejects all or a portion of any
subscription, the escrow agent will promptly refund to the subscriber by check
sent by first-class mail all, or the appropriate portion of, the amount
submitted with the subscription agreement, without interest or deduction, except
that interest will be paid to the extent that law, regulation or administrative
policy of an investor's state of residence specifically requires. If the
offering is not completed, because CommerceFirst Bank does not receive its
charter to open for business, the minimum number of shares are not subscribed
for by the termination date, including extensions, if any, or for any other
reason, all subscription funds will be promptly refunded to subscribers without
interest or deduction, except that interest will be paid to the extent that law,
regulation or administrative policy of an investor's state of residence
specifically requires.
After all refunds have been made, the escrow agent, CommerceFirst,
CommerceFirst Bank and their respective Directors, Officers, and agents will
have no further liabilities to subscribers. Certificates representing shares
duly subscribed and paid for will be issued by CommerceFirst as soon as
practicable after funds are released to CommerceFirst by the escrow agent.
<PAGE>
LIMITED MARKET FOR COMMON STOCK
Except for common stock held by CommerceFirst's Directors and certain
Officers, the common stock will be freely transferable immediately upon issuance
and will not be subject to any transfer restrictions. Although the common stock
may be bought or sold in the over-the-counter market through securities brokers
and dealers, it is not anticipated that an active trading market will develop in
the foreseeable future. There can be no assurance that an over-the-counter
market will develop for the common stock. It is not anticipated that the common
stock will initially be listed on any stock exchange or be designated for
trading on the Nasdaq system, although CommerceFirst currently intends to list
the shares on The Nasdaq National Market, The Nasdaq Small Capitalization Market
or another market as soon as it meets the requirements therefor. There can be no
assurance however, that CommerceFirst will qualify for, or if qualified for will
seek, listing on any market.
Qualification requirements for The Nasdaq SmallCap Market currently
include net tangible assets of $4,000,000, market capitalization of $50 million
or Net Income (in latest fiscal year or 2 of last 3 fiscal years) of $750,000; a
public float of one million shares (exclusive of shares held directly or
indirectly by any Officer or Director of CommerceFirst and shares held by any
other person who is the beneficial owner of more than 10 percent of the total
shares outstanding); a market value of the public float of at least $5,000,000;
3 market makers; 300 shareholders holding a minimum of 100 shares each; one year
of operating history or $50,000,000 in market capitalization; a minimum bid
price of $4/share; distribution of annual and interim reports; a minimum of two
independent directors; An audit committee (a majority of which are independent
directors); an annual shareholder meeting; certain quorum requirements;
solicitation of proxies; review of conflicts of interest by the Nasdaq;
shareholder approval for certain corporate actions; and certain voting rights.
There can be no assurance that CommerceFirst common stock will qualify for
listing on The Nasdaq SmallCap Market or another securities market.
REGULATORY LIMITATION
The purchase of five percent (5%) or more of the common stock of
CommerceFirst may require the subscriber to provide certain information to, or
seek the prior approval of, state and federal bank regulators. CommerceFirst
will not be required to issue shares of common stock in the offering to any
person who, in the opinion of CommerceFirst, would be required to obtain prior
clearance or approval from any state or federal bank regulatory authority to own
or control such shares if, at the termination date, such clearance or approval
has not been obtained or any required waiting period has not expired.
CommerceFirst reserves the right to reduce or reject, in whole or in part, any
subscription which would require prior regulatory application or approval if
such has not been obtained prior to the termination date. See "The Offering -
Acceptance and Refunding of Subscriptions" (page 13).
MANNER OF DISTRIBUTION
The Offering will be made through the efforts of the Officers and
Directors of CommerceFirst. The Officers and Directors will not receive any
special compensation for such services, but will be reimbursed for reasonable
out-of-pocket expenses, if any, incurred by them. Although all of the Officers
and Directors of CommerceFirst and CommerceFirst Bank will participate in the
Offering, Milton D. Jernigan, II, the Chairman of CommerceFirst and
CommerceFirst Bank, Richard J. Morgan, the President and Chief Executive Officer
of CommerceFirst and CommerceFirst Bank , and Lamont Thomas, Executive Vice
President and Chief Operating Officer of CommerceFirst and CommerceFirst Bank,
will have principal responsibility for coordination of investor development
activities, answering questions from investors and, participating in
informational meetings and coordinating the efforts of the Officers and
Directors in the Offering. CommerceFirst has retained Koonce, a registered
broker-dealer, to provide limited assistance to CommerceFirst in order to effect
sales of shares in compliance with the securities laws of the jurisdictions in
which the offering will be made. To the extent CommerceFirst seeks to offer
shares in jurisdictions in which Koonce is not registered, CommerceFirst may
effect sales through another registered broker-dealer. Neither Koonce, nor any
other broker-dealer who assists CommerceFirst in the offering, nor any other
person, has any obligation to purchase any of the shares being offered.
Executed subscription documents (which will be promptly forwarded to
CommerceFirst) and subscription funds (which will be forwarded to the escrow
agent by noon of the business day following receipt) will be received by Koonce.
No broker-dealer who assists CommerceFirst in the offering, including Koonce,
will independently assess the information in this prospectus or determine the
value of the common stock or the reasonableness of the offering price.
<PAGE>
Koonce will receive $15,000 for its services in connection with the offering, if
the offering is completed. Koonce will also receive reimbursement of its
out-of-pocket expenses, whether or not the offering is completed.
<PAGE>
USE OF PROCEEDS
The gross proceeds to CommerceFirst from the sale of the common stock
offered hereby will be $6,500,000 if the minimum number of shares are sold,
$8,000,000 if the maximum number of shares are sold, and $10,000,000 if all of
the oversubscription shares are sold, in each case before deducting expenses of
the offering, which are estimated at $110,000.
CommerceFirst will initially use $6,000,000 of the net proceeds of the
offering to purchase all of the then-issued common stock of CommerceFirst Bank.
If applicable federal and state bank regulatory agencies require or permit a
minimum capitalization for CommerceFirst Bank either greater or less than
$6,000,000, CommerceFirst may, but is not required to, purchase all of the
then-issued shares of common stock of CommerceFirst Bank for such greater or
lesser amount. If more than $6,000,000 (or such other minimum amount as may be
required or permitted by applicable federal and state bank regulatory agencies)
of net proceeds is raised in the offering, CommerceFirst may use all or a
portion of the additional proceeds for purchase of more shares of CommerceFirst
Bank's common stock (or otherwise contribute such funds to CommerceFirst Bank)
or may retain all or a portion of the additional proceeds in CommerceFirst for
general corporate purposes, including permitting CommerceFirst to engage in
business activities permitted for bank holding companies, and to meet future
accounting, legal and regulatory expenses. See "Supervision and Regulation"
(page 22). There can be no assurance that CommerceFirst will not be required to
contribute to the capital of CommerceFirst Bank more than the amount currently
anticipated as a condition to the approval of CommerceFirst Bank's charter.
CommerceFirst Bank will apply the proceeds of the sale of its capital
stock to CommerceFirst to build-out, furnish and equip CommerceFirst Bank's
premises and CommerceFirst's offices (at an estimated cost of $380,000), to
provide working capital for expansion, to fund lending activities and for
general corporate purposes (including the investment of all or a portion of the
working capital funds in interest-bearing certificates of deposit or other
deposits with CommerceFirst Bank or other types of securities, such as
government bonds).
Set forth below is a tabular presentation reflecting the anticipated
allocation of the net proceeds of the offering, after deducting estimated
expenses of the offering of $110,000. The presentation assumes the sale of a
maximum of 800,000 shares, that no oversubscription shares are sold, the payment
of all pre-opening and organizational costs (other than bank premises and
equipment expense) by CommerceFirst, and in the case of the maximum number of
shares being sold, the contribution of all proceeds in excess of $6,500,000 to
CommerceFirst Bank.
<TABLE>
<CAPTION>
Minimum Maximum(1)
Amount % of Proceeds(1) Amount % of Proceeds(1)
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
COMMERCEFIRST:
Net Proceeds $6,390,000 100% $ 7,890,000 100%
Purchase of Stock of Bank/
Capital Contributions 6,000,000 93.90% 7,390,000 93.66%
Salary(2)(5) 150,000 2.35% 150,000 1.90%
Other pre-opening expense(3)(5) 142,000 2.22% 142,000 1.80%
Working Capital(5) 98,000 1.53% 208,000 2.64%
COMMERCEFIRST BANK
Proceeds of Capital Contributions
By Company 6,000,000 93.90% 7,390,000 93.66%
Premises and equipment expense(4)(5) 380,000 5.95% 380,000 4.82%
Working Capital(5) 5,400,000 87.95% 6,790,000 88.85%
</TABLE>
(1) Represents, in case of CommerceFirst Bank, percentage of total net
proceeds of Offering. CommerceFirst reserves the right to not
contribute to CommerceFirst Bank any portion of the proceeds of the
Offering in excess of $6,000,000 (or such other minimum amount as may
be required or permitted by applicable federal and state bank
regulatory agencies).
(2) Represents pre-opening salary and benefits for the Chairman, President
-Chief Executive Officer and Executive Vice President - Chief Operating
Officer of CommerceFirst Bank. See "Executive Compensation and Certain
Transactions with Management" (page 32).
(3) Includes bank and bank holding company application costs and related
legal expense, and office expense for pre-opening period.
(4) Represents estimated costs of outfitting main offices of CommerceFirst
Bank.
(5) Assumes that CommerceFirst Bank will open no later than May 1, 2000.
<PAGE>
BUSINESS OF COMMERCEFIRST
CommerceFirst was incorporated under Maryland law on July 9, 1999.
CommerceFirst's application to become a bank holding company was filed with the
Federal Reserve Bank of Richmond on December 2, 1999. CommerceFirst knows of no
reason why the approval of the Federal Reserve Board would not be received,
although no assurances can be given as to when, or if, such approval will be
received, and if received, whether it will be received without conditions.
The principal asset of CommerceFirst will be its investment in all of
the issued and outstanding capital stock of CommerceFirst Bank. Future
operations of CommerceFirst have not been decided upon at this time but will be
closely evaluated and may be predicated on the availability of additional
business opportunities and/or acquisitions to be financed by dividends from
CommerceFirst Bank, borrowings, the sale of additional common stock, or any
combination thereof.
With the prior approval of the Federal Reserve Board, a bank holding
company may engage in non-banking activities closely related to the business of
banking. With such approval CommerceFirst could engage in the making and
servicing of loans, which would be made by companies engaged in consumer
finance, credit card issuance, making of mortgages, and commercial financing.
Further, the Federal Reserve Board allows bank holding companies to give
investment or financial advice, lease personal or real property, provide data
processing and courier services and invest in Small Business Investment
Companies, among others. If a favorable opportunity is presented, CommerceFirst
could engage in such activities, or other activities which the Federal Reserve
Board currently or in the future may consider closely related to banking, with
the prior approval of the Federal Reserve Board. Under recently enacted
legislation, bank holding companies may also be permitted to engage in a wider
variety of financial activities. See "Supervision and Regulation" (page 22).
Although CommerceFirst has not determined the nature of any non-banking
or other financial activities it may engage in, and has no agreements or
understandings pursuant to which it would engage in any such activities,
CommerceFirst anticipates that it will explore the feasibility of engaging in
leasing and mortgage banking activities, either directly or through subsidiaries
established for the purpose. There can be no assurance that CommerceFirst will
conduct such activities, or if it does, that any such activities will be
profitable or successful for CommerceFirst.
Market Experience. While CommerceFirst and CommerceFirst Bank are newly
formed enterprises without existing operations, CommerceFirst believes that the
composition of its and CommerceFirst Bank's boards of directors will give them
substantial ability to successfully establish CommerceFirst Bank's business and
compete in the highly competitive and heavily banked Anne Arundel County market.
Prior to joining the organizing group, a majority of CommerceFirst's directors
were members of the Board of Directors of one or more commercial banks in the
Anne Arundel/Prince George's County area. The proposed President - Chief
Executive Officer and Executive Vice President - Chief Operating Officer of
CommerceFirst Bank each has over 29 years of banking and finance related
experience. Each of the organizers is a successful member of the business
community in CommerceFirst Bank's proposed market area, and has significant
business and personal relationships within that area. See "Management" (page
27).
<PAGE>
CAPITALIZATION OF COMMERCEFIRST
The following table sets forth the capitalization of CommerceFirst (as
adjusted to reflect the conversion of each organizer share into 100 shares of
common stock) and the pro forma consolidated capitalization of CommerceFirst at
December 31, 1999, after giving effect to the receipt of the estimated net
proceeds of (i) the sale of the minimum number of shares required to be sold in
the offering; and (ii) the sale of all of the shares offered hereby, other than
oversubscription shares, and based upon the assumptions set forth herein.
<TABLE>
<CAPTION>
October 31, 1999
--------------------------------------------------------
Actual Pro Forma 1 Pro Forma 2(3)
------------- ---------------- -----------------
<S> <C> <C> <C>
Stockholders' equity:
Common stock, $.01 par value; shares authorized,
4,000,000 shares outstanding; 32,500 actual(1),
650,000 pro forma 1, 800,000 pro forma 2 $ 325 $ 6,500 $ 8,000
Capital surplus 324,675 6,493,500 7,992,000
------------- ------------ ------------
Retained earnings (deficit) ($ 276,183) ($ 276,183) ($ 276,183)
------------- ------------ ------------
Total stockholders' equity $ 48,817 $ 6,323,817 $ 7,723,817
============= ============ ============
Book value per share of common stock(2) $ 1.50 $ 9.58 $ 9.65
============= ============ ============
</TABLE>
(1) Adjusted to reflect the conversion of each organizer share into 100
shares of common stock in connection with the offering, in accordance
with the requirements of SFAS No. 128.
(2) Book value per share of common stock is determined by dividing
CommerceFirst's consolidated equity and pro forma total consolidated
equities at October 31, 1999 by 32,500, 650,000 and 800,000 shares
issued and outstanding, respectively.
(3) If all of the oversubscription shares were sold, total stockholders'
equity and book value per share of common stock would be $9,723,817
and $9.72 respectively.
BUSINESS OF COMMERCEFIRST BANK
As of the date of this prospectus, CommerceFirst Bank has not been
authorized to conduct banking business and has not engaged in banking business
or other operational activities. Applications for a bank charter and deposit
insurance were filed with the Department of Financial Regulation and the Federal
Deposit Insurance Corporation on December 2, 1999. The issuance of a Charter by
the Department of Financial Regulation and approval of deposit insurance by the
FDIC will be dependent upon compliance with certain conditions and procedures,
including the sale of CommerceFirst Bank's stock to CommerceFirst, the
completion of CommerceFirst Bank's premises, the purchase of certain fidelity
and other insurance, the hiring of its staff and the adoption of certain
operating procedures and policies. Upon completion of this offering and issuance
of the Charter by the Department of Financial Regulation, and subject to receipt
of all required regulatory approvals, CommerceFirst Bank will open for business
with its main office in Annapolis, Maryland and will engage in the business of
commercial banking. It is currently intended that CommerceFirst Bank will
establish two branches within thirty-six months of opening, subject to current
market conditions, the results of CommerceFirst Bank's operations and approval
by applicable state and federal regulators. CommerceFirst Bank will accept
checking, savings and time deposits, offer a range of commercial, installment
and real estate loans and provide customary banking services principally to
corporations, partnerships, small and medium-sized businesses and sole
proprietorships.
<PAGE>
CommerceFirst Bank will seek to operate as a local business bank
alternative to the superregional financial institutions which dominate its
primary market area. The cornerstone of CommerceFirst Bank's philosophy will be
to provide superior, personalized service to its customers. CommerceFirst Bank
will seek to focus on relationship banking, providing each customer with a
number of services, familiarizing itself with, and addressing itself to,
customer needs in a proactive, personalized fashion.
PRIMARY SERVICE AREA AND PROPOSED SERVICES
Bank Location and Market Area
CommerceFirst Bank's proposed main office and the headquarters of
CommerceFirst and CommerceFirst Bank will be located in Annapolis, Maryland. As
of the date hereof, CommerceFirst has signed a letter of intent, and is in the
process of negotiating a lease for a facility located at 1804 West Street in
Annapolis. See "Business of CommerceFirst Bank - Premises" (page 21). It is
currently anticipated that two branches will be established within thirty-six
months of the opening of CommerceFirst Bank, subject to then current market
conditions, the results of CommerceFirst Bank's operations and approval by
applicable state and federal regulators. As of this date, no leases have been
entered into.
The primary service area of CommerceFirst Bank is Anne Arundel County,
Maryland, with a secondary market area in the adjacent counties of Baltimore,
Howard, Prince George's, Queen Anne and Calvert counties.
CommerceFirst Bank's primary service area, Anne Arundel County, enjoys
a diverse and presently thriving economy. Anne Arundel County is the seat of the
State government, has 437 miles of shoreline, possesses an increasing number of
high technology firms, houses a major international airport and is home to the
United States Naval Academy. These factors combine to provide the residents of
Anne Arundel County a high quality of life that is attractive to increasing
numbers of businesses, tourists and residents. Annapolis serves as the cultural
and historic center of the region, attracting more than 25% of Maryland's total
tourism each year. Tourism has increased significantly since 1990 and has become
an effective economic development tool, increasing awareness of the area and
assisting in strategies to attract domestic and international business to Anne
Arundel County. Hotel tax revenues, which have increased 67% over the past four
years, confirm the trend of increasing tourism and overall strong growth.
A well-trained work force is a major competitive advantage for Anne
Arundel County's economy. Although Anne Arundel County enjoys a low 3.1%
unemployment rate compared to 3.6% for the State of Maryland, it also has
abundant labor resources. In the past few years, Anne Arundel County has
expanded its economy at a greater pace than many other regions in the United
States. Anne Arundel County initially developed as a bedroom labor community to
the larger Washington and Baltimore markets. Today, over 45% of all Anne Arundel
County residents still commute to other markets for employment. Many of these
commuting workers have significant high technology training and skills and
prefer to work close to where they live as congestion increases in adjacent
areas. As Anne Arundel County has increased its business base over the past
decade, companies relocating to this market have been attracted to the abundant,
highly skilled labor pool. The increasing influence of the high pay technology
sector can be measured by the growth in median family income.
Median family income for Anne Arundel County increased to a record
$61,351 in 1998, compared to the average $40,543 for the State of Maryland
during the same period.
The primary objective of CommerceFirst Bank is to acquire relationships
with the growing number of small to medium sized businesses located in its
primary and secondary service areas. Anne Arundel County is home to 11,500
businesses, 9% of all businesses in Maryland. Anne Arundel County-based firms
are generally small businesses, with over 90% employing less than 100 persons,
and nearly 75% employing less than 20 persons. By contrast, bank consolidations
and mergers have greatly impacted Anne Arundel County as super-regional banks
having acquired many local community and regional banks. Current market and
banking trends combine to provide an opportunity for CommerceFirst Bank to
execute a focused strategy of offering personal and customized services and
attract under-served and dissatisfied small business clients.
<PAGE>
Description of Services
CommerceFirst Bank will offer full commercial banking services to its
business and professional clients. CommerceFirst Bank will primarily emphasize
providing commercial banking services to corporations, partnerships, small and
medium-sized businesses and sole proprietorships as well as to non-profit
organizations and associations.
CommerceFirst Bank's business plan articulates a strategy for building
a commercial loan portfolio consisting of term loans, lines of credit and owner
occupied commercial real estate loans provided to primarily locally-based
borrowers. These types of loans are generally considered to have a higher degree
of risk of default or loss than other types of loans, such as residential real
estate loans, because repayment may be affected by general economic conditions,
interest rates, the quality of management of the business, and other factors
which may cause a borrower to be unable to repay its obligations. Traditional
installment loans and personal lines of credit will be available on a selective
basis. General economic conditions can directly affect the quality of a small
and mid-sized business loan portfolio. The loan portfolio will be managed to
avoid high concentrations of similar industry and/or collateral pools. It is
currently estimated, considering economic opportunities presently existing in
our projected market, that approximately 50% of the loan portfolio will be
comprised of commercial mortgage loans. Approximately 50% of the remaining loan
portfolio will consist of commercial term loans and lines of credit to small and
mid-size businesses. There can be no assurance that we will be able achieve this
distribution of loans.
Principal credit services will include commercial loans for such
business purposes as working capital, equipment purchases, real estates
acquisition, contract financing and working capital lines of credit.
CommerceFirst Bank intends to offer merchant credit card services through an
outside vendor.
The direct lending activities in which CommerceFirst Bank expects to
engage each carries the risk that the borrowers will be unable to perform on
their obligations. As such, interest rate policies of the Federal Reserve Board
and general economic conditions, nationally and in CommerceFirst Bank's primary
market area will have a significant impact on CommerceFirst Bank's and
CommerceFirst's results of operations. To the extent that economic conditions
deteriorate, business and individual borrowers may be less able to meet their
obligations to CommerceFirst Bank in full, in a timely manner, resulting in
decreased earnings or losses to CommerceFirst Bank. To the extent that loans are
secured by real estate, adverse conditions in the real estate market may reduce
ability of the borrower to generate the necessary cash flow for repayment of the
loan, and reduce our ability to collect the full amount of the loan upon a
default. To the extent CommerceFirst Bank makes fixed rate loans, general
increases in interest rates will tend to reduce CommerceFirst Bank's spread as
the interest rates CommerceFirst Bank must pay for deposits increase while
interest income is flat. Economic conditions and interest rates may also
adversely affect the value of property pledged as security for loans.
CommerceFirst Bank will constantly strive to mitigate risks in the
event of unforeseen threats to the loan portfolio as a result of an economic
downturn or other negative influences. Plans for mitigating inherent risks in
managing loan assets include carefully enforcing loan policies and procedures,
evaluating each borrower's industry and business plan during the underwriting
process, identifying and monitoring primary and alternative sources for
repayment and obtaining collateral that is margined to minimize loss in the
event of liquidation. Commercial real estate loans will generally be owner
occupied transactions with a principal reliance on the borrower's ability to
repay, as well as prudent guidelines for assessing real estate values.
Commercial term loan and line of credit borrowers will be evaluated for
historical and projected cash flow attributes, balance sheet strength, and
resources of personal guarantors. We have developed and submitted for regulatory
review a comprehensive draft loan policy that provides guidelines for
underwriting loans, setting collateral advance limits, establishing risk rating
guidelines, providing general and specific loan loss reserve allocations.
Examples of properly margined loans, as required by bank policy, would be a 75%
advance on the lesser of appraisal or recent sales price on commercial property,
80% or less advance on eligible receivables, 50% or less advance on eligible
inventory and 80% advance on appraised
<PAGE>
residential property. All loans will require personal guarantees as a matter
of policy. Key person life insurance will be required as appropriate.
The Bank will attempt to further mitigate loan loss by using Federal
and State loan guarantee programs such as offered by the United States Small
Business Administration or the State of Maryland's Department of Business and
Economic Development. Additionally, management will create conservative loan
loss reserves and proactively employ a loan risk rating system designed to
provide early warning of problems loans and, if necessary, immediate allocation
of specific loan loss reserves to protect general reserve levels.
Deposit services will include checking accounts, NOW accounts, Money
Market accounts, certificates of deposits and savings accounts. CommerceFirst
Bank does not expect to accept brokered deposits.
Additionally, CommerceFirst Bank expects to provide various cash
management services such as sweep accounts, repurchase agreements, account
reconciliation, credit card depository, Automated Clearing House origination,
wire transfers, night depositories and, on a selective basis, daily messenger
service.
<PAGE>
SOURCE OF BUSINESS
Management believes that the market segments targeted, small to medium
sized businesses of CommerceFirst Bank's market area, are demanding the
convenience and personal service that a smaller, independent financial
institution can offer. It will be those themes of convenience and personal
service that will form the basis for CommerceFirst Bank's business development
strategies. CommerceFirst Bank first plans to provide services from its main
office in Annapolis, Maryland, followed by branches in adjacent areas which it
believes will complement the needs of CommerceFirst Bank's customers, and will
provide prospects for additional growth and expansion. Subject to obtaining
necessary regulatory approvals, capital adequacy, the identification of
appropriate sites, then current business demand and other factors, CommerceFirst
presently plans for CommerceFirst Bank to establish two branches offices within
thirty-six months of opening for business. There can be no assurance that
CommerceFirst Bank will establish such branches or that they will be profitable.
CommerceFirst Bank expects to capitalize upon the extensive business
and personal contacts and relationships of its Directors and Executive Officers
to establish CommerceFirst Bank's initial customer base. To introduce new
customers to CommerceFirst Bank, early reliance will be on Directors' referrals,
officer-originated calling programs and customer and shareholder referrals.
Management intends to build a staff of competent, professional
associates to provide CommerceFirst Bank's customers with bankers sensitive to
customer needs and experienced in providing a level of personal and professional
service expected by the business community.
ASSET MANAGEMENT
Consistent with the objective of CommerceFirst Bank to serve the needs
of the business community, assets will be concentrated in commercial loans and
commercial real estate loans. To be consistent with the requirements of prudent
banking practices, adequate assets will be invested in high grade securities to
provide liquidity and safety. Loans will be targeted at 80% or less of deposits
(including repurchase agreements), and structured generally with variable rates
and/or fixed rates with short maturities. Investment securities will primarily
be United States treasury securities and United States government or
"quasi-government" agencies.
The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. CommerceFirst Bank's marketing focus on small to
medium-sized businesses may result in the assumption by CommerceFirst Bank of
certain lending risks that are different from those attendant to loans to larger
companies. Management of CommerceFirst Bank will carefully evaluate all loan
applications and will attempt to minimize its credit risk exposure by use of
thorough loan application, approval and monitoring procedures; however, there
can be no assurance that such procedures can significantly reduce such lending
risks.
COMPETITION
Deregulation of financial institutions and holding company acquisitions
of banks across state lines has resulted in widespread, fundamental changes in
the financial services industry. This transformation, although occurring
nationwide, is particularly intense in Anne Arundel County, and the nearby
Washington DC and Baltimore metropolitan areas, because of the changes in the
area's economic base in recent years and changing state laws authorizing
interstate mergers and acquisitions of banks, and the interstate establishment
or acquisition of branches.
In Anne Arundel County, Maryland, competition is exceptionally keen
from large banking institutions headquartered outside of Maryland. In addition,
CommerceFirst Bank will compete with other community banks, savings and loan
associations, credit unions, mortgage companies, finance companies and others
providing financial services. Among the advantages that many of these
institutions have over CommerceFirst Bank are their abilities to finance
extensive advertising campaigns, maintain extensive branch networks and
technology investments, and to directly offer certain services, such as
international banking and trust services, which will not be offered directly by
CommerceFirst Bank. Further, the greater capitalization of the larger
institutions allows for substantially higher lending
<PAGE>
limits than CommerceFirst Bank. Certain of these competitors have other
advantages, such as tax exemption in the case of credit unions, and lesser
regulation in the case of mortgage companies and finance companies.
Competition may become more intense as a result of the Gramm
Leach-Bliley Act of 1999 (the "GLB Act"), which becomes effective in relevant
part on March 11, 2000 The GLB Act permits the creation of a new type of
regulated entity, the financial holding company, that can offer a broad range of
financial products. These new financial holding companies will be able to
affiliate with and engage in banking, securities, insurance and other financial
activities not permitted under current law. The GLB Act also permits banks with
or without holding companies to establish and operate financial subsidiaries
that may engage in most financial activities in which financial holding
companies may engage. Large bank holding companies and other large financial
service companies in particular will be able to take advantage of the new
activities and provide a wider array of product then may be possible for smaller
institutions such as CommerceFirst.
EMPLOYEES
Management anticipates that CommerceFirst Bank will initially employ
approximately 8 persons on a full time basis in addition to the senior executive
officers of CommerceFirst Bank, and 1 person on a part time basis. It is not
anticipated that CommerceFirst (as distinguished from CommerceFirst Bank) will
have any employees or officers during the first year of operations.
PREMISES
CommerceFirst has entered into a letter of intent with respect to a
facility to serve as the executive offices for CommerceFirst and CommerceFirst
Bank and as the main banking office for CommerceFirst Bank. The facility,
consists of approximately 7,850 square feet on the first floor of a two story
brick and masonry structure at 1804 West Street, Annapolis, Maryland. Subject to
preparation of satisfactory plans for the renovation and buildout of the space
and the execution of a definitive lease, it is anticipated that CommerceFirst
will lease the property for five years with three five year renewal options, at
an initial rent of $19.00 per square foot following the delivery of the
renovated premises, plus annual increases of 3%, plus the proportionate share of
common area costs. The letter of intent anticipates that a lease will be signed
by February 15, 2000, and that pre-renovation rent at a lower rate will begin as
early as March 1, 2000. Delivery of the premises is anticipated to occur in May
2000. In the event that all regulatory approvals required for the opening of
CommerceFirst Bank are not received, the lease can be terminated by the payment
of a fee of $100,000 in addition to the forfeiture of a $15,000 security deposit
and all other rental payments made, and the payment of certain excess buildout
costs.
In the event that CommerceFirst is unable to reach agreement on a
lease, it will continue to explore other locations in the Annapolis area.
CommerceFirst's organizational offices are located at Suite 104, 705
Melvin Avenue, Annapolis, Maryland, in a two story, brick office building. The
offices are sublet on a month to month basis from McNamee, Hosea, Jernigan &
Kim, P.A., of which an organizer is a member. See "Executive Compensation and
Certain Transaction with Management - Certain Transactions" (page 34). The space
consists of two executive offices and a reception area, and includes the use of
office equipment, conference and meeting space, kitchen facilities, parking and
limited secretarial/receptionist support.
MANAGEMENT'S PLAN OF OPERATION
As of the date hereof, neither CommerceFirst nor CommerceFirst Bank has
commenced operations or engaged in any activities except those related to the
organization of CommerceFirst and CommerceFirst Bank and raising capital in this
offering. Such limited activities have been financed solely by the proceeds of
the sale of 325 organizers
<PAGE>
shares of common stock, for aggregate proceeds of $325,000. Organizers will
purchase additional organizer shares at a price of $1,000 per share as necessary
to finance additional expenses of the organization of CommerceFirst and
CommerceFirst Bank. If the offering is not completed, no person or entity is
obligated to reimburse the organizers for their contributions. This temporary
funding source is expected to be sufficient to meet CommerceFirst's needs until
the sale of shares pursuant to the offering is completed. Each organizer share
will be submitted in payment of the purchase price of 100 shares of common stock
in the offering. These shares will be counted in determining whether the minimum
number of shares is subscribed for in the offering.
It is anticipated that CommerceFirst Bank will incur approximately
$380,000 in expenses in leasehold improvements for its main office and in
furniture, fixtures and equipment for such offices, including vaults, teller
equipment, computer work stations, furniture for the branch lobby and
administrative offices and other equipment. CommerceFirst Bank will contract its
data processing requirements to an outside vendor. CommerceFirst had two full
time employees at September 1, 1999, and expects to have 11employees at
CommerceFirst Bank after the main office has opened.
CommerceFirst believes that the proceeds of the offering, $6,500,000 if
the minimum number of shares are sold, $8,000,000 if the maximum number of
shares are sold, and $10,000,000 if all of the oversubscription shares are sold
(in each case without deduction for $110,000 estimated expenses of the
offering), will be sufficient to fund the expenses of establishing and opening
CommerceFirst Bank, and CommerceFirst Bank's and Company's operations for at
least twelve months after the offering, and does not anticipate a need to raise
additional capital during that period.
SUPERVISION AND REGULATION
COMMERCEFIRST
CommerceFirst will be a bank holding company registered under Bank
Holding Company Act of 1956, as amended, (the "Act") and will be subject to
supervision by the Federal Reserve Board. As a bank holding company,
CommerceFirst will be required to file with the Federal Reserve Board an annual
report and such other additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of CommerceFirst and each of its subsidiaries.
The Act requires approval of the Federal Reserve Board for, among other
things, the acquisition by a proposed bank holding company of control of more
than five percent (5%) of the voting shares, or substantially all the assets, of
any bank or the merger or consolidation by a bank holding company with another
bank holding company. The Act also generally permits the acquisition by a bank
holding company of control or substantially all the assets of any bank located
in a state other than the home state of CommerceFirst Bank holding company,
except where CommerceFirst Bank has not been in existence for the minimum period
of time required by state law, but if CommerceFirst Bank is at least 5 years
old, the Federal Reserve Board may approve the acquisition.
Under current law, with certain limited exceptions, a bank holding
company is prohibited from acquiring control of any voting shares of any company
which is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than banking or managing or controlling banks
or furnishing services to or performing service for its authorized subsidiaries.
A bank holding company may, however, engage in or acquire an interest in, a
company that engages in activities which the Federal Reserve Board has
determined by order or regulation to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
a determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include making or servicing loans, performing certain data
processing services, acting as a fiduciary or investment or financial advisor,
and making investments in corporations or projects designed primarily to promote
community welfare.
<PAGE>
Effective on March 11, 2000, the GLB Act will allow a bank holding
company or other company to certify status as a financial holding company, which
will allows such company to engage in activities that are financial in nature,
that are incidental to such activities, or are complementary to such activities.
The GLB Act enumerates certain activities that are deemed financial in nature,
such as underwriting insurance or acting as an insurance principal, agent or
broker, underwriting, dealing in or making markets in securities, and engaging
in merchant banking under certain restrictions. It also authorizes the Federal
Reserve Board to determine by regulation what other activities are financial in
nature, or incidental or complementary thereto.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank company or any of its subsidiaries, or investments in the stock or
other securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or vary the
consideration for any of the foregoing on the condition that: (i) the customer
obtain or provide some additional credit, property or services from or to such
bank other than a loan, discount, deposit or trust service; (ii) the customer
obtain or provide some additional credit, property or service from or to
CommerceFirst or any other subsidiary of CommerceFirst; or (iii) the customer
not obtain some other credit, property or service from competitors, except for
reasonable requirements to assure the soundness of credit extended.
<PAGE>
COMMERCEFIRST BANK
CommerceFirst Bank, as a Maryland chartered commercial bank which will
be a member of the Federal Reserve System (a "state member bank") and whose
accounts will be insured by the Bank Insurance Fund of the FDIC up to the
maximum legal limits of the FDIC, will be subject to regulation, supervision and
regular examination by the Department of Financial Institutions and the Federal
Reserve Board. If CommerceFirst elects to forego membership by CommerceFirst
Bank in the Federal Reserve System, which it reserves the right to do, then the
FDIC will be the primary federal regulator of CommerceFirst Bank. The FDIC will
regulate CommerceFirst Bank in substantially the same manner as the Federal
Reserve Board. The regulations of these various agencies govern most aspects of
CommerceFirst Bank's business, including required reserves against deposits,
loans, investments, mergers and acquisitions, borrowing, dividends and location
and number of branch offices. The laws and regulations governing CommerceFirst
Bank generally have been promulgated to protect depositors and the deposit
insurance funds, and not for the purpose of protecting stockholders.
Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. As a result of federal and state legislation,
banks in the Washington D.C./Maryland/Virginia area can, subject to limited
restrictions, acquire or merge with a bank in another of the jurisdictions, and
can branch de novo in any of the jurisdictions. The GLB Act will allow a wider
array of companies to own banks, which could result in companies with resources
substantially in excess of CommerceFirst's entering into competition with
CommerceFirst and CommerceFirst Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of CommerceFirst Bank's earnings. Thus, the earnings and growth of
CommerceFirst Bank will be subject to the influence of economic conditions
generally, both domestic and foreign, and also to the monetary and fiscal
policies of the United States and its agencies, particularly the Federal Reserve
Board, which regulates the supply of money through various means including open
market dealings in United States government securities. The nature and timing of
changes in such policies and their impact on CommerceFirst Bank cannot be
predicted.
Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") by adopting a law after the date of enactment of the
Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Such interstate bank mergers and branch acquisitions are also subject to the
nationwide and statewide insured deposit concentration limitations described in
the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC
have adopted risk based capital adequacy guidelines pursuant to which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
State member banks are expected to meet a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital. These requirements apply to CommerceFirst
Bank and will apply to CommerceFirst (a bank
<PAGE>
holding company) once its total assets equal $150,000,000 or more, it engages in
certain highly leveraged activities or it has publicly held debt securities.
Tier 1 Capital generally consists of the sum of common stockholders'
equity and perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stock which may be included as Tier 1
Capital), less goodwill, without adjustment for changes in the market value of
securities classified as "available for sale" in accordance with FAS 115. Tier 2
Capital consists of the following: hybrid capital instruments; perpetual
preferred stock which is not otherwise eligible to be included as Tier 1
Capital; term subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are adjusted
under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first mortgage loans on one to four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board has established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to
total adjusted assets) requirement for the most highly-rated banks, with an
additional cushion of at least 100 to 200 basis points for all other banks,
which effectively increases the minimum Leverage Capital Ratio for such other
banks to 4.0% - 5.0% or more. The highest-rated banks are those that are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, those which are considered a strong
banking organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which CommerceFirst Bank shall achieve its minimum Leverage Capital Ratio
requirement. A bank which fails to file such plan is deemed to be operating in
an unsafe and unsound manner, and could subject CommerceFirst Bank to a
cease-and-desist order. Any insured depository institution with a Leverage
Capital Ratio that is less than 2.0% is deemed to be operating in an unsafe or
unsound condition pursuant to Section 8(a) of the Federal Deposit Insurance Act
(the "FDIA") and is subject to potential termination of deposit insurance.
However, such an institution will not be subject to an enforcement proceeding
solely on account of its capital ratios, if it has entered into and is in
compliance with a written agreement to increase its Leverage Capital Ratio and
to take such other action as may be necessary for the institution to be operated
in a safe and sound manner. The capital regulations also provide, among other
things, for the issuance of a capital directive, which is a final order issued
to a bank that fails to maintain minimum capital or to restore its capital to
the minimum capital requirement within a specified time period. Such directive
is enforceable in the same manner as a final cease-and-desist order.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice
<PAGE>
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into CommerceFirst Bank except for certain technical requirements which
may delay the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital; restricting transactions with
affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.
Regulatory Enforcement Authority. Federal banking law grants
substantial enforcement powers to federal banking regulators. This enforcement
authority includes, among other things, the ability to assess civil money
<PAGE>
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or
untimely reports filed with regulatory authorities.
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the
Directors and Officers of CommerceFirst, including the number and percentage of
the common stock expected to be acquired in this offering by each individual
(directly and indirectly), each person who may acquire common stock in this
offering in excess of 5%, all Directors and Officers of CommerceFirst as a
group, and all Directors and Officers of CommerceFirst and CommerceFirst Bank as
a group. Directors and Officers of CommerceFirst and CommerceFirst Bank may buy
more shares than reflected in the following table, including if such additional
purchases are necessary to meet the minimum subscription required to complete
the offering. No Director or Officer has any obligation to make any additional
purchase to meet the minimum subscription.
<TABLE>
<CAPTION>
% of Outstanding Shares
-----------------------
Number of
Name Age Position Shares(1) Minimum Maximum(2)
- ------------------------------- --------- ------------------------------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CommerceFirst:
Edward B. Howlin, Jr 63 Director of CommerceFirst and CommerceFirst 80,000 12.31% 10%
Bank
Milton D. Jernigan, II(3) 45 Chairman of the Board of Directors of 20,000 3.08% 2.5%
CommerceFirst and CommerceFirst Bank
Alvin R. Maier 66 Vice Chairman of the Board of Directors 30,000 4.62% 3.75%
Secretary and Treasurer of CommerceFirst and
CommerceFirst Bank
Richard J. Morgan 52 President, Chief Executive Officer and Director 5,000 0.77% 0.63%
of CommerceFirst and CommerceFirst Bank
Lamont Thomas 59 Executive Vice President, Chief Operating 20,000 3.08% 2.5%
Officer and Director of CommerceFirst and
CommerceFirst Bank
---------- --------- --------
All directors and officers of
CommerceFirst as a group (5 persons) 155,000 23.85% 19.38%
---------- --------- --------
All directors and officers of
CommerceFirst and CommerceFirst
Bank as a group (15 persons) 330,000 50.77% 41.25%
---------- --------- --------
All directors, officers and organizers of
CommerceFirst and CommerceFirst
Bank as a group (16 persons) 360,000 55.38% 45%
========= ========== =========
</TABLE>
(1) Includes shares purchased through conversion of organizer shares.
(2) Does not reflect sale of the oversubscription shares.
(3) Milton D. Jernigan, II is the son of Milton D. Jernigan, Sr., a
proposed director of CommerceFirst Bank. Intended share purchases shown
for Mr. Jernigan, II, do not include intended purchases by Mr.
Jernigan, Sr.
CommerceFirst's Articles of Incorporation provide that the number of
Directors of CommerceFirst shall be not less than 3 nor more than 25. The Bylaws
provide that the number of Directors shall be fixed from time to time by the
majority vote of the Directors then in office. CommerceFirst's Bylaws provide
that the Board of Directors shall be divided into three classes, the first of
which shall serve for an initial one year term, the second of which shall serve
for an initial two year term and the third of which shall serve for an initial
three year term. Upon the expiration of the initial terms, directors shall be
elected for three year terms. The Board has fixed the current number of
Directors at 5, consisting of two directors in each of the first two classes and
one in the third class. The Bylaws may be amended by action of the Board of
Directors.
Directors of CommerceFirst may be removed only for cause upon the
affirmative vote of a majority of the combined voting power of all outstanding
shares of voting stock. Cause is defined as the willful and continuous failure
of a director substantially to perform his or her duties to CommerceFirst (other
than any failure resulting from incapacity due to physical or mental illness) or
the willful engaging by a director in gross misconduct materially and
demonstrably injurious to CommerceFirst.
<PAGE>
CommerceFirst Bank's Bylaws will provide for a minimum of 5 and a
maximum of 20 Directors and will permit the Board of Directors to fix an exact
number of Directors within that range. The Board of Directors plans to initially
fix the number of Directors at 15. Before CommerceFirst Bank opens for business,
its sole stockholder, CommerceFirst, will be required to elect Directors of
CommerceFirst Bank, subject to the approval of the Department of Financial
Regulation and Federal Reserve Board. Directors of CommerceFirst Bank will serve
for one year and until their successors are elected and qualified. CommerceFirst
intends, together with the 10 additional persons set forth under "Management --
Additional Information About the Directors, Officers and Organizers of
CommerceFirst and CommerceFirst Bank - CommerceFirst Bank" to elect all of the 5
current Directors of CommerceFirst to serve on the Board of CommerceFirst Bank.
Each of CommerceFirst Bank's Directors is required by law to own a
minimum of 50 shares of common stock of CommerceFirst.
The Articles of Incorporation of CommerceFirst provide that to the full
extent that the Maryland General Corporation Law (the "MGCL") permits the
limitation or elimination of the liability of directors or officers, a director
or officer of CommerceFirst shall not be liable to CommerceFirst or its
shareholders for monetary damages. The MGCL provides that the liability of a
director or officer in a proceeding brought by or in the right of shareholders,
or on behalf of shareholders may be eliminated, except that the liability of a
director or officer may not be eliminated if the officer or director received an
improper benefit or profit, or if a judgment against the director or officer is
based on a finding that such person's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action against
such person. The Articles of Incorporation of CommerceFirst Bank will similarly
provide that to the full extent that the MGCL permits the limitation or
elimination of the liability of directors or officers, subject to federal law
limitations on that authority, a director or officer shall not be liable to
CommerceFirst Bank or its shareholders for monetary damages.
The Articles of Incorporation of CommerceFirst provide that to the full
extent permitted by the MGCL and other applicable law, CommerceFirst shall
indemnify a director or officer of CommerceFirst who is or was a party to any
proceeding by reason of the fact that he is or was such a director or officer,
and the Board of Directors of CommerceFirst may contract in advance to indemnify
any director or officer. The MGCL provides that except as limited by its
articles of incorporation, a corporation shall indemnify a director who entirely
prevails in the defense of any proceeding to which he was a party because he is
or was a director of the corporation against reasonable expenses incurred in
connection with the proceeding. The MGCL further provides that a corporation may
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding unless (i) the act or
omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty;
(ii) the director actually received an improper personal benefit; or (iii) in
the case of any criminal proceeding, the director had reasonable cause to
believe the act or omission was unlawful, provided however, that if the
proceeding was by or in the right of the corporation, no indemnification may be
made if the director is adjudged liable to the corporation. The Board of
Directors may also indemnify an employee or agent of CommerceFirst who was or is
a party to any proceeding by reason of the fact that he is or was an employee or
agent of CommerceFirst.
The Articles of Incorporation and the Bylaws of CommerceFirst Bank
similarly will provide that, subject to limitations under federal statute or
regulation, to the full extent permitted by the MGCL, CommerceFirst Bank shall
indemnify a director or officer of CommerceFirst Bank who is or was a party to
any proceeding by reason of the fact that he is or was such a director or
officer.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, Officers and persons controlling
CommerceFirst pursuant to the foregoing provisions, CommerceFirst has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
<PAGE>
ADDITIONAL INFORMATION ABOUT THE DIRECTORS, OFFICERS AND ORGANIZERS OF
COMMERCEFIRST AND BANK
Set forth below is a description of the principal occupation and
business experience of each of the Directors, Officers, and organizers of
CommerceFirst and CommerceFirst Bank. Each of the Directors of CommerceFirst is
also a Director of CommerceFirst Bank. Except as expressly indicated below, each
person has been engaged in his principal occupation for at least five years.
CommerceFirst
Edward B. Howlin, Jr. Mr. Howlin, 63, is the Chairman and Chief
Executive Officer of Howlin Realty Management, Inc., a real estate holding,
management and development firm, and of Edward B. Howlin, Inc., a management and
holding company, and of its subsidiary companies, Dunkirk Supply, Inc. and
Howlin Concrete, Inc. Mr. Howlin is also Chief Executive Officer of Howlin
Construction Company, Inc. In addition to real estate management and
development, the Howlin companies construct residential subdivisions and design,
manufacture and sell construction components, systems and supplies to various
commercial, residential and government projects primarily in Southern Maryland.
Mr. Howlin is a founding organizer of CommerceFirst and a member of the Board of
Directors of CommerceFirst and CommerceFirst Bank.
Milton D. Jernigan, II. Mr. Jernigan, 45, an attorney engaged in
private practice since 1982 is the co-managing principal of the business and
corporate law firm of McNamee, Hosea, Jernigan & Kim, P.A. Mr. Jernigan is the
Resident Principal-in-Charge of the firm's Annapolis office. Mr. Jernigan's
practice areas have included banking and regulatory law and he has represented
banks and bank holding companies in matters before the Federal Deposit Insurance
Corporation, the Federal Reserve Board, the Federal Reserve Bank of Richmond,
the Federal Reserve Bank of Cleveland, the Office of the Comptroller of the
Currency, the Maryland State Bank Commissioner, the Securities and Exchange
Commission and the Maryland State Securities Commissioner. Mr. Jernigan was one
of the founding organizers and members of the Board of Directors of Commerce
Bank in College Park, Maryland. Commerce Bank was formed and opened in 1989. Mr.
Jernigan served as General Counsel to Commerce Bank from its organization and
until its acquisition by MainStreet BankGroup in December, 1997. MainStreet was
subsequently acquired by BB&T Corporation in 1999. From 1989 until 1993, Mr.
Jernigan served as a Member of the Board of Directors of Commerce Bank and on
its Executive Committee, Loan Committee, Compensation Committee, and Strategic
Planning Committee. Mr. Jernigan is a resident of Annapolis, Maryland and is
active in local chambers of commerce, service and civic organizations. Mr.
Jernigan is a founding organizer of CommerceFirst and a member of the Board of
Directors of CommerceFirst and CommerceFirst Bank.
Alvin R. Maier. Mr. Maier, 66, is engaged in the business of
manufacturing and selling building supplies as President of Ernest Maier, Inc..
Mr. Maier has been a corporate officer of Ernest Maier, Inc. since 1955. Mr.
Maier was one of the original organizers and directors of Commerce Bank. Mr.
Maier served as Chairman of the Board of Commerce Bank (and following its
acquisition by MainStreet) from 1989 until the acquisition of MainStreet by BB&T
Corporation in 1999 and he served on the bank's Executive Committee, Loan
Committee, Compensation Committee and Strategic Planning Committee. A Korean War
veteran, Mr. Maier is a resident of Anne Arundel County and is active in several
local service and civic organizations, including Rotary International in which
he has a 28 year perfect attendance record. Mr. Maier is a founding organizer of
CommerceFirst and a member of the Board of Directors of CommerceFirst and
CommerceFirst Bank.
Richard J. Morgan. Mr. Morgan, 52, until joining CommerceFirst and
CommerceFirst Bank, was involved as a cabinet level officer in the County
Executive Administration, in the management of economic and community
development programs, focusing on marketing, project and financial management,
throughout Anne Arundel County as President and Chief Executive Officer of Anne
Arundel Economic Development Corporation ("AAEDC"), a position he held since
1997. Mr. Morgan was awarded the Service Excellence Award by the Anne Arundel
Trade Council in 1998 and County Business Leader of the Year in 1994. From 1990
to 1997, Mr. Morgan served as President and Chief Executive Officer of Annapolis
National Bank. Under Mr. Morgan's leadership, Annapolis National Bank became a
successful, well capitalized and profitable commercial bank and earned an
"Outstanding" CRA rating. Annapolis National Bank became one of Maryland's top
five SBA lenders and Mr. Morgan was selected as the SBA's Financial Services
Leader of the Year for the State of Maryland in 1994. Mr. Morgan's has also
served as Chief Financial Officer and Group Vice President of the Toddson
Company, Inc.; Chief
<PAGE>
Financial Officer and Group Vice President of the Phillips Corporation, Regional
Vice President and Loan Officer of Maryland National Bank and served in
commercial lending roles with Marine Midland Bank in New York from 1970 to 1977.
At Maryland National Bank, he was responsible for building Maryland National
Bank's commercial loan portfolio in the Maryland National Bank's Washington
suburban market from zero to $150 million. Mr. Morgan has over 29 years of
banking and financial management experience and has served on numerous boards,
commissions and community service groups in Annapolis and Anne Arundel County
including the United Way of Anne Arundel County; the Annapolis and Anne Arundel
Chamber of Commerce (formerly Trade Council); Scholarships for Scholars; State
of Maryland's Revitalization Loan Committee; Anne Arundel County Conference and
Visitors Bureau; Greater Baltimore Alliance Economic Development Advisory Board;
Greater Washington Initiative Economic Development Advisory Board; and the
Treasurer and member of the Executive Committee of the Maryland Industrial
Development Association. Mr. Morgan is a founding organizer of CommerceFirst and
a member of the Board of Directors of CommerceFirst and CommerceFirst Bank.
Lamont Thomas. Mr. Thomas, 59, until joining CommerceFirst and
CommerceFirst Bank, served as the Executive Vice President and Treasurer of
Commerce Bank in College Park, Maryland from September, 1989 until June, 1999
serving as chief operating and financial officer. Mr. Thomas was one of the
original organizers and directors of Commerce Bank and served as a director
until MainStreet's acquisition by BB&T in 1999. As a director, Mr. Thomas served
on the Commerce Bank's Executive, Asset/Liability and Strategic Planning
Committees. From 1976 until the organization of Commerce Bank, Mr. Thomas
managed numerous corporate functions and supervised the Investment, Compliance,
Personnel, Proof and Discount Brokerage Departments of Citizens Bank of
Maryland, a then $1.8 billion commercial bank with a 100-plus branch network in
the Washington, D.C. area as its Vice President and Treasurer. Mr. Thomas was
also responsible for all liaisons with the Federal Deposit Insurance Corporation
and the Maryland State Banking Department and was Secretary to the Board of
Directors and the Executive Committee. Prior to 1976, Mr. Thomas served as
Treasurer of Citizens Bank, where his principal responsibilities involved the
investment portfolio and the daily cash position of Citizens Bank. Mr. Thomas is
a founding organizer of CommerceFirst and a member of the Board of Directors of
CommerceFirst and CommerceFirst Bank.
CommerceFirst Bank
Wilfred T. Azar, III, Mr. Azar, 38, is engaged in commercial real
estate ownership, development and management as President and Chief Executive
Officer of Empire Corporation, a managing member of Empire Management Services,
LLC and partner of Azar Brothers Partnership. Mr. Azar serves as an officer or
director of a number of other businesses located in and around Anne Arundel
County, including as a director of the Anne Arundel County Chamber of Commerce,
the North Arundel Health System, and the Mt. Washington Pediatric Hospital as
well as serving as a director and President of Pony Express, Inc., a documents
storage and services business. Mr. Azar is a member of the Board of Directors of
CommerceFirst Bank.
William F. Chesley. Mr. Chesley, 56, is engaged in residential and
commercial real estate sales, management and development in his capacity as
President of William F. Chesley Real Estate, Inc., Dee Corporation, Enterprise
Office Park, Inc. and Ridgley Builders, Inc., as Vice President of Builders &
Brokers Guarantee Program, Inc. and as a managing member of Builder's Advantage,
LLC. Mr. Chesley is also a partner in several local real estate partnerships
located in and around Anne Arundel County. Mr. Chesley is involved in a number
of charitable and professional associations, including both the national and
local Association of Realtors, Suburban Maryland Building Industry Association,
Kiwanis Club of Prince George's County, Bowie Health Center Foundation, Inc. and
as Chairman of the VIP Panel for United Cerebral Palsy. Mr. Chesley is a member
of the Board of Directors of CommerceFirst Bank.
Milton D. Jernigan, Sr. Mr. Jernigan, 69, until retiring in 1996, was
the founder, Chairman and President of AAA Rentals, Inc. and AAA Tools, Inc.,
equipment and party supplies rental and sale businesses with which he served for
thirty years. From 1969, Mr. Jernigan served as Chairman and President of the
companies until 1996 when the equipment company was sold. The companies that
acquired Mr. Jernigan's equipment company are now a part of a national, publicly
traded network of rental equipment companies headquartered in Connecticut. Mr.
Jernigan was one of the original organizers and directors of Commerce Bank and
served as a director of Commerce
<PAGE>
Bank from 1989 until its acquisition by MainStreet in 1997. Mr. Jernigan also
served on the Commerce Bank's Asset/Liability Committee and its Business
Development Committee. Mr. Jernigan is a resident of Edgewater, Maryland in Anne
Arundel County and is active in local service and civic organizations, including
the Rotary Club of Bladensburg and Woodmore Country Club. Mr. Jernigan is a
founding organizer of CommerceFirst and is a member of the Board of Directors of
CommerceFirst Bank.
Andrew R. Lombardo, CPA. Mr. Lombardo, 51, is a Member of the certified
public accounting firm of Sturn, Wagner, Sacclaris & Lombardo, LLC in Annapolis,
Maryland. In addition to being a certified public accountant, Mr. Lombardo holds
a certified valuation analyst designation. Mr. Lombardo is highly involved in
local business and civic groups. He is a Board member and Treasurer of the Anne
Arundel County Police Foundation, and President of the County's 21st Century
Foundation. He was a founding Board member of the Anne Arundel Economic
Development Corporation and served as its Treasurer from 1993 until 1999.
Additionally, Mr. Lombardo served two terms as President of the Anne Arundel
County Trade Council in 1994 and 1995. Mr. Lombardo is a resident of Anne
Arundel County. Mr. Lombardo is a member of the Board of Directors of
CommerceFirst Bank
Michael J. Miller. Mr. Miller, 41, is engaged in the business of road
construction, residential and commercial real estate ownership and construction
equipment leasing as Vice President of Concrete General, Inc. and Tri M Leasing
Corp. and as a partner of Tri M Properties. Mr. Miller is actively involved in
several industry associations, including the Maryland Highway Contractors
Association, the Public Works Contractors Association and is a member of
Associated Builders and Contractors. Mr. Miller is a founding organizer of
CommerceFirst and is a member of the Board of Directors of CommerceFirst Bank.
Robert R. Mitchell. Mr. Mitchell, 56, until retiring in 1988 was the
President of Mitchell Business Equipment, Inc., with which he served for over 25
years until its sale in 1988. Mitchell Business Equipment, Inc. represented
several nationally known brands of general business equipment, providing sales
and services to a wide range of clients, from small storefront retail operations
to billion dollar corporations. Mr. Mitchell was one of the original organizers
and directors of Commerce Bank and served as a director of Commerce Bank from
1989 until its acquisition by MainStreet in 1997. Mr. Mitchell served on
Commerce Bank's Executive, Loan, Business Development and Strategic Planning
Committees. Mr. Mitchell has served as an outside director of two privately held
local business firms and is active in local service and civic organizations,
including membership in Rotary International for 17 years, service on the Prince
George's Salvation Army Local Board for 15 years and membership in the Anne
Arundel Junior Golf Association for 3 years. Mr. Mitchell is a resident of
Harwood, Maryland. Mr. Mitchell is a founding organizer of CommerceFirst and is
a member of the Board of Directors of CommerceFirst Bank.
John A. Richardson. Mr. Richardson, 56, is engaged in electrical
equipment and fixture sales as President of Branch Electric Supply Company. Mr.
Richardson has served as its President since 1968. Mr. Richardson is also the
President of Crofton Bowling Center and is a partner in numerous real estate
investment partnerships located throughout Anne Arundel and Prince George's
Counties. Mr. Richardson is also involved in several professional associations,
including the National Association of Electrical Distributors and the National
Bowling Proprietors Association. Mr. Richardson is a resident of Anne Arundel
County. Mr. Richardson is a founding organizer of CommerceFirst and is a member
of the Board of Directors of CommerceFirst Bank.
George C. Shenk, Jr. Mr. Shenk, 47, is engaged in the business of
printing and graphics as the President of Whitmore Printing and Imaging, Inc.,,
an Annapolis based business. Mr. Shenk has served as its President since 1976.
Mr. Shenk is a past Chairman of the Printing Industries of Maryland association,
an active member of the Rotary Club of Annapolis and a past President of the
Maryland Hall Creative Arts association. Mr. Shenk was Chairman of County
Executive John Gary's transition team in 1994 and served on the Anne Arundel
County Planning Advisory Board from 1995 until 1998. Mr. Shenk is a resident of
Anne Arundel County. Mr. Shenk is a founding organizer of CommerceFirst and is a
member of the Board of Directors of CommerceFirst Bank.
Dale R. Watson, Mr. Watson, 45, is engaged in the business of computer
consulting as President of Alpha Engineering Associates, Inc., an Annapolis
headquartered business that Mr. Watson formed in 1991. Mr. Watson's
<PAGE>
firm configures, installs and supports the computers and networks of local,
small to medium businesses. He is a member of Rotary International and the Anne
Arundel Chamber of Commerce. In addition Mr. Watson's firm has supported both
local and wide area networks at the State, the County and the local City of
Annapolis government level. Before starting Alpha Engineering Associates, Inc.,
Mr. Watson worked for a large international company as a high level consultant
developing large scale software solutions for various Federal Agencies, the U.S.
Military, State Governments, various multi-national companies and private
businesses. Mr. Watson is a founding organizer of CommerceFirst and is a member
of the Board of Directors of CommerceFirst Bank.
Jerome A. Watts. Mr. Watts, 57, is the owner of Plan Management, a
supplier of insurance and employee benefit plans in Lanham, Maryland. Mr. Watts
was one of the founding organizers and member of the Board of Directors of
Commerce Bank. Mr. Watts served as a Director of Commerce Bank from 1989 until
MainStreet's acquisition by BB&T in 1999 and also served on Commerce Bank's
Executive Committee and Loan Committee. Mr. Watts is a member of a number of
civic and professional associations, including the National Association of Life
Underwriters, the Association of Health Insurance Agents and the Prince George's
County Chamber of Commerce. Mr. Watts is a founding organizer of CommerceFirst
and is a member of the Board of Directors of CommerceFirst Bank.
<PAGE>
OTHER ORGANIZERS OF COMMERCEFIRST AND COMMERCEFIRST BANK
Citizens Incorporated is the registered bank holding company for The
Citizens National Bank of Evans City, a $336 million asset bank based in Evans
City Pennsylvania. Citizens, Incorporated is a passive investor in
CommerceFirst. Once CommerceFirst Bank opens for business, we expect that it
will maintain a correspondent relationship with Citizens National Bank of Evans
City, to facilitate loan participations. We expect that most participations sold
will be the amounts of owner occupied, commercial real estate mortgages which
are above our internal and/or legal lending limits. Any sales of participations
are expected to be without recourse, and will be on terms comparable to those
which we could obtain from other participants. Such participations will increase
our ability to effectively service our borrowing clients who have needs in
excess of our self imposed or legal lending limits. The establishment of a
relationship with CommerceFirst will enhance the efficiency of the participation
process. CommerceFirst Bank does not have any obligation to sell participations
to Citizens. We do not currently expect that we will purchase any loans from
Citizens. No representatives of Citizens will be a director or officer of
CommerceFirst or CommerceFirst Bank.
EXECUTIVE COMPENSATION AND
CERTAIN TRANSACTIONS WITH MANAGEMENT
It is not anticipated that following the opening for business of
CommerceFirst Bank, CommerceFirst will separately compensate any officers or
employees of CommerceFirst or CommerceFirst Bank for services rendered to
CommerceFirst. Prior to the opening of CommerceFirst Bank , Messrs. Jernigan,
Morgan and Thomas, the proposed Chairman, President - Chief Executive Officer
and Executive Vice President - Chief Operating Officer of CommerceFirst Bank
will receive compensation from the Company at annual rates of $30,000, $125,000
and $120,000, respectively. Messrs. Jernigan, Morgan and Thomas have agreed to
defer 40% of their annual compensation until the opening of CommerceFirst Bank.
CommerceFirst does not anticipate that it will provide its and
CommerceFirst Bank's directors with any fees for attending meetings of the Board
of Directors or its committees until it is profitable.
Chairman's Employment Agreement. Pursuant to a certain chairman
employment agreement between CommerceFirst and Mr. Jernigan, Mr. Jernigan will
serve as the Chairman of the Board of Directors of CommerceFirst and as Chairman
of the Board of Directors of CommerceFirst Bank. Under the chairman employment
agreement Mr. Jernigan will receive (i) an annual base salary of $30,000, (ii) a
term life insurance policy in the amount of $100,000, (iii) 2,500 options to
purchase CommerceFirst stock, at an exercise price of $10.00 per share, upon the
opening of CommerceFirst Bank, (iv) annual stock options in an amount to be
determined by the Board of Directors of CommerceFirst, and (v) an annual cash
bonus in an amount to be determined by the Board of Directors of CommerceFirst.
The term of the chairman employment agreement will expire on July 14, 2002
unless sooner terminated. If the agreement is terminated by CommerceFirst
without cause, CommerceFirst will continue to pay Mr. Jernigan his annual
compensation and benefits as severance compensation for a period of 12 months.
In the event of any sale or exchange of stock resulting in a change in a
controlling interest of CommerceFirst, Mr. Jernigan may either continue his
employment with CommerceFirst, execute a new employment agreement on mutually
agreeable terms or resign his employment. In the event that Mr. Jernigan resigns
his employment or is terminated within 12 months of the change in control, Mr.
Jernigan will be entitled to the sum of twice the base salary and bonuses paid
to Mr. Jernigan during the 12 months immediately preceding the change in
control. See "Certain Transactions" (page 34).
President's Employment Agreement. Pursuant to a certain president
employment agreement between CommerceFirst and Mr. Morgan, Mr. Morgan will serve
as the President and Chief Executive Officer of CommerceFirst and CommerceFirst
Bank. Under the president employment agreement Mr. Morgan will receive (i) an
annual base salary of $125,000, (ii) a term life insurance policy in the amount
of $300,000, (iii) 10,000 options to purchase CommerceFirst stock, at an
exercise price of $10.00 per share, upon the opening of CommerceFirst Bank, (iv)
annual stock options in an amount to be determined by the Board of Directors of
CommerceFirst, (v) an annual cash bonus in an amount to be determined by the
Board of Directors of CommerceFirst, and (vi) and participation in all other
health, welfare, benefit, stock, option and bonus plans, if any, generally
available to officers or
<PAGE>
employees of the CommerceFirst Bank or CommerceFirst. Once CommerceFirst Bank
opens, Mr. Morgan will also be entitled to receive the use of a leased vehicle
or a comparable vehicle allowance. The term of the president employment
agreement will expire on August 2, 2004 unless sooner terminated. If the
agreement is terminated by CommerceFirst without cause, CommerceFirst will
continue to pay Mr. Morgan his annual compensation and benefits as severance
compensation for a period of 12 months. In the event of any sale or exchange of
stock resulting in a change in a controlling interest of CommerceFirst, Mr.
Morgan may either continue his employment with CommerceFirst, execute a new
employment agreement on mutually agreeable terms or resign his employment. In
the event that Mr. Morgan resigns his employment or is terminated within 12
months of the change in control, Mr. Morgan will be entitled to the sum of twice
the base salary and bonuses paid to Mr. Morgan during the 12 months immediately
preceding the change in control.
Executive Vice President's Employment Agreement. Pursuant to an
executive vice president employment agreement between CommerceFirst and Mr.
Thomas, Mr. Thomas will serve as the Executive Vice President and Chief
Operating Officer of CommerceFirst and CommerceFirst Bank. Under the executive
vice president employment agreement Mr. Thomas will receive (i) an annual base
salary of $120,000, (ii) a term life insurance policy in the amount of $200,000,
(iii) 7,500 options to purchase CommerceFirst stock, at an exercise price of
$10.00 per share, upon the opening of CommerceFirst Bank, (iv) annual stock
options in an amount to be determined by the Board of Directors of
CommerceFirst, (v) an annual cash bonus in an amount to be determined by the
Board of Directors of CommerceFirst and (vi) and participation in all other
health, welfare, benefit, stock, option and bonus plans, if any, generally
available to officers or employees of the CommerceFirst Bank or CommerceFirst.
Once CommerceFirst Bank opens, Mr. Thomas will also be entitled to receive the
use of a leased vehicle or a comparable vehicle allowance. The term of the
executive vice president employment agreement will expire on August 1, 2004
unless sooner terminated. If the agreement is terminated by CommerceFirst
without cause, CommerceFirst will continue to pay Mr. Thomas his annual
compensation and benefits as severance compensation for a period of 12 months.
In the event of any sale or exchange of stock resulting in a change in a
controlling interest of CommerceFirst, Mr. Thomas may either continue his
employment with CommerceFirst, execute a new employment agreement on mutually
agreeable terms or resign his employment. In the event that Mr. Thomas resigns
his employment or is terminated within 12 months of the change in control, Mr.
Thomas will be entitled to the sum of twice the base salary and bonuses paid to
Mr. Thomas during the 12 months immediately preceding the change in control.
Incentive Stock Option Plan. To attract and retain highly qualified
personnel, it is the intention of the Directors of CommerceFirst to adopt a
Stock Option Plan which would be subject to approval by the holders of a
majority of the outstanding Common stock after this offering. It is intended
that the plan provide for incentive options which would be available for grant
to officers and key employees of CommerceFirst and CommerceFirst Bank. The
exercise price under each incentive stock option would not be less than 100% of
the fair market value of the shares on the date the option is granted. No
taxable income would be recognized by the optionee at the time an incentive
stock option is granted or at the time exercised, and correspondingly,
CommerceFirst would not be entitled to a compensation expense deduction for
federal income tax purposes. The aggregate fair market value of the Common stock
for which any one officer or employee may be granted incentive stock options in
any calendar year would not exceed $100,000 as provided in Section 422A of the
Internal Revenue Code, including the requirements which restrict the term of
such an option to ten years. Within three (3) months following termination of
employment for any reasons other than death, disability or retirement, or cause,
an optionee would be entitled to exercise his or her option to the extent such
option were exercisable on the date of termination. The plan would extend for a
period of ten years and be administered by a committee appointed by the Board.
Since the Plan has not yet been adopted, it is impossible at this time
to designate the identity of the recipients of stock options or the number of
options to be granted.
Warrant Plan. In order to encourage the continued involvement of the
organizers in the CommerceFirst Bank, the Directors of CommerceFirst has adopted
a Warrant Plan which will issue non-transferable warrants to each organizer. The
maximum of number warrants to be issued under the plan will equal 15% of the
total shares of stock sold by CommerceFirst in the offering (97,500 shares if
the minimum number of shares are sold, 120,000 shares if the maximum number of
shares are sold and 150,000 shares if all of the oversubscription shares are
sold). Each
<PAGE>
organizer would be allocated an number of warrants equal to the number of shares
purchased by the organizer in the offering. Each organizer will initially
receive 2,500 warrants in consideration of their initial capital contribution to
CommerceFirst. Remaining warrants will be allocated in the proportion that the
number of shares purchased by the organizer and its affiliates bears to the
total number of shares purchased by all organizers, limited to the total number
of shares purchased by the organizer and its affiliates in the offering. The
warrants will vest over 3 years at a rate of 30%, 30% and 40%, respectively and
vested warrants will entitled the holder thereof to purchase one share of stock.
In accordance with the terms of the organizers agreement, the exercise price of
each warrant will be the price of the common stock in this offering, $10.00 per
share. The warrants must be exercised, unless earlier called by CommerceFirst,
within 10 years from the date of termination of the offering. With the exception
of Citizens, Inc., vested warrants will also expire 1 year following the date
that the organizer ceases to be a director of CommerceFirst Bank. Warrants may
be called by CommerceFirst in the event that a merger, sale, acquisition, share
exchange or other similar extraordinary event is approved by the Board of
Directors of CommerceFirst. Upon call by CommerceFirst, warrant holders will
have 90 days in which to exercise their warrants. If they are not exercised,
CommerceFirst will pay the warrant holder the difference between the exercise
price of the warrant and the fair market value of the stock of CommerceFirst at
the time of the closing of the transaction. In the event that an applicable
state or federal regulatory authority determine that CommerceFirst Bank's
capital fails to meet minimum capital requirements, such regulatory authority
may direct CommerceFirst to call all outstanding warrants. Any warrants not
exercised will be thereafter forfeited.
CERTAIN TRANSACTIONS
It is anticipated that the Directors and Officers of CommerceFirst and
the business and professional organizations with which they are associated will
have banking transactions with CommerceFirst Bank in the ordinary course of
business. It is the policy of management that any loans and loan commitments
will be made in accordance with applicable laws and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons of comparable credit standing.
Loans to Directors and Officers must comply with CommerceFirst Bank's lending
policies and statutory lending limits, and directors with a personal interest in
any loan application will be excluded from considering any such loan
application.
Milton D. Jernigan, II, a founding organizer and Chairman of the Board
of Directors of CommerceFirst and Commerce First Bank is also a principal of
McNamee, Hosea, Jernigan & Kim, P.A. McNamee, Hosea, Jernigan & Kim, P.A has
been retained by CommerceFirst to perform certain legal and advisory services in
connection with the formation of CommerceFirst and CommerceFirst Bank, including
but not limited to, the preparation of regulatory applications, organizational
documents, employment agreements for the senior officers, including Mr.
Jernigan, and the organizers agreement and Warrant plan, and participating in
the preparation of this prospectus. CommerceFirst also leases its organizational
offices from McNamee, Hosea, Jernigan & Kim, P.A. for a rental of $1,500 per
month pursuant to an oral lease between McNamee, Hosea, Jernigan & Kim, P.A. and
CommerceFirst. It is anticipated that following the termination of the offering,
McNamee, Hosea, Jernigan & Kim, P.A. will serve as general corporate and
regulatory counsel for CommerceFirst and CommerceFirst Bank. We believe that the
terms of the agreement for the lease are at least as favorable to CommerceFirst
as could have been obtained from an unaffiliated party.
McNamee, Hosea, Jernigan & Kim, P.A. will not charge CommerceFirst for
any of Mr. Jernigan's time or efforts with respect to the offering or the
organization of CommerceFirst and CommerceFirst Bank. Mr. Jernigan has agreed
not to provide any legal services to CommerceFirst or CommerceFirst Bank.
McNamee, Hosea, Jernigan & Kim, P.A. has agreed to defer the payment of certain
legal fees pending the successful completion of this offering.
Other attorneys in the firm of McNamee, Hosea, Jernigan & Kim, P.A. may
subscribe for shares in the offering.
1
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
All shares sold in this offering will be freely tradable without
restriction or registration under the Securities Act of 1933, except for any
shares purchased by an "affiliate" of CommerceFirst, which will be subject to
the resale limitations set forth in Securities and Exchange Commission Rule 144.
Shares issued to Citizens Incorporated have not been registered for sale under
the laws of the Commonwealth of Pennsylvania, but have been issued in reliance
on an exemption from registration. Such shares may only be resold pursuant to an
available exemption from registration under Pennsylvania law, or pursuant to an
effective registration thereunder.
All of CommerceFirst's Directors are considered "affiliates" within the
meaning of Rule 144 and will, therefore, be subject to the applicable resale
limitations with respect to the shares purchased in this offering. In general,
the number of shares that can be sold by each Director in brokers' transactions,
(as that term is used in Rule 144) within any three month period may not exceed
the greater of (i) one percent (1%) of the outstanding shares as shown by the
most recent report or statement published by the Company (6,500 shares if the
minimum number of shares are sold or 8,000 shares if the maximum number of
shares are sold), or (ii) the average weekly reported volume of trading in the
shares on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the sale.
DESCRIPTION OF CAPITAL STOCK
CommerceFirst's authorized capital consists of 4,000,000 shares of
common stock, $.01 par value. CommerceFirst will issue warrants to purchase up
to 150,000 shares of common stock to organizers. The number of warrants to be
issued will depend upon the number of shares sold in the offering. See
"Executive Compensation and Certain Transactions With Management - Warrant Plan"
(page 34). Under the employment agreements between CommerceFirst and Messrs.
Jernigan, Morgan and Thomas, CommerceFirst is obligated to issue options to
purchase an aggregate of 20,000 shares of common stock upon the opening of
CommerceFirst Bank. See "Executive Compensation and Certain Transactions With
Management - Employment Agreements" (page 33).
Holders of common stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds, and to share ratably in any
distribution of CommerceFirst's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Shareholders do not
have cumulative voting rights or preemptive rights or other rights to subscribe
for additional shares, and the common stock is not subject to conversion or
redemption. The shares of common stock to be issued in this offering will be,
when issued, fully paid and non-assessable. Three hundred twenty five shares of
common stock, issued to the organizers to finance CommerceFirst's organizational
efforts, are presently outstanding, each of which will be used to purchase 100
shares of common stock in the offering.
Limitations on Payment of Dividends. The payment of dividends by
CommerceFirst will depend largely upon the ability of CommerceFirst Bank to
declare and pay dividends to CommerceFirst, as the principal source of
CommerceFirst's revenue will initially be from dividends paid by CommerceFirst
Bank. Dividends will depend primarily upon the Bank's earnings, financial
condition, and need for funds, as well as governmental policies and regulations
applicable to CommerceFirst and CommerceFirst Bank. It is anticipated that
CommerceFirst Bank will incur losses during its initial phase of operations, and
therefore, it is not anticipated that any dividends will be paid by
CommerceFirst Bank or CommerceFirst for at least three years and in the
foreseeable future. Even if CommerceFirst Bank and CommerceFirst have earnings
in an amount sufficient to pay dividends, the Board of Directors may determine
to retain earnings for the purpose of funding the growth of CommerceFirst Bank
and CommerceFirst.
Regulations of the Federal Reserve Board and Maryland law place limits
on the amount of dividends CommerceFirst Bank may pay to CommerceFirst without
prior approval. Prior regulatory approval is required to pay dividends which
exceed CommerceFirst Bank's net profits for the current year plus its retained
net profits for the preceding two calendar years, less required transfers to
surplus. State and federal bank regulatory agencies also have authority to
prohibit a bank from paying dividends if such payment is deemed to be an unsafe
or unsound practice, and the Federal Reserve Board has the same authority over
bank holding companies.
<PAGE>
The Federal Reserve Board has established guidelines with respect to
the maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that CommerceFirst may pay in the future. In 1985, the Federal Reserve Board
issued a policy statement on the payment of cash dividends by bank holding
companies. In the statement, the Federal Reserve Board expressed its view that a
holding company experiencing earnings weaknesses should not pay cash dividends
exceeding its net income, or which could only be funded in ways that weaken the
holding company's financial health, such as by borrowing. As a depository
institution, the deposits of which are insured by the FDIC, the Bank may not pay
dividends or distribute any of its capital assets while it remains in default on
any assessment due the FDIC.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
Restrictions on Business Combinations with Interested Shareholders.
CommerceFirst's Articles of Incorporation provides that certain "business
combinations" (including, among various other transactions, a merger,
consolidation, or, in certain circumstances involving assets having a value
equal to 10% or more of CommerceFirst's equity, an asset transfer or issuance of
equity securities, and the adoption of certain plans of liquidation or
dissolution) involving and any person who beneficially owns at least 20% of the
corporation's stock and such persons, affiliates or associates (an "interested
shareholder"). Such a business combination must be: (a) approved by the
affirmative vote of at least (i) 80% of the voting power of all outstanding
shares of voting stock and (ii) a majority of the voting power of all
outstanding shares of voting stock which are not held by the interested
shareholder with whom the business combination is to be effected, unless, among
other things, the business combination is approved by a majority of the members
of the Board of Directors who are "disinterested directors," and the common
shareholders receive a price (as described in the articles) generally equal to
the higher of the "fair market value" of the common stock and the highest price
paid by the interested shareholders for any shares of common stock. Under
Maryland law, a two thirds vote is generally required for approval of business
combinations.
Consideration of Business Combinations. The Articles of Incorporation
provide that that where the Board of Directors evaluates any actual or proposed
business combination, the Board of Directors shall consider the following
factors: the effect of the business combination on CommerceFirst and any of its
subsidiaries, and their respective shareholders, employees, customers and the
communities which they serve; the timing of the proposed business combination;
the risk that the proposed business combination will not be consummated; the
reputation, management capability and performance history of the person
proposing the business combination; the current market price of the
corporation's capital stock; the relation of the price offered to the current
value of the corporation in a freely negotiated transaction and in relation to
the directors' estimate of the future value of CommerceFirst and its
subsidiaries as an independent entity or entities; tax consequences of the
business combination to the corporation and its shareholders; and such other
factors deemed by the directors to be relevant. In such considerations, the
Board of Directors may consider all or certain of such factors as a whole and
may or may not assign relative weights to any of them. The foregoing is not
intended as a definitive list of factors to be considered by the Board of
Directors in the discharge of their fiduciary responsibility to CommerceFirst
and its shareholders, but rather to guide such consideration and to provide
specific authority for the consideration by the Board of Directors of factors
which are not purely economic in nature in light of the circumstances of the
corporation and its subsidiaries at the time of such proposed business
combination.
Amendment of the Articles of Incorporation. In general, the Articles of
Incorporation may be amended upon the vote of two thirds of the outstanding
shares of capital stock entitled to vote, the standard vote required under
Maryland law. The provisions of the Articles of Incorporation relating to the
vote required for business combinations and the factors which shall be
considered by the Board of Directors in considering business combinations, and
the provisions requiring the vote of eighty percent of the combined voting power
of the outstanding voting stock to adopt any change to the Bylaws which is not
approved by two thirds of the disinterested directors, may be amended only upon
the affirmative vote of 80% of the voting power of the outstanding voting stock.
3
<PAGE>
LITIGATION
To the knowledge of CommerceFirst and its Directors and Officers, there
is no pending or threatened litigation involving CommerceFirst.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
CommerceFirst by Kennedy, Baris & Lundy, L.L.P., Bethesda, Maryland. Members of
such firm may subscribe to purchase shares of common stock offered hereby.
EXPERTS
The audited financial statements of CommerceFirst Bancorp, Inc. (a
development stage company) for the period ending December 31, 1999 included in
this prospectus has been included herein in reliance upon the report of Trice &
Geary, LLC, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION ABOUT COMMERCEFIRST
CommerceFirst is a newly organized company and to date has not engaged
in any business operations,. and except for shares issued to the organizers to
fund organizational activities, has not issued any capital stock. It is not
currently subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, although it will become subject to the periodic reporting
requirements following the completion of this offering, until such time as it
has fewer than three hundred shareholders of record. CommerceFirst will furnish
stockholders with annual reports containing audited financial statements. It may
also send other reports to keep stockholders currently informed concerning its
affairs.
This prospectus is part of a registration statement on Form SB-2 filed
by CommerceFirst with the Securities and Exchange Commission. This prospectus
does not contain all of the information contained in the registration statement,
certain parts of which have been omitted in accordance with rules of the SEC.
Any statements contained herein concerning the provisions of any document filed
as an exhibit to the registration statement or otherwise filed with the SEC are
not necessarily complete, and, in each instance, reference is made to the copy
of the filed document for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference. The
registration statement may be read and copied at the SEC's public reference room
located at 450 Fifth Street, NW, Room 1024, Washington, DC 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
The SEC maintains an Internet web site that contains information of issuers,
including CommerceFirst who file electronically with the SEC. The address of
that web site is http://www.sec.gov.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report....................................................................................F-1
Audited Balance Sheet of the CommerceFirst at October 31, 1999..................................................F-2
Audited Statement of Operations.................................................................................F-3
Audited Statement of Changes in Stockholders' Deficit...........................................................F-4
Audited Statement of Cash Flows.................................................................................F-5
Notes to Audited Financial Statements...........................................................................F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CommerceFirst Bancorp, Inc.
Annapolis, MD 21401
We have audited the accompanying balance sheet of CommerceFirst Bancorp, Inc. (a
Development Stage Company) as of December 31, 1999 and the related statements of
operations, changes in stockholders' equity and cash flows for the period July
9, 1999 (date of inception) to December 31, 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 the 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 CommerceFirst Bancorp, Inc. ( a
Development Stage Company) as of December 31, 1999 and the results of operations
and cash flows for the period July 9, 1999 (date of inception) to December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Trice Geary and Myers, L.L.C.
Salisbury, Maryland
January 17, 2000
F-1
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Cash $ 143,774
Equipment (net) 7,012
---------
TOTAL ASSETS $ 150,786
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 101,969
---------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common Stock
$.01 par value, 4,000,000 shares authorized,
32,500 shares issued and outstanding 325
Surplus 324,675
Deficit accumulated during the
development stage (276,183)
---------
TOTAL STOCKHOLDERS' EQUITY 48,817
---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 150,786
=========
See Accompanying Notes
F-2
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A Development Stage Company)
Statement of Operations
For the Period From July 9, 1999
(Date of Inception) to December 31, 1999
REVENUES: Interest income $ 3,991
----------
EXPENSES:
Depreciation 412
Legal and professional 116,460
Salaries 127,336
Rent 6,000
Marketing and consulting 17,870
Office supplies 4,012
Business development 1,739
Miscellaneous 6,345
----------
Total expenses 280,174
----------
LOSS BEFORE INCOME TAX BENEFIT (276,183)
INCOME TAX BENEFIT --
----------
NET LOSS $ (276,183)
==========
EARNINGS PER SHARE:
Basic net loss per share $ (8.50)
===========
Diluted net loss per share $ (8.50)
==========
See Accompanying Notes
F-3
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From July 9, 1999
(Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Common Surplus Deficit Accumulated Total
Stock During the
Development Stage
<S> <C> <C> <C> <C>
Balances at July 9, 1999 ........................ $ -- $ -- $ -- $ --
Issuance of Common Stock ........................ 325 324,675 325,000
Net Loss ........................................ (276,183) (276,183)
--------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1999 ................... $ 325 $ 324,675 $(276,183) $ 48,817
========= ========= ========= =========
</TABLE>
See Accompanying Notes
F-4
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A Development Stage Company)
Statement of Cash Flows
For the Period From July 9, 1999
(Date of Inception) to December 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (276,183)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 412
Accounts payable 101,969
---------
Net cash used by
operating activities (173,802)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (7,424)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
common stock to organizers 325,000
---------
NET INCREASE IN CASH 143,774
CASH AT BEGINNING OF PERIOD --
---------
CASH AT END OF PERIOD $ 143,774
=========
Supplemental Cash Flows Information:
Interest payments $ --
=========
Income tax payments $ --
=========
See Accompanying Notes
F-5
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 9, 1999
(DATE OF INCEPTION) TO DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
CommerceFirst Bancorp, Inc. (the "Company") was incorporated on July 9, 1999
under the laws of the State of Maryland to operate as a bank holding company of
a proposed new commercial bank with the name CommerceFirst Bank (the "Proposed
Bank"). It is intended that the Company will purchase all the shares of common
stock to be issued by the Proposed Bank. The Company's operations to date have
been limited to taking necessary actions to organize and capitalize the Company
and the Proposed Bank. The Proposed Bank has not commenced operations and will
not do so unless the public offering of stock by the Company is successful and
the Proposed Bank meets the conditions and approvals of the Maryland Department
of Financial Regulation and the Board of Governors of the Federal Reserve System
to receive its charter authorizing it to commence operations as a commercial
bank, has obtained the approval of the Federal Deposit Insurance Corporation
(FDIC) to insure its deposit accounts, and meets certain other regulatory
requirements.
The Proposed Bank will seek to operate as a local business bank alternative to
the superregional financial institutions which dominate its primary market area
within Anne Arundel County and surrounding areas. The Proposed Bank will focus
on relationship banking, providing each customer with a number of services,
familiarizing itself with, and addressing itself to, customer needs in a
proactive, personalized fashion. The accounting policies of the Company conform
to generally accepted accounting principles and general practices within the
banking industry.
Significant accounting policies not disclosed elsewhere in the financial
statements are as follows:
DEPRECIATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
CREDIT RISK
The Company has deposits in a financial institution in excess of amounts insured
by the FDIC; however, this institution is considered to be a sound institution
within the industry.
F-6
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
Basic net loss per common share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share is computed by dividing net
loss available to common stockholders by the weighted average number of common
shares outstanding during the period, including any potential dilutive common
shares outstanding, such as options and warrants.
NOTE 2. INCOME TAXES
Federal and state income tax expense (benefit) consists of the following for the
period ended October 31, 1999:
Current federal income tax $ --
Current state income tax --
Deferred federal income tax expense (benefit)
--
Deferred state income tax expense (benefit)
--
Total income tax expense (benefit) $ --
===========
The following chart is a summary of the tax effect of temporary differences that
give rise to a significant portion of deferred tax assets:
Deferred tax assets:
Net operating loss carryforward $ 57,000
Less valuation allowance 57,000
Total deferred tax assets $ --
===========
F-7
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INCOME TAXES (CONTINUED)
No income tax benefit or deferred tax asset is reflected in the financial
statements. Deferred tax assets are recognized for future deductible temporary
differences and tax loss carryforward if their realization is "more likely than
not".
NOTE 3. EMPLOYMENT CONTRACTS
The Company has signed employment agreements with the Chairman of the Board of
Directors, President, and Executive Vice President, which will expire July 14,
2002, August 2, 2004, and August 1, 2004, respectively. In the event the
agreements are terminated by the Company without cause, the Company will
continue to pay annual compensation and benefits as severance compensation for a
period of one year. The agreements also grant to the above individuals certain
specified levels of non-incentive stock options to purchase shares of the
Company at an exercise price equal to the initial offering price per share upon
opening of the Proposed Bank. Annual stock options will also be provided at the
discretion of the Board of Directors of the Company
NOTE 4. ISSUANCE OF COMMON STOCK
The Company offered and sold 325 shares of its common stock, $.01 par value per
share for a price of $1,000 per share and received aggregate consideration of
$325,000 to be used for funding organizational activities. In anticipation of
the successful completion of the offering, the shares are reflected as being
converted to 32,500 shares of common stock, $.01 par value per share for a price
of $10 per share, in the equity section of the balance sheet and in the earnings
per share calculation displayed on the statement of operations.
The Company is offering to sell a minimum of 650,000 shares and up to 800,000
shares of its common stock, at a price of $10 per share. The Company reserves
the right to sell up to an additional 200,000 shares of common stock if the
volume of subscription exceeds the number of shares offered.
NOTE 5. WARRANTS AND OPTIONS
The Board of Directors of the Company has adopted a Warrant Plan which will
issue non-transferable warrants to each organizer. The maximum number of
warrants to be issued under the plan will equal 15% of the total shares of stock
sold by the Company in the offering. Each organizer will first be allocated a
number of warrants equal to the number of shares purchased by the organizer in
the offering. Remaining warrants for the organizers will be allocated in the
proportion that the number of shares purchased by the organizers bears to the
total number of shares purchased by all organizers, limited to the total number
of shares purchased by the organizers in the offering.
F-8
<PAGE>
COMMERCEFIRST BANCORP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. WARRANTS AND OPTIONS (CONTINUED)
The warrants will vest over 3 years at a rate of 30%, 30% and 40%, respectively
and vested warrants will entitle the holder thereof to purchase one share of
stock. The exercise price of each warrant will be $10 per share and must be
exercised, unless earlier called by the Company not later than 10 years from the
date of termination of the offering. Generally, vested warrants will also expire
1 year following the date that the organizer ceases to be a director of the
Proposed Bank. Warrants may be called by the Company in the event that a merger,
sale, acquisition, share exchange or other similar extraordinary event is
approved by the Board of Directors of the Company. Upon call by the Company,
warrant holders will have 90 days in which to exercise their warrants. If they
are not exercised, the Company will pay the warrant holder the difference
between the exercise price of the warrant and the fair market value of the stock
of the Company at the time of the closing of the transaction. In the event that
an applicable state or federal regulatory authority determine that the Proposed
Bank's capital fails to meet minimum capital requirements, such regulatory
authority may direct the Company to call all outstanding warrants. Any warrants
not exercised will be thereafter forfeited.
The Board of Directors of the Company intends to adopt a stock option plan as a
performance incentive for its and the Proposed Bank's officers and key
employees.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has incurred approximately $20,000 of legal expenses with a law firm
of which the Chairman of the Board of the Company is also a principal. The
Company also sub-leases office space in Annapolis, Maryland for $1,500 per month
from this law firm. The terms of the sub-lease agreement appear to be at least
as favorable as what could have been attained from an unaffiliated party.
Accounts payable and accrued expenses include $45,206 payable to the law firm
and $46,333 of unpaid officer salaries.
NOTE 7. COMMITMENTS
The Company has entered into a letter of intent to ;lease a facility to serve as
the executive offices for the Company and as the main banking office for the
Proposed Bank. The facility, which is approximately 7,850 square feet and
located in Annapolis, Maryland, will be leased by the Company for five years
with three five year renewal options, at an initial rent of $19 per square foot,
plus annual increases of 3%. The letter of intent anticipates that a lease will
be signed by February 15, 20000, with delivery of the premises anticipated to
occur in May 2000. In the event that all regulatory approvals required for the
opening of the Proposed Bank are not received, the lease can be terminated by
the payment of a fee of $100,000 in addition to the forfeiture of a $15,000
deposit.
F-9
<PAGE>
COMMERCEFIRST BANCORP, INC.
800,000 SHARES
COMMON STOCK
Prospectus
___________, 2000
COMMERCEFIRST HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATION ABOUT THE OFFERING THAT DIFFERS FROM, OR ADDS TO, THE
INFORMATION IN THIS PROSPECTUS OR IN ITS DOCUMENTS THAT ARE PUBLICLY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. THE DELIVERY OF
THIS PROSPECTUS AND/OR THE SALE OF SHARES OF COMMON STOCK DO NOT MEAN THAT THERE
HAVE NOT BEEN ANY CHANGES IN COMMERCEFIRST'S CONDITION SINCE THE DATE OF THIS
PROSPECTUS. IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO SELL,
OR TO ASK FOR OFFERS TO BUY, THE SECURITIES OFFERED BY THIS PROSPECTUS, OR IF
YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE
OFFER PRESENTED BY THIS PROSPECTUS DOES NOT EXTEND TO YOU. THIS PROSPECTUS
SPEAKS ONLY AS OF ITS DATE EXCEPT WHERE IT INDICATES THAT ANOTHER DATE APPLIES.
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Articles of Incorporation of CommerceFirst provide that
CommerceFirst may indemnify officers, directors, employees and agents of
CommerceFirst to the fullest extent permitted by the Maryland law (the "Maryland
law"). Pursuant to the Maryland law, CommerceFirst generally has the power to
indemnify its present and former directors, officers, agents and employees, or
persons serving as such in another entity at CommerceFirst's request, against
expenses (including attorneys' fees) and liabilities incurred by them in any
action, suit, or proceeding to which they are, or are threatened to be made, a
party by reason of their serving in such positions, so long as they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of CommerceFirst, or in the case of a criminal proceeding,
had no reasonable cause to believe their conduct was unlawful. In respect of
suits by or in the right of CommerceFirst, the indemnification is generally
limited to expenses (including attorneys' fees) and is not available in respect
of any claim where such person is adjudged liable to CommerceFirst, unless the
court determines that indemnification is appropriate. To the extent such person
is successful in the defense of any suit, action or proceeding, indemnification
against expenses (including attorneys' fees) is mandatory. CommerceFirst has the
power to purchase and maintain insurance for such persons and indemnification.
The indemnification provided by the Maryland law is not exclusive of other
rights to indemnification which any person may otherwise be entitled under any
bylaw, agreement, shareholder or disinterested director vote, or otherwise.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses payable by CommerceFirst in connection with the
Offering described in this Registration Statement (other than underwriting
discounts and commissions) are as follows:
<TABLE>
<S> <C>
SEC registration fee $ 3,837
Blue Sky qualification fees and expenses 12,500
Printing, engraving & Edgar expenses 15,000
Registered Broker Dealer Fees 15,000
Legal fees and expenses 50,000
Accounting fees and expenses 10,000
Other 3,663
-----------
Total $ 110,000
===========
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
Between July 14, 1999 and October 18, 1999, CommerceFirst issued an
aggregate of 325 shares of common stock to organizers of CommerceFirst and
CommerceFirst Bank at a price of $1,000 per share in private placement
transactions exempted pursuant to Section 4(2) of the Securities Act of 1933,
pursuant to the terms of Organizer Agreements between CommerceFirst and the
organizers.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) Articles of Incorporation of CommerceFirst, as amended (1)
3(b) Bylaws of CommerceFirst(1)
4 Refer to Articles III through V and Articles IX
through XI of the Articles of Incorporation (included
as Exhibit 3(a) previously filed) and Article II of
the Bylaws (included as Exhibit 3(b) previously
filed)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
5(a) Opinion of Kennedy, Baris & Lundy, L.L.P. (1)
10(a) Chairman Employment Agreement dated July 14, 1999 between Milton D. Jernigan, II and CommerceFirst
Bancorp, Inc. (1)
10(b) President Employment Agreement dated August 2, 1999 between Richard J. Morgan and CommerceFirst Bancorp,
Inc. (1)
10(c) Executive Vice President Employment Agreement dated July 14, 1999 between Lamont Thomas and CommerceFirst
Bancorp, Inc. (1)
23(a) Consent of Trice & Geary, L.L.C., Independent Auditors
23(b) Consent of Kennedy, Baris & Lundy, L.L.P., included in Exhibit 5
99(a) Form of Subscription Agreement(1)
99(b) Amended and Restated Organizers Agreement (1)
99(c) Form of Escrow Agreement(1)
99(d) Warrant Plan
99(e) Letter of Intent for 1804 West Street
</TABLE>
- --------------------------
(1) Previously filed and incorporated by reference to the exhibit of the same
number in the original filing of the Company's registration statement on Form
SB-2 (No. 333-91817)
Item 28. Undertakings. The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together represent a
fundamental change in the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (ss. 230.424(b) of this
chapter) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) include any additional or changed material information on the plan of
distribution.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the
II-2
<PAGE>
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Annapolis, State of Maryland on January 18, 2000.
COMMERCEFIRST BANCORP, INC.
By: /s/ Richard J. Morgan
--------------------------------
Richard J. Morgan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director , 2000
- --------------------------------------------- ---------
Edward B. Howlin, Jr.
/s/ Milton D. Jernigan II Chairman of the Board of Directors January 18, 2000
- ---------------------------------------------
Milton D. Jernigan II
Vice Chairman of the Board of Directors, , 2000
- --------------------------------------------- ---------
Alvin R. Maier Secretary and Treasurer
/s/ Richard J. Morgan Director, President - Chief Executive January 18, 2000
- ---------------------------------------------
Richard J. Morgan Officer
(Principal Executive Officer)
/s/ Lamont Thomas Director, Executive Vice President- January 18, 2000
- ---------------------------------------------
Lamont Thomas Chief Operating Officer
(Principal Financial and Accounting Officer)
</TABLE>
Exhibit 99(d)
COMMERCEFIRST BANCORP, INC.
WARRANT PLAN
PLAN RECITALS
WHEREAS, certain individuals and entities, because of their mutual
desire to establish a State Bank authorized to do business in the State of
Maryland (hereinafter referred to as "Organizers"), have entered into a Revised
and Restated Organizers' Agreement dated October 6, 1999 to establish such a
Bank with a principal banking office in Annapolis, Maryland (hereinafter
referred to as the "Bank"); and,
WHEREAS, CommerceFirst Bancorp, Inc. (hereinafter referred to as the
"Corporation") is in the process of establishing the Bank; and,
WHEREAS, the Bank is to be wholly owned by the Corporation; and,
WHEREAS, the Corporation recognizes that the Organizers have agreed to
place their personal funds at risk pursuant to the terms of the Revised and
Restated Organizers' Agreement dated October 6, 1999; and,
WHEREAS, the Corporation recognizes that the efforts of the Organizers
will be instrumental in the successful establishment and operation of the Bank;
and,
WHEREAS, the Corporation wishes to encourage the continued involvement
of the Organizers in the establishment of the Bank and to provide an incentive
for these individuals to remain involved in the successful operation of the Bank
after the institution opens for business.
NOW THERFORE, in consideration of the foregoing and in their capacity
as Directors of the Corporation, the Directors of CommerceFirst Bancorp, Inc.
hereby agree to the following:
ARTICLE I
PLAN PARTICIPANTS
1.1 Organizers. This Warrant Plan is limited to Organizers.
1.2 Prerequisites to Participation. Except as provided in Section 1.3,
in order to be eligible to participate in the Warrant Plan, an Organizer must
also serve as a Director of the Bank.
1.3 Exception to Directorship Prerequisite. One of the Organizers of
the Bank, Citizens, Inc. (hereinafter referred to as "Citizens") is a bank
holding company incorporated in the State of Pennsylvania. Citizens, as an
Organizer, has agreed to place certain funds at risk to help establish the Bank.
The Board of Directors agrees that Citizens' participation in the establishment
and operation of the Bank is beneficial and wishes to encourage the continued
involvement of Citizens with the Bank by allowing Citizens to participate in the
Warrant Plan.
ARTICLE II
DISTRIBUTION OF WARRANTS
1.1 Maximum Number of Warrants. The maximum number of Warrants which
the Corporation has authority to award pursuant to this Warrant Plan shall be a
number cumulatively equal in exercise price to Fifteen Percent (15%) of the
total capital raised by the Corporation in the Corporation's Initial Public
Offering.
1.2 Distribution of Warrants.
<PAGE>
1.2.1 Each Organizer shall receive One (1) Warrant for each
share of common stock of the Corporation received by the Organizer in
consideration for funds placed at risk by said Organizer.
1.2.2 If the Corporation shall, after subtracting the number
of Warrants granted to Organizers pursuant to Section 1.2.1 from the maximum
number of Warrants which the Corporation has authority to grant pursuant to
Section 1.1, be entitled to grant additional Warrants to Organizers, those
additional Warrants shall be granted as follows:
1.2.2.1 Subject to the limitation detailed in Section
1.2.2.3, each Organizer shall receive a pro rata number of the Warrants the
Corporation shall have authority to grant pursuant to Section 1.2.2 based on
such Organizer's Qualified Investments in the Corporation, as defined in Section
1.2.2.2, as compared to the cumulative Qualified Investments of all of the
Organizers.
1.2.2.2 "Qualified Investments," as used herein,
includes investments made by: the Organizer personally; IRAs and retirement
accounts of the Organizer; the spouse of the Organizer; IRA and retirement
accounts of the spouse of the Organizer; and, trusts for which the Organizer is
the trustee or a co-trustee and the beneficiary or beneficiaries is or are such
Organizer or the spouse, children or grandchildren of such Organizer. In order
to assure adequate sources for servicing and repayment of debt, the Corporation
shall not finance any contribution or subscription by any stockholder.
1.2.2.3 Under no circumstances shall any Organizer
receive more than One (1) Warrant for each share of common stock purchased in
such Organizer's Qualified Investments. If the number of Warrants an Organizer
is entitled to receive exceeds the number of shares of common stock purchased as
a result of such Organizer's Qualified Investments, the number of Warrants such
Organizer shall receive pursuant to shall be reduced to equal the number of
shares of common stock purchased as a result such Organizer's Qualified
Investments.
ARTICLE III
GRANTING, EXERCISE PRICE, AND VESTING OF WARRANTS
3.1 Granting of Warrants. The Warrants provided for in this Warrant
Plan shall be issued to participants as soon as practicable following the close
of the Corporation's Initial Public Offering.
3.2 Exercise Price. The Exercise Price for all Warrants granted
pursuant to this Warrant plan shall be equal to the fair market value of the
stock at the time the Warrants are granted.
3.3 Vesting of Warrants. In order to encourage the continued
involvement of the Organizers in the operation of the Bank, all Warrants granted
pursuant to this Warrant Plan shall be subject to a graduated vesting period of
Three (3) years.
3.3.1 Year One. Thirty Percent (30%) of the Warrants granted
to each Organizer shall vest, and become fully exercisable, One (1) year from
the date of granting provided that, except in the case of Citizens, such
Organizer continues to be a Director of the Bank at that time.
3.3.2 Year Two. Thirty Percent (30%) of the Warrants granted
to each Organizer shall vest, and become fully exercisable, Two (2) years from
the date of granting provided that, except in the case of Citizens, such
Organizer continues to be a Director of the Bank at that time.
3.3.3 Year Three. The remaining Forty Percent (40%) of the
Warrants granted to each Organizer shall vest, and become fully exercisable,
Three (3) years from the date of granting provided that, except in the case of
Citizens, such Organizer continues to be a Director of the Bank at that time.
<PAGE>
ARTICLE IV
PLAN DURATION
4.1 Expiration of Warrants. Warrants that are granted pursuant to this
Warrant Plan will expire, if not otherwise accelerated, exercised or called by
the Corporation, as provided for herein, Ten (10) years from the date they are
granted.
4.2 Acceleration of Expiration Date. Except in the case of Citizens,
should an Organizer cease to be a Director of the Bank, any Warrants which have
been granted to such Organizer and have vested pursuant to this Warrant Plan
shall expire, if not otherwise accelerated, exercised or called by the
Corporation, as provided for herein, One (1) year from the date that such
Organizer ceases to be a Director of the Bank.
4.3 Corporation's Right to Call. Warrants granted pursuant to this
Warrant Plan may be called by the Corporation at any time in the event of a
merger, sale, acquisition, share exchange or similar extraordinary event upon
approval of such event by the Corporation's Board of Directors.
4.3.1 Upon exercise of the right to call by the Corporation,
the Warrant holder will have Ninety (90) days' in which to exercise the Warrant
or it will expire.
4.3.2 In the event of such a call and subsequent non-exercise
and expiration by the Warrant holder, the Corporation's obligation to the
Warrant holder will be to pay to the Warrant holder cash equal to the difference
between the Exercise Price of the Warrant and the transaction value of the
Warrant had the Warrant been exercised upon the closing of the transaction which
gave rise to the call.
4.4 Required Exercise by Federal Regulator. If, at any time during the
duration of this Warrant Plan, the Bank's capital falls below the minimum
requirements, as determined by its state or primary federal regulator, the
Bank's primary federal regulator may direct the Corporation to require Warrant
Plan participants to exercise or forfeit their Warrants, under such terms and
conditions as are determined between the Corporation and the Bank's primary
federal regulator.
ARTICLE V
TRANSFERABILITY OF WARRANTS
5.1 Non-Transferable. In order to encourage the continued involvement
of the Organizers in the Bank, title to the Warrants granted pursuant to this
Warrant Plan is personal to the Organizer and is non-transferable.
ARTICLE VI
MISCELLANEOUS
6.1 One Class of Stock. Under no circumstances should this Warrant Plan
be construed to create more than one class of stock.
6.2 Effective Date of Plan. The Warrant Plan shall become effective
only upon approval by two-thirds (2/3) of the Organizers.
6.3 Finalization of Plan. The procedures for the implementation and
operation of the Warrant Plan shall be detailed in a separate document and shall
become effective upon approval by two-thirds (2/3) of the Organizers and
approval of two-thirds (2/3) of the Directors of the Corporation.
6.4 Amendment of Plan.
6.4.1 Prior to the Effective Date of the Plan, the Warrant
Plan may be amended upon approval by two-thirds (2/3) of the Organizers and
approval of two-thirds of the Directors of the Corporation.
6.4.2 After the Effective Date of the Plan, the Warrant Plan
may be amended upon approval by two-thirds (2/3) of the Directors of the
Corporation.
Exhibit 99(e)
January 11, 2000
BY HAND DELIVERY
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
141 Drexel Drive
Millersville, MD 21108
LETTER OF INTENT
Re: Lease for CommerceFirst Bank Facilities at 1804 West Street, Annapolis,
Maryland 21401
Dear Lee:
On behalf of CommerceFirst Bancorp, Inc., a Maryland corporation,
("CommerceFirst"), the purpose of this Letter of Intent is to outline the
general parameters upon which CommerceFirst is prepared to enter into a
Definitive Lease Agreement (the "Lease") with Admiral Properties, LLC (the
"Landlord") for the lease of space for facilities for its wholly-owned
subsidiary, CommerceFirst Bank, a to-be-formed Maryland state-chartered, Federal
Reserve Member commercial bank now in organization (the "Bank"). By their
execution of this Letter of Intent, CommerceFirst and the Landlord confirm their
tentative understanding with respect to the basic terms of the transaction and
they confirm that this Letter supersedes all prior Letters of Intent, if any.
The general parameters of the transaction will be as follows:
1. Transaction Description.
1.1 Subject to the terms and conditions of the Lease to be negotiated
and entered into between the parties, CommerceFirst will lease approximately
SEVEN THOUSAND EIGHT HUNDRED FIFTY (7,850) square feet (exclusive of the Boiler
Room) of space, more or less (the exact square footage to be determined upon
execution of a final Lease Agreement) (the "Demised Space") on the first floor
in the building located at 1804 West Street in Annapolis, Maryland (the
"Building"). The Demised Space will be located at the easterly end of the
building at the front corner and will correspond approximately to the space
identified on the attached Exhibit 1.1, "PROPOSED FIRST FLOOR PLAN as prepared
by Alt Breeding Schwarz Architects. The Demised Space will be used by
CommerceFirst for general corporate offices and for branch and other banking
activities of the Bank.
1.2 At a minimum, the transaction will be specifically conditioned on
the following:
1.2.1 The perimeter of the space to be included in the Demised
Premises will be Ninety (90) feet (approximately 60 feet net of the Boiler Room)
across the front of the Building (approximately as shown on the attached Exhibit
1.1). The Boiler Room will be reduced in size approximately as shown on the
attached Exhibit 1.1 at the Landlord's expense.
1.2.2 The vacant cinder block building (approximately 2,500
square feet) now existing in front of the Building (adjacent to the Honda
parking lot) be demolished and replaced with parking, driveway and/or open drive
aisle areas. The Landlord reserves the right to construct a building on a pad
site in the parking lot of the
<PAGE>
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
January 11, 2000
Page 2
project upon the following conditions (i) the Landlord will not build the pad
site building until it has acquired and incorporated into the project of which
the Demised Premises is a part the veterinary offices building located to the
west of the project, (ii) without the advance written consent of CommerceFirst,
the Landlord will not build the pad site building in a Bank Line of Sight Area
to be designated on an attached Exhibit 1.2.2, which will generally run from the
front of the Demised Premises to the corner of Admiral and West Streets, then
along West Street to approximately the intersection of West Street and
Chinquapin Round Road and then diagonally back to the front of the Demised
Premises, (iii) the Landlord will not lease any pad site or any other site in
the property to a bank, and (iv) the Landlord will grant to CommerceFirst a
right of first refusal to lease the pad site for its bank branch location.
1.2.3 CommerceFirst and the Landlord will reach an agreement
whereby the Landlord will develop the facade of the Demised Premises to be
designed by Scarlett Breeding of Alt Breeding Schwartz Architects in Annapolis,
Maryland in a manner acceptable to CommerceFirst (which design will be
reasonably consistent architecturally with the brick design previously provided
to the Landlord and to CommerceFirst by Scarlett Breeding and which design is
consistent with and takes advantage of the brick character of the end of the
building in which the Demised Premises are located). The architectural design
fees and the costs of construction of the agreed-upon facade treatment will be
borne by the Landlord.
2. Transaction Structure.
2.1 The Lease will be for an initial term of FIVE (5) years (the
"Initial Term") with THREE (3) FIVE (5) year options to renew (the "Option
Terms") granted to CommerceFirst. The Option Terms rent will be at the
prevailing market rate at the time of exercise, provided, however, that in any
event, the rent for an Option Term will not be less that the rent for the last
year in the preceding term.
2.2 The Lease will be executed as soon as it is negotiated in
accordance with the terms of this Letter of Intent but will have a commencement
date of March 1, 2000 (the "Commencement Date").
2.3 CommerceFirst will have the option to extend the Commencement Date
for THREE (3) extension periods of ONE (1) month each in exchange for payment to
the Landlord of a monthly extension fee equal of SEVEN THOUSAND AND 00/100
DOLLARS ($7,000.00) per month.
2.4 CommerceFirst shall have the option to terminate the Lease at any
time prior to the Commencement Date (as may be extended pursuant to the
preceding section) in the event of a Regulatory Failure. For purposes of this
Letter of Intent and the Lease, a "Regulatory Failure" will mean the failure of
CommerceFirst to receive all necessary and appropriate approvals from all
federal and state bank and securities regulatory authorities to open the Bank
for business as a Maryland state chartered, Federal Reserve Member commercial
bank together with the reasonable judgment of the Organizers of CommerceFirst
that such regulatory approvals are not likely to be achieved in a reasonable
period of time.
2.5 The Landlord will commence construction of the Landlord Standard
Improvements and the Tenant Improvements for which the Landlord has agreed to
serve as contractor upon the Commencement Date. The Landlord will complete the
foregoing construction work within SIXTY (60) days of the Commencement Date.
2.6 For purposes of this Letter of Intent, (i) "Final Bank Approval
Date" shall mean the date upon all final federal and state regulatory approvals
are received by CommerceFirst for the opening of the Bank. CommerceFirst shall
have the further option to terminate the Lease after the Commencement Date, but
prior to the Final Bank Approval Date, in the event of a Regulatory Failure (as
defined above) by paying and/or forfeiting to the Landlord the following: (i)
the Security Deposit of FIFTEEN THOUSAND AND 00/100 DOLLARS ($15,000.00)
referred to hereinbelow, (ii) all Commencement Date extension fees
<PAGE>
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
January 11, 2000
Page 3
paid to the Landlord referred to hereinabove, (iii) any and all
post-Commencement Date rent paid to the Landlord, (iv) a termination fee in the
amount of ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00), and (v) the
Tenant Upgrades Reimbursement referred to in SECTION 2.7 below.. The total
breakdown compensation payable to the Landlord, assuming all Commencement Date
extensions have been exercised and at least one month's pre-Delivery Date rent
has been paid will be approximately ONE HUNDRED FORTY-SIX THOUSAND AND 00/100
DOLLARS ($146,000.00) (Security Deposit = $15,000.00; plus three extension fees
@ $7,000.00 each = $21,000.00; plus first month's pre-Delivery Date rent =
$10,140.00; plus Termination Fee = $100,000.00 = total of $146,140.00) plus the
Tenant Upgrade Reimbursement referred to in Section 2.7, below.
2.7 In addition to the Termination Fees referred to in Section 2.6,
above, in the event the Landlord pays or incurs any bank-specific build-out
expenses (subject to adjustments for returns and allowances) over and above the
cost of FIFTY-FIVE and 00/100 DOLLARS ($55.00) per square foot of the Demised
Premises (the "Excess Bank Expenses"), CommerceFirst will also reimburse the
Landlord for such Excess Bank Expenses in the event of a termination of the
Lease for the reasons specified in Section 2.6. For purposes of this Section
2.7, "bank-specific expenses" will mean expenses paid or incurred by the
Landlord for build-out items which are requested or specified by CommerceFirst
and which are unique to CommerceFirst's branch banking facility (as opposed to
general office space expenses) such as teller counters, security cameras, bank
security systems, special glass or teller counter enclosures and the like.
2.8 The anticipated schedule of events under the transaction is as
follows:
2.8.1 Execution of this Letter of Intent by both parties by
January 12, 2000;
2.8.2 Execution of the Lease by February 15, 2000;
2.8.4 Expiration of CommerceFirst's Design Feasibility Period
by February 15, 2000;
2.8.5 Completion of Landlord Standard Improvements Drawings
and Tenant Improvements Drawings by February 1, 2000 (the Landlord Standard
Improvement Drawings shall be at the sole expense of the Landlord; the Landlord
and CommerceFirst agree to split the costs of the Tenant Improvement Drawings to
be completed by Alt Breeding Swartz Architects);
2.8.6 Apply for and secure all permits for construction by
March 1, 2000.
2.8.7 Construction commences not later than TEN (10) days
after (i) the Commencement Date (subject to any extensions of the Commencement
Date in accordance with the Tenant's option to extend such date as provided in
Section 2.3, above), or (ii) the receipt of all building permits for the
construction of the improvements to the Demised Space.
2.8.8 The Landlord shall deliver the Demised Premises the
earlier of (i) May 10, 2000 or ii) SIXTY (60) days after the commencement of
construction.
3. Rental Rate.
3.1 Commencing on the date the Demised Premises are delivered to
CommerceFirst, with all Landlord Standard Improvements and Tenant Improvements
completed (the "Delivery Date") the rental rate for the Demised Premises will be
NINETEEN AND 00/100 DOLLARS ($19.00) per square foot, which rate will be based
on and will include (i) the provision of the Landlord Standard Improvements by
the Landlord and (ii) a Tenant Improvement Allowance provided for hereinbelow
over and above the
<PAGE>
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
January 11, 2000
Page 4
Landlord Standard Improvements (as defined below).
3.2 From the Commencement Date to the Delivery Date, the rental rate
for the Demised Premises will be FIFTEEN AND 50/100 DOLLARS ($15.50) per square
feet.
3.3 The Landlord will build-out the Demised Premises in accordance with
the Landlord' Work Letter for base building standard build-out, which Work
Letter is attached here to as Exhibit 3.3 (the "Landlord Standard
Improvements"). In addition, at the Landlord's expense the Landlord will:
3.3.1 During the term of the Lease be responsible for all
structural components of the building including the roof;
3.3.2 Provide a second means of doorway egress at the rear as
required by the Fire Marshall (including, if so required, an appropriate
landing);
3.3.3 Provide a new window to replace any window lost by the
provision of item 3.1.2, above;
3.3.4 Reduce the size of the boiler room by 10 feet;
3.3.5 Remove the entrance of the boiler room from the front of
the building to the interior of the building (inside the bank's space) if
permitted by the Fire Marshall;
3.3.6 Move the front entrance of the bank toward Admiral Drive
by TEN (10) feet or so to take advantage of the reduced boiler room size and to
maximize the space available for the branch (within the context of the reduced
90 foot overall frontage) consistent with the attached Exhibit 1.1 prepared by
Alt Breeding Schwarz Architects;
3.3.7 Close the window vent spaces on Admiral Drive with
bronze sheeting or comparable material (as opposed to attempting to match the
brick);
3.3.8 Install wire mesh (exact dimensions to be determined)
over the windows for security purposes.3.4 The annual rent escalator during the
Initial Term of the Lease will be fixed at THREE PERCENT (3.0%). On the first
month of the first Option Term, and during each Option Term, the annual rent
escalator will be based on CPI, but will have a minimum of THREE PERCENT (3.0%)
and a maximum of SIX PERCENT (6.0%).
3.5 CommerceFirst will pay its pro-rata share of the real estate taxes
with respect to the Demised Premises from and after the Delivery Date.
3.6 CommerceFirst will pay its pro-rata share of the Landlord's
insurance with respect to the Demised Premises from and after the Delivery Date.
3.7 CommerceFirst will pay its pro-rata share of the Common Area
Maintenance expenses for the project from and after the Delivery Date which are
estimated to be TWENTY-EIGHT CENTS ($0.28) per square foot. In no year will the
Common Area Maintenance expenses exceed FIFTY CENTS ($0.50) per square foot.
3.8 The Tenant Improvement Allowance will be FIFTEEN AND 00/100 DOLLARS
($15.00) per square foot over and above the Landlord Standard Improvements.
<PAGE>
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
January 11, 2000
Page 5
3.9 From and after the Delivery Date, CommerceFirst will be responsible
for all operating expenses within the leased premises.
4. Security Deposit. CommerceFirst will pay to the Landlord a Security Deposit
in the amount of FIFTEEN THOUSAND 00/100 DOLLARS ($15,000) at the time the Lease
is signed. The Security Deposit will be forfeited by CommerceFirst at any time
if the Lease is terminated by CommerceFirst after the end of the Design
Feasibility Period (as defined below) but prior to the end of the term thereof
for any reason other than a material default by the Landlord
5. Design Feasibility Period. From the date of the execution of this Letter of
Intent and/or the date of the execution of the Lease until the close of business
on February 15, 2000, CommerceFirst will determine to its satisfaction the
design and financial feasibility of the transaction during which time, and in
connection with the negotiation of other customary terms and conditions and the
execution of the Lease, CommerceFirst will review and evaluate to its
satisfaction, among other items:
5.1 The nature, scope and specifications of the Landlord's Work to be
performed on the exterior of the Demised Premises and the surrounding property,
including exterior finishes, facades, porticos, awnings, parking lots,
landscaping, building and other signage and other matters. CommerceFirst and/or
its architects will be entitled to review in detail the Landlord's site plans,
specifications, drawings and other indicia of such work and improvements.
5.2 The nature, scope and specifications of the Landlord Standard
Improvements as outlined in the Landlord's Work Letter to be performed on the
interior of the Demised Premises and other work which is to be performed by the
Landlord, including, but not limited to, demising walls, floors, ceilings,
demolition of interior improvements, electrical, fire sprinkler, water, HVAC
rough-in and other matters to be completed by the Landlord as part of the
Landlord's work and/or the Landlord Standard Improvements before the Tenant
Improvement Allowance is to be applied. CommerceFirst and/or its architects will
be entitled to review in detail the Landlord's site plans, specifications,
drawings and other indicia of such work and improvements.
5.3 The nature, scope and specifications of the Landlord's Work to be
performed as part of the Tenant Improvement Allowance, the remainder of the
Tenant Improvement Allowance and any additional funds CommerceFirst elects to
apply to the project which need to l be applied toward upgrades in the finishes
and fixtures of the build-out of the Demised Premises.
5.4 CommerceFirst may terminate this Letter of Intent and/or the Lease
without penalty or expense to CommerceFirst, and CommerceFirst shall be entitled
to have its Security Deposit refunded, if at any time during the Design
Feasibility Period CommerceFirst determines, in its sole discretion, that the
project is not feasible to CommerceFirst for any reason whatsoever, including,
but not limited to, issues of design and cost of build-out of the Demised
Premises and its surrounding areas.
6. Governing Law. This Letter of Intent and the Lease will, except as preempted
by federal, tax or other applicable laws, be subject to and shall be construed
under the laws of the State of Maryland.
7. Modification. This Letter of Intent may not be modified or amended except by
a writing signed unanimously by the parties hereto.
<PAGE>
ADMIRAL PROPERTIES, LLC
c/o Mr. Lee M. Donovan
PROPERTY MANAGEMENT COMPANY
January 11, 2000
Page 6
8. Public Announcement. No public or general disclosure of the negotiations
surrounding this Letter of Intent and/or the Lease or of the consummation of any
of the transactions contemplated in this Letter of Intent will be made without
the written consent of all parties to this Letter of Intent.
9. No Broker. The parties hereto acknowledge that PROPERTY MANAGEMENT COMPANY
has represented the Landlord in this transaction. All commissions due to the
Broker will be paid by the Landlord. CommerceFirst has not engaged the services
of any brokers, investment bankers or other parties who may suppose themselves
entitled to a commission on the transaction. Each party will hold harmless the
other from and against any claim to a commission or fee raised by any party with
whom the other has engaged to assist in this transaction.
10. Purpose of Letter of Intent; Non-binding Nature. It is the purpose of this
Letter of Intent to express the seriousness and commitment of the parties to
enter into a Final Definitive Lease Agreement and to cause the parties to
proceed to instruct their respective counsel and advisors to commence due
diligence and to negotiate and prepare the necessary documents and agreements to
effectuate the understandings set forth herein. It is understood and agreed that
this letter is merely a letter and statement of intent and not a legally binding
agreement, except as to the matters of confidentiality set forth in Paragraph 8
above and the exclusive right to negotiate set forth in Paragraph 11, below. All
parties reserve the right in its sole and absolute discretion (until a Final
Definitive Lease Agreement has been negotiated and executed) to determine
whether the contemplated transaction can be successfully consummated, and any
party may, without any obligation to the others, decline to proceed with the
proposed transaction until such time as a Definitive Agreement is executed.
11. Exclusive Right to Negotiate. Upon the execution of this Letter of Intent by
both parties, each party will grant to the other an exclusive right to negotiate
the proposed transaction for a period of time commencing upon the delivery by
the Landlord of this Letter of Intent to CommerceFirst and expiring 5:00 p.m.,
February 15, 2000.
12. Definitive Lease Agreement. The parties will enter into a Definitive Lease
Agreement on or before February 15, 2000. The Definitive Lease Agreement will
incorporate the terms and conditions of this Letter of Intent in to it.
13. Expiration and Term of Letter of Intent. Unless extended by the parties
hereto in writing this Letter of Intent and the offers contained herein will
expire, lapse and be of no force and effect:
13.1 if this Letter of Intent is not accepted, signed and delivered to
CommerceFirst at the above-captioned address on or before the close of business
on January 12, 2000; or
13.2 unless extended by written agreement of the parties, the parties
hereto do not enter into a Definitive Lease Agreement for the transaction on or
before February 15, 2000; or
13.3 if the transaction contemplated herein is canceled in writing by
either party in accordance with the terms of this Letter of Intent; or
13.4 upon the execution of the Definitive Lease Agreement; or
<PAGE>
13.5 upon the failure of any of the contingencies provided for herein.
Please review the foregoing with your advisors and return your acceptance as
indicated above. We look forward to having the opportunity of working with you
to consummate the transactions referred to herein. Please do not hesitate to
call me if you have any questions.
AGREED TO AND ACCEPTED:
COMMERCEFIRST BANCORP, INC.
By:
---------------------------------
Richard J. Morgan, Date
President and Chief Executive Officer
ADMIRAL PROPERTIES, LLC
By:
---------------------------------
Date
Title:
------------------------------
[LETTERHEAD]
January 17, 2000
Board of Directors
CommerceFirst Bancorp, Inc.
705 Melvin Avenue, Suite 104
Annapolis, Maryland 21401
RE: Registration Statement on Form SB-2
We hereby consent to the incorporation by reference of our report dated January
17, 2000 included or incorporated by reference in the Registrant's Pre-Effective
Amendment No. 1 to Form SB-2 Registration Statement Under The Securities Act of
1933 for the period July 9, 1999 (date of inception) to December 31, 1999 and to
the reference to our firm under the heading "Experts".
Sincerely,
/s/ Trice Geary & Myers LLC
Trice Geary & Myers LLC
