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Filed Pursuant to Rule 424(b)(4)
Registration Number 333-30182
715,000 SHARES
SUN BANCSHARES, INC.
A PROPOSED BANK HOLDING COMPANY FOR
[SUN BANCSHARES, INC. LOGO]
SUNBANK, N.A. (IN ORGANIZATION)
COMMON STOCK
$10.00 PER SHARE
------------------------
We are offering shares of Sun Bancshares, Inc. common stock to raise the
money required to start SunBank, N.A., a national bank in organization. Sun
Bancshares will be the holding company and sole shareholder of SunBank after it
is organized. SunBank will be headquartered in Murrells Inlet, South Carolina,
and we expect to open SunBank in the fourth quarter of 2000. This is our first
offering of common stock to the public, and currently no public market exists
for our shares. This is a firm commitment underwriting. You must purchase a
minimum of 100 shares, although we may waive this limit and accept subscriptions
for less shares. Quotations for our common stock will be reported on the OTC
Bulletin Board under the symbol "SNBA."
Our organizers will receive warrants to purchase 291,350 shares of common
stock. These warrants will have an exercise price of $10.00 per share.
Organizers will be granted warrants based upon the number of shares of common
stock they purchase in the offering. The warrants are only being offered to the
organizers and not to the public. We describe the warrants in more detail in the
"Executive Compensation - Organizers' Warrants" section on page 38.
OUR COMMON STOCK IS NOT A DEPOSIT OR A BANK ACCOUNT AND IS NOT INSURED BY
THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN OUR COMMON STOCK
INVOLVES RISKS. YOU SHOULD NOT INVEST IN THIS OFFERING UNLESS YOU CAN AFFORD TO
LOSE ALL OF YOUR INVESTMENT. WE HAVE DESCRIBED WHAT WE BELIEVE ARE THE MATERIAL
RISKS OF THIS INVESTMENT UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................... $10.00 $7,150,000
Underwriting discount....................... $ 0.36 $ 256,000
Proceeds to us, before expenses............. $ 9.64 $6,894,000
</TABLE>
We will pay no underwriting discount on shares sold to our organizers,
directors and executive officers and will pay an underwriting discount of $0.35
per share on shares sold to our proposed advisory board members. We will pay an
underwriting discount of $0.75 per share on all other shares sold and will
reimburse Wachovia Securities for its reasonable out-of-pocket expenses. The
underwriting discount shown in the table above reflects a blended rate that
assumes 349,110 shares are sold to our organizers, directors and executive
officers and 46,044 shares are sold to our proposed advisory board members.
Wachovia Securities has the right to purchase up to an additional 107,250 shares
at the public offering price, less an underwriting discount of $0.75 per share,
within 30 days from the date of this prospectus to cover over-allotments.
THE UNDERWRITER EXPECTS TO DELIVER THE SHARES OF COMMON STOCK ON NOVEMBER
1, 2000.
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WACHOVIA SECURITIES, INC.
OCTOBER 27, 2000.
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SUN BANCSHARES, INC.
SUNBANK, N.A. (IN ORGANIZATION)
PROPOSED MARKET AREA
SCMAP
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SUMMARY
This summary does not contain all the information you should consider
before investing in the common stock. We encourage you to read carefully the
entire prospectus before investing. Unless otherwise stated, all information in
this prospectus assumes the underwriter will not exercise its over-allotment
option.
SUN BANCSHARES AND SUNBANK
Sun Bancshares, Inc. is a South Carolina corporation that was incorporated
on August 3, 1999 to organize and serve as the holding company for SunBank,
N.A., a national bank in organization. Our main office will be located in
Murrells Inlet, South Carolina and we intend to operate a branch office in
Georgetown, South Carolina. As a community bank, we will focus on providing
personalized service and financial products to individuals and small- to
medium-sized businesses located in Murrells Inlet, Georgetown and the
surrounding communities.
We must receive all necessary regulatory approvals before Sun Bancshares
may purchase SunBank's common stock and before SunBank may begin its banking
business. We have filed all of the necessary applications with the banking
regulators and have received preliminary conditional approval of our application
for a national bank charter from the Office of the Comptroller of the Currency.
We expect to receive all final regulatory approvals and to begin our banking
operations in the fourth quarter of 2000. See "Proposed Business -- Background"
on page 20 for more information regarding our regulatory applications.
OUR MARKET AND PRIMARY SERVICE AREA
Our primary service area will include southern Horry County and most of
Georgetown County, South Carolina. This area, commonly referred to as the "South
Strand" or "Waccamaw Neck," encompasses the coastal communities south of Myrtle
Beach, including Socastee, Surfside Beach, Garden City Beach, Murrells Inlet,
Litchfield Beach, Pawleys Island, DeBordieu and Georgetown. We expect initially
to draw a large percentage of our business from the areas immediately
surrounding the communities of Murrells Inlet and Georgetown.
The larger coastal region, which includes all of Horry and Georgetown
Counties, is often called the "Grand Strand." As reported by the American
Automobile Association, the Grand Strand is the second busiest vacation
destination in the nation, drawing more than 10 million visitors each year to
its beaches, entertainment attractions and more than 100 golf courses. The
region has also become a popular spot for retirees. The region's tourism,
hospitality, retail and entertainment base is supported by a substantial
construction and real estate development industry, a sizeable manufacturing and
industrial base, a strong healthcare sector and centers for higher education.
WHY WE ARE ORGANIZING A NEW BANK
We believe that our chosen communities will benefit greatly from the
continuing growth of the Grand Strand, particularly as available real estate and
development opportunities to the north of Myrtle Beach become more scarce.
Currently no financial institution is headquartered in either Murrells Inlet or
the City of Georgetown, and most of the institutions that have offices in our
primary service area are large national, super-regional or regional banks.
Through our local ownership and management, we believe we will be uniquely
situated to efficiently provide individuals and small- to medium-sized business
customers with loan, deposit and other financial products tailored to fit their
specific needs. We have chosen the motto "Your community . . . Your bank" to
reflect this philosophy.
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OUR ORGANIZERS AND MANAGEMENT
Sun Bancshares was organized by 16 local business and community leaders.
Each of our organizers, except for Gary L. Schaal, will serve as initial
directors of both Sun Bancshares and SunBank. Additionally, Georgie B. Martin
joined our organizational efforts in September, 2000. Accordingly, her service
as a director of SunBank is subject to regulatory approval. We believe our
directors' long-standing ties to the community and their significant business
experience will enable Sun Bancshares to effectively assess and address the
banking needs throughout our proposed market area. Our organizers include:
<TABLE>
<S> <C>
- Thomas Bouchette - Judy B. Long
- Edsel J. ("Coupe") DeVille - Georgie B. Martin
- John S. Divine, III - Thomas O. Morris, Jr.
- Dalton B. Floyd, Jr. - Joel A. Pellicci
- Jeanne Louise Fourrier-Eggart - Donald E. Perry
- David E. Grabeman - Chandler C. Prosser
- Richard Edwin Heath - Larry N. Prosser
- Paul John Hletko - Gary L. Schaal
</TABLE>
Additionally, we have retained the following experienced individuals to
serve on our senior management team.
- Thomas Bouchette will serve as president of Sun Bancshares and
president and chief executive officer of SunBank. Mr. Bouchette has
over 13 years of banking and lending experience including five years in
the Georgetown/Horry County area. Prior to beginning preparations to
open SunBank, he was executive vice president and chief credit officer
of The Citizens Bank in Olanta, South Carolina where he was responsible
for all lending activity and management of branch operations. Before
joining The Citizens Bank, Mr. Bouchette served Wachovia Bank as vice
president and business banking executive responsible for the
Georgetown/Horry County area.
- Randy L. Carmon will serve as chief financial officer of Sun Bancshares
and SunBank. Mr. Carmon has over 21 years of bank management experience
in finance and operations. Prior to joining Sun Bancshares and SunBank,
he was vice president of Anderson State Bank in Hemingway, South
Carolina. Mr. Carmon previously served with The National Bank of South
Carolina and Lake City State Bank.
- John L. Truelove will serve as the senior lending officer of SunBank and
will be responsible for loan administration. Mr. Truelove has over 20
years of banking and lending experience. From 1997 until March 2000, he
was a vice president of Coastal Federal Savings Bank in Surfside Beach,
South Carolina where his primary emphasis was commercial, consumer,
construction and residential lending. From 1979 until 1997, Mr. Truelove
served with NationsBank, N.A.
- Lynn Wood Wilson will serve as a vice president of SunBank and the
Georgetown area executive officer. Mr. Wilson has over 20 years of
banking experience with several local Georgetown banks such as Carolina
First Bank, First Federal Savings and Loan Association and Peoples
Federal Savings & Loan Association.
PRODUCTS AND SERVICES
We plan to operate as a full service commercial bank that offers most of
the products and services typically offered by larger banks. Our lending
services will include consumer loans to individuals, commercial loans to small-
to medium-sized businesses and professional concerns and real estate-related
loans. Our deposit services will include demand deposits, regular savings
accounts, money market deposits, certificates of deposit and individual
retirement accounts. We will also provide cashier's checks, safe-deposit boxes,
traveler's checks, direct deposit and U.S. Savings Bonds. We intend to offer our
services through a variety of methods including branch offices, ATMs, bank by
mail, telephone banking and, in the future, online banking.
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OUR BUSINESS STRATEGY
Our strategy as an independent bank holding company will be carried out
through the operations and growth of SunBank. In an effort to emphasize prompt,
responsive service to our target customers and expand our presence in the
Georgetown/Horry County area, we have outlined our strategy as follows:
- Capitalize on our directors' and officers' diverse community
involvement and business experience.
- Hire and retain highly experienced and qualified banking personnel with
established customer relationships.
- Provide individualized attention with local decision-making authority.
- Establish a unique community identity.
- Implement an aggressive marketing program.
- Open our main office in Murrells Inlet, a branch office in Georgetown
and future additional branches in other strategic locations, as
appropriate.
- Construct a main office building that will support the hiring of
additional lending personnel and the expansion of our operations to
include new products and services.
- Utilize technology and strategic outsourcing to provide a broad array
of products and services.
THE OFFERING AND OWNERSHIP BY OUR MANAGEMENT
We are offering 715,000 shares of our common stock for $10.00 per share.
Our organizers, directors and executive officers intend to purchase at least
349,110 shares, which will represent 48.8% of the shares outstanding after the
offering. Our directors may also purchase up to an aggregate of 125,000
additional shares in order for 715,000 shares to be sold in this offering. We
hope to sell the remaining shares to individuals and businesses primarily within
the Georgetown/Horry County area who share our desire to support a new community
bank seeking to capitalize on the growth in our market. In recognition of the
efforts made and financial risk undertaken in organizing Sun Bancshares and
SunBank, our organizers will receive warrants to purchase an aggregate of
291,350 shares of common stock at $10.00 per share. The number of shares subject
to the warrant for each organizer will be based on the number of shares that he
or she purchases in this offering.
Neither the shares of common stock that our organizers, director and
executive officers intend to purchase nor the warrants that will be granted to
our organizers were offered or sold to the organizers, directors or executive
officers prior to the date that we filed the registration statement covering
these securities. Additionally, under regulations and policies of the OCC, our
organizers were required to disclose in SunBank's charter application the number
and percentage of shares that each organizer, director or executive officer is
expected to purchase in the offering and the terms of the warrants to be granted
to the organizers. For more detailed information see "Management - General" on
page 29 and "Executive Compensation - Organizers' Warrants" on page 38.
The 715,000 shares of common stock offered does not include the
underwriter's option to purchase up to 107,250 additional shares, 291,350 shares
that will be issuable upon the exercise of the warrants issued to our organizers
or 100,000 shares that we may issue under our stock incentive plan.
USE OF PROCEEDS
We will use $6,500,000 raised in this offering to capitalize SunBank,
which is the minimum amount of capital that our banking regulators will require
that we invest in SunBank prior to its opening. SunBank will use the funds that
it receives from Sun Bancshares to lease the sites for, construct and furnish
its main office and branch office buildings and to provide working capital to
operate SunBank. We will use the remaining net proceeds of this offering for
operational expenses and other general corporate purposes, including the
provision of additional capital to SunBank, if necessary. For more detailed
information, see "Use of Proceeds" on page 14.
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LOCATION OF OFFICES
The address and phone number of our temporary main office and executive offices
are:
4367 RIVERWOOD DRIVE
MURRELLS INLET, SOUTH CAROLINA 29576
(843) 357-7007
Our permanent main office and executive offices will be located at:
4200 HIGHWAY 17 BYPASS
MURRELLS INLET, SOUTH CAROLINA 29576
We plan to begin our banking operations in the fourth quarter of 2000 in
our temporary main office. Our permanent main office will be an approximately
10,000 square foot building on a 1.9 acre site. We also intend to open an
approximately 5,000 square foot permanent branch office building on a 1.1 acre
site at 1134 North Fraser Street in Georgetown, South Carolina. We expect to
complete construction of our main office in the fourth quarter of 2001 and our
branch office in the second quarter of 2001.
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RISK FACTORS
The following describes what we believe are the material risks of an
investment in our common stock. An investment in the common stock involves a
significant degree of risk, and you should not invest in the common stock unless
you can afford to lose your entire investment. Please carefully read the entire
prospectus including the cautionary statement following the Risk Factors
regarding the use of forward-looking statements before deciding to invest in the
common stock.
SOUTH CAROLINA STATE LAW AND ANTI-TAKEOVER DEVICES WE HAVE ADOPTED LIMIT THE
ABILITY OF OTHERS TO ACQUIRE US, WHICH MAY PREVENT YOU FROM RECEIVING A PREMIUM
OVER THE MARKET PRICE FOR YOUR SHARES.
In many cases, a company acquiring another company will offer to pay
shareholders of the target company a premium over market value for their shares
of stock to encourage approval of the acquisition. Under South Carolina law,
however, no other financial institution may acquire control of Sun Bancshares
until we have been in existence for five years. In addition, state and federal
law and our articles of incorporation and bylaws make it difficult for anyone to
purchase Sun Bancshares without the approval of our board of directors.
Consequently, for the first five years of our existence you will be deprived of
any opportunity to receive a premium for your shares from an acquiring company.
Additionally, these opportunities will be limited in the future by:
- the board's authority and flexibility in considering acquisition
proposals;
- the board's authority to issue additional shares of common and preferred
stock to persons opposing the sale of Sun Bancshares;
- provisions we have adopted to preserve the continuity of our board; and
- super majority voting requirements to approve proposed acquisitions.
See "Description of Sun Bancshares' Capital Stock and Shareholders' Rights" on
page 50.
WE HAVE NO OPERATING HISTORY UPON WHICH TO BASE AN ESTIMATE OF OUR EARNINGS
PROSPECTS, MAKING IT DIFFICULT FOR YOU TO EVALUATE YOUR INVESTMENT IN THE COMMON
STOCK.
Neither Sun Bancshares nor SunBank has any operating history on which to
base any estimate of their earnings prospects. The operations of new businesses
are always risky because the operating plans and strategies of these businesses
are untested. Because SunBank has not yet opened, you will not have access to
historical financial data and similar information that would be helpful in
deciding whether to invest in Sun Bancshares.
IF WE DO NOT BECOME PROFITABLE, YOU MAY BE UNABLE TO RECOVER ALL OR ANY PART OF
YOUR INVESTMENT.
Typically, most new banks incur substantial start-up expenses, are not
profitable in the first year of operation and, in some cases, are not profitable
for several years or ever. If we are ultimately unsuccessful, you may not
recover all or any part of your investment in the common stock. Our
profitability will depend on our ability to develop a quality loan portfolio and
a core deposit base, both of which may take several years to develop.
Additionally, many of SunBank's loans initially will be new loans to new
borrowers. Accordingly, it will take several years to determine the borrowers'
payment histories, and, as a result, our management will not be able to reliably
evaluate the quality of the loan portfolio until that time. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations" on page
17.
FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY MAY ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE AND THE POTENTIAL RETURN ON YOUR INVESTMENT.
If we cannot implement our business strategy, we will be hampered in our
ability to develop business and serve our customers, which could have an adverse
effect on our financial performance. We have developed a business plan that
details the strategy that we intend to implement in our efforts to achieve
profitable operations. Even if we successfully implement our strategy, it may
not have the
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favorable impact on operations that we anticipate. See "Proposed
Business - Management Philosophy and Business Strategy" on page 21.
DEPARTURES OF OUR KEY PERSONNEL OR DIRECTORS MAY IMPAIR OUR OPERATIONS AND LIMIT
OUR ABILITY TO ACHIEVE PERFORMANCE TARGETS.
Thomas Bouchette is important to our success and, without him, our
financial condition and results of operations may be adversely affected. Mr.
Bouchette has been instrumental in our organization and, as president and chief
executive officer of SunBank, will be the key management official in charge of
our daily business operations. We have entered into a three-year employment
agreement with Mr. Bouchette, which has a term expiring in 2003, but cannot be
assured of his continued service. Additionally, our directors' community
involvement, diverse backgrounds and extensive local business relationships are
important to our success. Our growth could be adversely affected if the
composition of our board of directors changes materially. See "Management" on
page 29.
A DELAY IN BEGINNING SUNBANK'S OPERATIONS WILL RESULT IN ADDITIONAL LOSSES.
Any delay in the opening of SunBank will increase our pre-opening expenses
and postpone our receipt of potential revenues. This could cause our accumulated
losses to increase as a result of continuing operating expenses, such as
salaries and other administrative expenses, coupled with our lack of revenue.
Although we intend to open SunBank in the fourth quarter of 2000, if we do not
receive the necessary final regulatory approvals, SunBank's opening may be
delayed or may not occur at all.
IF REGULATORY CONDITIONS ARE NOT SATISFIED, WE MAY DISSOLVE AND LIQUIDATE, AND
YOU MAY ONLY RECEIVE A PORTION, IF ANY, OF YOUR INVESTMENT.
If we do not receive final regulatory approval to open SunBank, we
anticipate that we will dissolve Sun Bancshares. If we dissolve Sun Bancshares
after the close of the offering, you will receive only a portion, if any, of
your investment because we will have used some or all of the proceeds of the
offering to pay offering, organizational and pre-opening expenses and capital
costs incurred through the time that we dissolve. Although we have received
preliminary conditional approval from the Office of the Comptroller of the
Currency to organize SunBank and we have applied to the FDIC for deposit
insurance, we will not receive final approvals until we comply with all of the
policies and regulations imposed on new banks by state and federal regulatory
agencies. These final approvals may not be granted in a timely manner, if at
all, and the closing of this offering is not conditioned upon the receipt of
final approvals.
STRONG COMPETITION FROM LARGER, MORE ESTABLISHED BANKS MAY CAUSE US TO PAY
HIGHER INTEREST RATES ON OUR DEPOSITS OR CHARGE LOWER RATES ON OUR LOANS TO
ATTRACT CUSTOMERS, WHICH MAY DECREASE OUR NET INTEREST INCOME.
We will encounter strong competition for customers from existing banks and
other types of financial institutions conducting business in the
Georgetown/Horry County area and elsewhere. We may pay higher rates of interest
on our deposits or charge lower rates on our loans than our competitors in order
to attract customers. This may decrease our net interest income. Some of our
competitors have been in business for a long time and have established their
customer base and name recognition. Many of our competitors are larger than we
will be and have greater financial and personnel resources. Some are larger
national, super-regional and regional banks like Bank of America, Wachovia,
BB&T, Carolina First Bank and Coastal Federal. Many of our competitors offer
services, such as extensive and established branch networks and trust services,
that we either do not expect to provide or will not provide for some time. In
addition, competitors that are not depository institutions are generally not
subject to the extensive regulations that will apply to our bank. See "Proposed
Business - Competition" on page 26 and "Supervision and Regulation" on page 43.
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CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME.
Our profitability depends substantially on SunBank's net interest income,
which is the difference between the interest income earned on its loans and
other assets and the interest expense paid on its deposits and other
liabilities. Depending on the terms and maturities of SunBank's assets and
liabilities, a large change in interest rates may significantly decrease our net
interest income and eliminate our profitability. Most of the factors that cause
changes in market interest rates, including economic conditions, are beyond our
control. While we intend to take measures to minimize the effect changes in
interest rates will have on our net interest income and profitability, these
measures may not be effective. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations - Liquidity and Interest Rate
Sensitivity" on page 18.
AN ECONOMIC DOWNTURN, ESPECIALLY ONE AFFECTING GEORGETOWN AND HORRY COUNTIES,
MAY REDUCE OUR CUSTOMER AND DEPOSIT BASES AND THE DEMAND FOR OUR LOANS AND OTHER
FINANCIAL PRODUCTS.
As a holding company for a community bank, our success will depend on the
economy of the region in which we operate. The majority of SunBank's borrowers
and depositors will be individuals and businesses located and doing business in
the Georgetown/Horry County area. An economic downturn in the Georgetown/Horry
County area or in the national economy generally could reduce our deposit base
and the demand for our financial products and may decrease our earnings. For
example, an adverse change in the local economy could make it more difficult for
borrowers to repay their loans, which could lead to loan losses for SunBank.
Additionally, we could be more severely affected by an economic downturn in the
Georgetown/Horry market than our larger, more geographically diverse
competitors. An economic downturn in our market would affect all of our
operations, as opposed to only a portion of our competitors' operations. See
"Proposed Business" on page 20.
WE MAY NOT BE ABLE TO COMPETE WITH OUR LARGER COMPETITORS FOR LARGER CUSTOMERS
BECAUSE OUR LENDING LIMITS WILL BE LOWER THAN THEIRS.
The amount that SunBank may lend to a single borrower will be limited
based on the amount of SunBank's capital. A national bank's legal lending limit
to a single borrower is equal to 15% of its capital and surplus plus an
additional 10%, for a total of 25%, if the amount that exceeds 15% is fully
secured by readily marketable collateral. We expect that our initial legal
lending limit following this offering will be approximately $882,900, plus up to
an additional $588,600, for a total of approximately $1.5 million, for loans
secured by readily marketable collateral. We intend, however, to impose an
internal limit of $1.0 million, or approximately 17% of our capital for loans
secured by readily marketable collateral. Until we are profitable, our capital
will continue to decline, and therefore our lending limit will decline. Our
lending limit will be significantly less than the limit for most of our
competitors and may affect our ability to establish relationships with larger
businesses in our market area. We intend to accommodate larger loans by selling
participations in those loans to other financial institutions, but this strategy
may not succeed. See "Proposed Business - Lending Services - Lending Limits" on
page 23.
OUR ABILITY TO PAY DIVIDENDS TO OUR SHAREHOLDERS IS LIMITED AND DEPENDS ON
SUNBANK'S ABILITY TO PAY DIVIDENDS TO US.
Sun Bancshares will initially have no significant source of income other
than dividends that it receives from SunBank. Our ability to pay dividends to
you will therefore depend on SunBank's ability to pay dividends to Sun
Bancshares. Bank holding companies and national banks are subject to significant
regulatory restrictions on the payment of cash dividends. In light of these
restrictions and the need for Sun Bancshares and SunBank to retain and build
capital, it will be our policy to reinvest all of our earnings for an
undetermined period of time. As a result, we do not plan to pay dividends until
we become profitable and recover any losses that we may have incurred. Our
future dividend policy will depend on our earnings, capital requirements,
financial condition and other factors that the Boards of Directors of Sun
Bancshares and SunBank consider relevant. See "Dividends" on page 16.
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WE DETERMINED THE PUBLIC OFFERING PRICE ARBITRARILY, AND THE FUTURE MARKET PRICE
MAY FLUCTUATE BELOW THE INITIAL PUBLIC OFFERING PRICE ONCE THE SHARES BECOME
FREELY TRADEABLE.
Sun Bancshares and the underwriter arbitrarily set the public offering
price after considering prevailing market conditions and the price of comparable
publicly traded companies. Because we have no operating history, the public
offering price could not be based on historical measures of our financial
performance. Therefore, the public offering price may not indicate the market
price for the common stock after the offering. Several factors will cause the
market price to fluctuate after the offering, and the price may drop below the
initial public offering price. These factors include our results of operations,
financial analysts' estimates of our earning potential, economic conditions in
our market area and trends in the banking industry. See "Underwriting" on page
55.
WE WILL NOT HAVE A LARGE NUMBER OF SHAREHOLDERS OR SHARES OUTSTANDING AFTER THE
OFFERING, WHICH MAY LIMIT YOUR ABILITY TO SELL YOUR SHARES OF COMMON STOCK.
Prior to the offering, there has been no public market for Sun Bancshares'
common stock, and an active trading market may not develop. If an active trading
market does not develop or continue after the offering, you may not be able to
sell your shares at or above the public offering price. Although we have applied
to list the common stock on the OTC Bulletin Board, an active trading market may
not develop or continue after the offering because we will have a relatively
small shareholder base and small number of shares outstanding. You should
consider carefully the limited liquidity of your investment before purchasing
any shares of common stock. Additionally, the sale of a large block of the
shares outstanding after the close of the offering could adversely affect the
market price of the common stock. After the close of the offering all of our
outstanding shares will be freely tradeable without restriction except for at
least 349,110 shares that the organizers, directors and the executive officers
intend to purchase in the offering and which will be subject to lock-up
agreements. Beginning 180 days from the date of this prospectus, shares held by
the organizers, directors and executive officers will be eligible for sale
subject to the resale limitations of Rule 144 of the Securities Act of 1933. See
"Underwriting" on page 55 and "Shares Eligible for Future Sale" on page 54.
GOVERNMENT REGULATION MAY HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY AND
GROWTH.
We will be subject to extensive government supervision and regulation. Our
ability to achieve profitability and to grow could be adversely affected by
banking laws and regulations that limit the manner in which we make loans,
purchase securities and pay dividends. These regulations are intended primarily
to protect depositors, not shareholders. In addition, the burden imposed by
federal and state regulations may place us at a competitive disadvantage
compared to competitors who are less regulated. Future legislation or government
policy may also adversely affect the banking industry or our operations. In
particular, various provisions of the Gramm-Leach-Bliley Act, which became
effective on March 11, 2000, eliminated many of the federal and state law
barriers to affiliations among banks and securities firms, insurance companies
and other financial services providers. We believe the elimination of these
barriers may significantly increase competition across the financial services
industry. See "Supervision and Regulation" on page 43.
EXERCISE OF WARRANTS AND STOCK OPTIONS WILL CAUSE DILUTION TO YOUR OWNERSHIP
INTEREST IN SUN BANCSHARES.
Our organizers, directors executive officers and employees may exercise
warrants or options to purchase common stock, which would result in the dilution
of your proportionate interests in Sun Bancshares. Upon completion of this
offering, we will issue to the organizers warrants to purchase an aggregate of
291,350 shares of common stock, and will issue to our executive officers options
to purchase 40,750 shares of common stock pursuant to an option plan, which
permits the grant of up to an aggregate of 100,000 shares of common stock. The
warrants will vest in one-third annual increments over three years, and the
options will generally vest in one-fifth annual increments over five years. Our
directors, organizers and executive officers currently intend to purchase at
least 349,110 shares of common stock in this offering. Accordingly, we estimate
that upon the close of the offering, approximately 51.2% of the
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outstanding shares of our common stock will be owned by persons who are neither
directors, organizers nor executive officers of Sun Bancshares. If our
organizers, directors and executive officers were to exercise all of their
warrants and options, the percentage of our outstanding shares held by all other
shareholders, upon the close of the offering, would decrease to approximately
34.9%, representing a relative ownership dilution of approximately 16.3
percentage points. Our directors may also purchase up to an aggregate of 125,000
additional shares in order for 715,000 shares to be sold in this offering. If
our directors were to purchase these additional shares, the percentage of our
outstanding shares held by persons who are neither directors, organizers nor
executive officers would be approximately 33.7% and would decrease to
approximately 23.0%, representing a relative ownership dilution of approximately
10.7 percentage points, if all of our directors, organizers and executive
officers were to exercise all of their warrants and options. In addition, the
exercise of the warrants or options could adversely affect the terms on which we
can obtain additional capital. For instance, the holders of the warrants or
options could exercise the warrants or options at a time when we could otherwise
obtain capital by offering additional securities on terms more favorable to us
than those provided for by the warrants or options. See "Executive Compensation"
on page 37.
WE MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL, WHICH MAY LIMIT OUR ABILITY TO
GROW.
In the future, should we need additional capital to support our business,
expand our operations or maintain our minimum capital requirements, we may not
be able to raise additional funds through the issuance of additional shares of
common stock or other securities. If we are unable to raise additional capital,
our ability to grow may be limited due to regulatory capital requirements. If we
are unable to maintain our minimum capital requirements, we may be subject to
greater regulatory restrictions on our operations. See "Supervision and
Regulation -- Prompt Corrective Action" and "-- Capital Adequacy" on pages 45
and 47.
OUR ORGANIZERS, DIRECTORS AND OFFICERS WILL HAVE THE ABILITY TO INFLUENCE OR
CONTROL SHAREHOLDER ACTIONS.
Our organizers, directors and executive officers together will be able to
significantly influence or control the outcome of director elections or a
shareholders vote on a significant transaction such as a merger or acquisition.
Generally, a quorum equal to a majority of the outstanding shares must be
present for shareholders to act. To be elected, a director nominee must receive
more votes than any other nominee for the same seat on the board of directors. A
merger or acquisition which has been approved by two-thirds vote of the board of
directors requires approval by a majority of the shareholders. A merger or
acquisition approved by a majority vote of the board of directors requires
approval of two-thirds of the shareholders. We anticipate that after this
offering, our organizers, directors and executive officers will directly or
indirectly own at least 349,110 shares, representing 48.8%, of the outstanding
common stock. Our directors may also purchase up to an aggregate of 125,000
additional shares in order for 715,000 shares to be sold in this offering, in
which event our organizers, directors and executive officers would directly or
indirectly own 474,110 shares, representing 66.3% of our outstanding common
stock. Additionally, we will be issuing warrants to our organizers and options
to our executive officers. Although these warrants and options will vest over
time, if our organizers, directors and executive officers exercise all of their
warrants and options, they would directly or indirectly own approximately
681,210 shares, not including the additional 125,000 shares that our directors
may purchase in order for 715,000 shares to be sold in this offering, or 65.1%
of our outstanding stock. These persons may also acquire additional shares of
common stock after the offering, which could increase this percentage.
Additionally, our board members serve staggered three-year terms, which means
only one-third of our board members are elected each year at our annual meeting.
Consequently, it would take at least two years to replace a majority of our
board members. See "Description of Sun Bancshares' Capital Stock and
Shareholders' Rights" on page 50.
WE ARE AUTHORIZED TO ISSUE ADDITIONAL SHARES OF COMMON STOCK WHICH, IF ISSUED,
MAY DILUTE YOUR OWNERSHIP INTEREST.
Our articles of incorporation authorize us to issue up to 10,000,000
shares of common stock without the consent of our shareholders. If we issue
additional shares of common stock, your ownership interest in Sun Bancshares
could be significantly reduced. Additionally, the sale of any shares of common
stock may be at prices lower than, or on terms better than, the shares sold in
this offering.
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<PAGE> 12
WE ARE AUTHORIZED TO ISSUE SHARES OF PREFERRED STOCK WHICH, IF ISSUED, MAY
ADVERSELY AFFECT YOUR VOTING RIGHTS AND REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
We are authorized by our articles of incorporation to issue 2,000,000
shares of preferred stock without the consent of our shareholders. Preferred
stock, when issued, may rank senior to common stock with respect to voting
rights, payment of dividends and amounts received by shareholders upon
liquidation, dissolution or winding up. The existence of rights which are senior
to common stock may reduce the price of our shares of common stock. We do not
have any plans to issue any shares of preferred stock at this time. See
"Description of Sun Bancshares' Capital Stock and Shareholders' Rights" on page
50.
12
<PAGE> 13
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements concerning Sun
Bancshares and SunBank and their operations, performance, financial conditions
and likelihood of success. Forward-looking statements are based on many
assumptions and estimates and include statements about the competitiveness of
the banking industry, potential regulatory obligations, our business strategies
and other statements that are not historical facts. When used in this
prospectus, the words "may," "would," "could," "will," "expect," "anticipate,"
"believe," "intend," "plan" and "estimate," and similar expressions generally
identify forward-looking statements. Because forward-looking statements involve
risks and uncertainties that are beyond our control, our actual results may
differ materially from those expressed in the forward-looking statements. The
most significant of these risks, uncertainties and other factors are discussed
under the heading "Risk Factors" beginning on page 7 of this prospectus. We urge
you to carefully consider these factors prior to making an investment in our
common stock.
13
<PAGE> 14
USE OF PROCEEDS
We estimate that the net proceeds of the offering will be $6,627,000,
after deducting the estimated underwriting discount of $256,000 and estimated
organizational and offering expenses of $267,000, including the reimbursement of
estimated underwriter's expenses of $67,000. If the underwriter exercises its
over-allotment option in full, we estimate net proceeds of the offering will be
$7,619,063, after deducting the underwriting discount of $336,437 and
organizational and offering expenses of $267,000.
We have established a line of credit in the amount of $1,500,000 to pay
pre-offering organizational and pre-opening expenses of Sun Bancshares and
SunBank and pre-construction costs such as architectural and engineering fees
associated with the construction of our main office and branch office buildings.
We intend to pay off the entire line of credit with proceeds that we receive
from this offering. The following two sections describe our proposed use of the
proceeds based on our current plans and business conditions. The organizational
and pre-opening expenses and construction costs described below include amounts
that were paid prior to the close of the offering with the proceeds of our line
of credit.
USE OF PROCEEDS BY SUN BANCSHARES
The following table shows the anticipated use of the proceeds by Sun
Bancshares. As shown, we will use $6,500,000 to capitalize SunBank. Sun
Bancshares will purchase the capital stock of SunBank after Sun Bancshares
receives approval to become a bank holding company and SunBank receives final
regulatory approval to begin its operations. Until we receive those regulatory
approvals, we plan to invest the $6,500,000 in short-term, investment-grade
securities, certificates of deposit or guaranteed obligations of the United
States government. We will initially invest the remaining proceeds of the
offering, including any additional amounts received as a result of the
underwriter's exercise of its over-allotment option, in United States
governmental securities or deposit them with SunBank. In the long-term, we will
use the remaining proceeds for operational expenses and other general corporate
purposes, including the provision of additional capital to SunBank, if
necessary. If the underwriter exercises its over-allotment option, the amount of
Sun Bancshares remaining proceeds shown below will be increased by up to
$992,063.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Gross proceeds from offering................................ $7,150,000
Underwriter's discount...................................... $ 256,000
Expense of organizing Sun Bancshares........................ $ 50,000
Expense of offering......................................... $ 217,000
Investment in capital stock of SunBank...................... $6,500,000
----------
Remaining proceeds.......................................... $ 127,000
==========
</TABLE>
Currently, our organizers, directors and executive officers intend to
purchase an aggregate of at least 349,110 shares of common stock in this
offering. However, our directors may purchase up to an aggregate of 125,000
additional shares in order for 715,000 shares to be sold in this offering.
Because we will pay no underwriting discount on shares sold to our organizers,
directors and executive officers, the remaining net proceeds reflected above may
increase by up to $93,750 if the directors purchase these additional shares.
This increase would not change our use of the remaining proceeds as described
above.
14
<PAGE> 15
USE OF PROCEEDS BY SUNBANK
SunBank intends to use the $6,500,000 capital it will receive from the
sale of its common stock to Sun Bancshares for the following purposes:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Investment by Sun Bancshares in SunBank's capital stock..... $6,500,000
Organizational and pre-opening expenses..................... $ 614,000
Construction of the main and branch office buildings........ $2,100,000
Purchase of temporary modular facility...................... $ 90,000
Furniture, fixtures and equipment for the main and branch
offices................................................... $ 805,000
----------
Remaining proceeds.......................................... $2,891,000
==========
</TABLE>
We will use the remaining proceeds to make loans, purchase securities and
otherwise conduct the business of SunBank.
15
<PAGE> 16
CAPITALIZATION
The following table shows Sun Bancshares' capitalization as of June 30,
2000 and its pro forma consolidated capitalization, as adjusted to give effect
to the receipt of the net proceeds from the sale of 715,000 shares of common
stock in this offering.
Upon Sun Bancshares' incorporation, Dalton B. Floyd, Jr., chairman of the
board and chief executive officer of Sun Bancshares, purchased one share of
common stock at the price of $10.00. Sun Bancshares will redeem this share for
$10.00 upon the issuance of shares in this offering. The number of shares shown
as outstanding after giving effect to the offering, and the book value of those
shares, do not include shares of common stock issuable upon the exercise of the
warrants or pursuant to options that may be granted under Sun Bancshares' stock
incentive plan. For additional information regarding the number and terms of
these warrants and options, see "Executive Compensation - Organizers' Warrants"
and "- Stock Incentive Plan" on pages 38 and 39.
The "As Adjusted" column reflects estimated offering expenses and the
estimated cost of organizing Sun Bancshares and organizing and preparing to open
SunBank through the expected opening date, which should be in the fourth quarter
of 2000. See "Use of Proceeds" on page 14.
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING
--------- ----------------
<S> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, par value not stated; 10,000,000 shares
authorized; 1 share issued ($10.00) and outstanding;
715,000 shares issued ($10.00 each) and outstanding
as adjusted......................................... $ 10 $6,677,000
Preferred stock, par value not stated; 2,000,000
shares authorized, no shares issued and
outstanding......................................... 0 0
Deficit accumulated during the pre-opening stage...... (398,824) (664,000)
--------- ----------
Total shareholders' equity............................ $(398,814) $6,013,000
========= ==========
Book value per share.................................. N/A $ 8.41
==========
</TABLE>
DIVIDENDS
Initially, we intend to retain all of our earnings to support our
operations and to expand our business. Additionally, both Sun Bancshares and
SunBank are subject to significant regulatory restrictions on the payment of
cash dividends. In light of these restrictions and the need for Sun Bancshares
and SunBank to retain and build capital, we do not plan to pay dividends until
we become profitable and recover any losses incurred during our initial
operations. Our payment of future dividends and dividend policy will depend on
the earnings, capital requirements and financial condition of Sun Bancshares and
SunBank and on other factors that our board of directors considers relevant. See
"Supervision and Regulation - Payment of Dividends" on page 47.
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<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS
Sun Bancshares' financial statements and related notes, which are included
in this prospectus, provide additional information relating to the following
discussion of its financial condition. See "Index to Financial Statements" on
page F-1.
Sun Bancshares was organized on August 3, 1999 to serve as a holding
company for SunBank, N.A., a national bank in organization. Since it was
organized, Sun Bancshares' main activities have been:
- seeking, interviewing and selecting its officers;
- applying for a national bank charter;
- applying for FDIC deposit insurance;
- applying to become a bank holding company;
- preparing detailed business plans;
- identifying sites for our banking facilities; and
- raising equity capital through this offering.
FINANCIAL RESULTS
From August 3, 1999 to June 30, 2000, the net loss amounted to $398,824.
The estimated net loss for the period from August 3, 1999 through November 13,
2000, the anticipated opening date of SunBank, is $664,000, which is
attributable to the following estimated noninterest expenses:
<TABLE>
<S> <C>
Salaries and benefits....................................... $328,350
Legal and professional fees................................. 136,000
Other pre-opening expenses.................................. 199,650
--------
Total............................................. $664,000
========
</TABLE>
LINE OF CREDIT
We have obtained a line of credit from The Bankers Bank, Atlanta, Georgia
for $1,500,000 to fund our operations from August 3, 1999 through the close of
the offering and to fund pre-construction costs associated with the construction
of our main office and branch office buildings. At December 31, 1999, $250,000
was outstanding on the line of credit, and at June 30, 2000 approximately
$775,000 was outstanding and $725,000 was available on the line of credit. The
line of credit has been guaranteed by the organizers, bears interest at the
prime rate as published in the Money Rates section of The Wall Street Journal
minus 1/2%, and is due on November 30, 2000. The initial interest rate on the
line of credit was 7.5% as of July 30, 1999 and currently bears interest at
9.00%.
OFFICES AND FACILITIES
We are leasing the land for the sites of our permanent main and branch
offices. On May 1, 2000, we entered into a lease agreement for our main office
site and into a lease agreement for our branch office site. The lease agreement
for our main office site is subject to approval by the FDIC. The significant
terms of these leases are described in the table below.
<TABLE>
<CAPTION>
LEASE DATE INITIAL RENT INITIAL TERM RENEWAL OPTIONS
----------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
Main Office Site..... May 1, 2000 $7,500 per month 25 Years Up to 15 Years
Branch Site.......... May 1, 2000 $55,000 per year 30 Years Up to 20 Years
</TABLE>
We pay rent in advance on a monthly basis for our main office site and on
a yearly basis for our branch office site. The rental rates for both of these
leases are subject to adjustment based on inflation. Additionally, each of the
leases calls for us to pay taxes, insurance and repairs on the leased
properties.
We intend to begin our banking operations in the fourth quarter of 2000 in
a temporary main office facility. We have purchased a temporary modular facility
to be used as our main office until our
17
<PAGE> 18
permanent main office is completed. The purchase price of the modular facility
was approximately $90,000, and it is located approximately one-tenth of a mile
from the site for our permanent main office. We are leasing the site for the
temporary main office on a month-to-month basis at a monthly rental rate of
$2,000. After the completion of this offering, we also plan to lease temporary
office space in Georgetown, where our Georgetown city manager will be located
until the construction of the branch is complete. We will not provide branch
banking services from this temporary office, but will use this location to
establish a market presence in Georgetown and to allow our city manager to begin
recruiting employees and developing business. We plan to complete construction
of the main office in the fourth quarter of 2001 and the branch office in the
second quarter of 2001. SunBank will fund the construction of the main and
branch office buildings with a portion of the capital that it receives from Sun
Bancshares after the close of this offering.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Since Sun Bancshares is in the organizational stage, there are no results
to present at this time. Nevertheless, once SunBank begins operations, net
interest income, Sun Bancshares' primary source of earnings, will fluctuate with
significant interest rate movements. To lessen the impact of these margin
swings, we intend to structure the balance sheet so that repricing opportunities
exist for both assets and liabilities in roughly equal amounts at approximately
the same time intervals. Imbalance in these repricing opportunities at any point
in time creates interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to change in market interest rates. The rate sensitive
position, or gap, is the difference in the volume of rate sensitive assets and
liabilities at a given time interval. The general objective of gap management is
to actively manage rate sensitive assets and liabilities in order to reduce the
impact of interest rate fluctuations on net interest income. We will generally
attempt to maintain a balance between rate sensitive assets and liabilities as
the exposure period is lengthened to minimize SunBank's overall interest rate
risks.
We will evaluate regularly the balance sheet's asset mix in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. To manage effectively the balance sheet's liability mix, we plan to
focus on expanding our deposit base and converting assets to cash as necessary.
As SunBank grows, we will continuously structure its rate sensitivity
position in an effort to hedge against rapidly rising or falling interest rates.
SunBank's Asset and Liability Management Committee will meet on a quarterly
basis to develop a strategy for the upcoming period.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. We can obtain these funds by converting assets to cash or by
attracting new deposits. SunBank's ability to maintain and increase deposits
will serve as its primary source of liquidity.
We know of no trends, demands, commitments, events or uncertainties that
should result in, or are reasonably likely to result in, Sun Bancshares'
liquidity increasing or decreasing in any material way in the foreseeable
future, other than this offering.
CAPITAL ADEQUACY
Capital adequacy for banks and bank holding companies is regulated by the
Office of the Comptroller of the Currency, the Federal Reserve and the FDIC. The
primary measures of capital adequacy for banks and bank holding companies are
(1) risk-based capital guidelines and (2) the leverage ratio. Changes in these
guidelines or our levels of capital can affect our ability to expand and pay
dividends. See "Supervision and Regulation - Capital Adequacy" on page 47.
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<PAGE> 19
After we open SunBank, we plan to develop our loan portfolio and our
deposit base. Based on our anticipated level of growth, we believe the net
proceeds of this offering will satisfy our cash and regulatory capital
requirements for at least the twelve months following this offering.
Accordingly, we do not anticipate that it will be necessary to raise additional
funds to operate Sun Bancshares or SunBank over the next twelve months. For
additional information about planned expenditures, see "Use of Proceeds" on page
14, and for additional information about our plan of operations, see "Proposed
Business" on page 20.
19
<PAGE> 20
PROPOSED BUSINESS
BACKGROUND
Sun Bancshares. We incorporated Sun Bancshares as a South Carolina
corporation on August 3, 1999 to serve as a bank holding company that will hold
100% of the capital stock of SunBank, a new national bank in organization. Sun
Bancshares plans to use $6.5 million of the net proceeds of this offering to
purchase the capital stock of SunBank. Initially, we will have no business
operations other than owning and managing SunBank. We will apply to the Federal
Reserve for approval to become a bank holding company. We have chosen this
holding company structure because we believe it will provide flexibility that
would not otherwise be available. For example, with a holding company structure,
we may assist SunBank in maintaining its required capital ratios by borrowing
money and contributing the proceeds of that debt to SunBank as primary capital.
SunBank. SunBank is a national bank in organization that plans to engage
in general commercial and consumer banking. On November 17, 1999, we filed an
application with the Office of the Comptroller of the Currency to organize
SunBank in Murrells Inlet, South Carolina with a branch office in Georgetown,
South Carolina. On the same day, we also filed an application with the FDIC to
obtain insurance for SunBank's deposits. We have received preliminary
conditional approval of our application to the Office of the Comptroller of the
Currency. Final approval of this application is conditioned upon our raising the
required minimum capital, receipt of FDIC approval, and the implementation of
proper bank regulatory policies and procedures. During the first three years of
our operations, we must give the Office of the Comptroller of the Currency
thirty days prior written notice of any intention to significantly deviate from
the operating plan we filed as part of our application. Subject to receiving
final regulatory approvals from these agencies, we plan to open SunBank in the
fourth quarter of 2000.
OUR MARKET
The coastal region of South Carolina's Horry and Georgetown Counties is
often called the "Grand Strand." The Grand Strand stretches approximately 60
miles from the North Carolina-South Carolina border at Little River south along
the "Waccamaw Neck" to Georgetown, and is best known for its largest city,
Myrtle Beach. In April 1995, American Demographics ranked Myrtle Beach as the
second fastest growing metropolitan area in both projected annual population
growth and projected employment growth from 1995-2005.
As reported by the American Automobile Association, the Grand Strand is
the second busiest vacation destination in the nation, drawing more than 10
million visitors each year to its beaches, entertainment attractions and more
than 100 golf courses. According to the Myrtle Beach Area Chamber of Commerce,
the direct economic impact of tourism along the Grand Strand was $2.6 billion in
1997, and direct and indirect economic expenditures totaled $5.1 billion, or
more than 35% of South Carolina's total travel and tourism revenue. According to
a recent Waccamaw Regional Council study, for the ten-year period from 2000 to
2010, the annual combined tourist population for Georgetown and Horry Counties
is expected to increase more than 27% from an estimated 10,372,958 to an
estimated 13,227,640.
The region has also become a popular spot for retirees. In recent years,
the Grand Strand was mentioned in The Wall Street Journal as one of the top
spots in America for retirement, and Money magazine rated it as one of the top
20 places to retire in America. The number of persons over the age of 65 living
along the Grand Strand has grown more than 300% from 1970 to 1996, and now
accounts for approximately 13% of the combined resident population of Georgetown
and Horry Counties.
The region's tourism, hospitality, retail and entertainment base is
supported by a substantial construction and real estate development industry.
Georgetown and Horry Counties also have a sizeable manufacturing and industrial
base. Major industrial employers include AVX Corporation, Conbraco Industries,
Inc., International Paper Company, Georgetown Steel Corporation and Superior
Manufacturing. The healthcare sector is represented by Grand Strand Regional
Medical Center, Conway Hospital and
20
<PAGE> 21
Georgetown Memorial Hospital, and centers for higher education include Coastal
Carolina University and Horry-Georgetown Technical College.
According to a 1997 population and economic study performed by the
Waccamaw Regional Planning and Development Council, over the period 1990 to
1995, the population of Horry County increased 20.5% from 145,300 to 175,100.
Over the same period, the population of Georgetown County increased 11.2% from
46,500 to 51,700. Additionally, the population of Horry County is expected to
grow 41.5% from an estimated 209,200 to 296,000 over the ten-year period from
2000 to 2010, and the population of Georgetown County is expected to grow 21.6%
from an estimated 57,000 to 69,300 over the same period. Also, the growth rate
of median income per family in Georgetown and Horry Counties from 1990 to 1995
outpaced the growth rate for the state of South Carolina as well as for the
United States.
OUR PRIMARY SERVICE AREA
Our primary service area for SunBank will include southern Horry County
and most of Georgetown County. This area, commonly referred to as the "South
Strand" or "Waccamaw Neck," encompasses the coastal communities south of Myrtle
Beach, including Socastee, Surfside Beach, Garden City Beach, Murrells Inlet,
Litchfield Beach, Pawleys Island, DeBordieu and Georgetown. We expect initially
to draw a large percentage of our business from the areas immediately
surrounding the communities of Murrells Inlet and Georgetown, the locations of
our planned main office and branch office.
We believe that our chosen communities will benefit greatly from the
continuing growth of the Grand Strand, particularly as available real estate and
development opportunities to the north of Myrtle Beach become more scarce.
Growth in our communities is evidenced not only through the population growth,
but also through increases in new businesses, new golf course communities,
residential building permits, commercial construction and the influx of
additional medical services and other public infrastructure projects. Some
examples include a new 40-bed hospital in Murrells Inlet, new post offices in
Pawleys Island, Murrells Inlet and Socastee, a new middle school between
Murrells Inlet and Pawleys Island, an expansion of Horry-Georgetown Technical
College and the development of an approximately 1,200-acre residential community
near Georgetown.
MANAGEMENT PHILOSOPHY AND BUSINESS STRATEGY
Through our localized management and ownership we believe we will be
uniquely situated to provide responsive service and quality financial products
that are tailored to meet the needs of the individuals and small- to
medium-sized businesses located throughout the Waccamaw Neck. We believe that
local ownership and control will allow SunBank to serve customers more
efficiently and will aid in SunBank's growth and success. Our motto at SunBank
will be "Your community . . . Your bank." We believe the community will embrace
and support our concept of community banking. Additionally, we believe that the
expansion and growth of SunBank's operations will be a significant factor in Sun
Bancshares' success.
Although size gives larger banks advantages in competing for business from
large corporations, including higher lending limits and the ability to offer
services in other geographic areas, we believe that there is a void in the
community banking market in the Georgetown/Horry County area and that we can
successfully help fill this void. We will not compete with large institutions
for the primary banking relationships of large corporations, but will compete
for niches in this business and for the consumer business of their employees. We
will also focus on small- to medium-sized businesses and their employees. This
includes retail, service, wholesale distribution, manufacturing and
international businesses. We intend to attract these businesses based on
relationships and contacts which the bank's directors and management have within
and beyond our primary service area. In order to achieve the level of prompt,
responsive service that we believe will be necessary to attract customers and to
develop SunBank's image as a local bank with an individual focus, we will employ
the following strategies:
- Experienced Senior Management. We have assembled a senior management
team that possesses extensive experience in the banking industry as
well as substantial business and
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<PAGE> 22
banking contacts in our target market. For example, SunBank's president
and chief executive officer, Thomas Bouchette, has over 13 years of
banking and lending experience, our chief financial officer, Randy L.
Carmon, has over 21 years of finance and bank operations experience,
our senior lender, John L. Truelove has over 20 years of banking and
lending experience, and our Georgetown area executive, Lynn Wood
Wilson, has over 20 years of banking experience. See "Management" on
page 29.
- Quality Employees. We will strive to hire experienced staff who
appreciate our emphasis on professionalism and customer service and who
have established significant customer relationships through prior
banking experience. By hiring employees with established customer
relationships, SunBank may be able to grow more rapidly than it would
if it were to hire employees who would require time to develop a
customer base. We plan to train the staff to answer questions about all
of our products and services so that the first employee the customer
encounters can resolve their questions. We are committed to hiring
experienced and qualified staff, although this may result in higher
initial personnel costs than are typically experienced by similar
financial institutions.
- Community-Oriented Board of Directors. Our board of directors consists
of long-time residents of the Georgetown/Horry County area who
represent SunBank's target markets and will be sensitive and responsive
to the needs of the community. Additionally, our board of directors
represents a wide array of business experience and community
involvement. We expect that the directors will bring substantial
business and banking contacts to SunBank as a result of their
experience, involvement and community standing.
- Community Involvement. SunBank plans to be an active participant in
and supporter of community organizations and activities that promote
economic development and charitable and social causes. Currently, all
of our officers and directors are active in the Georgetown/Horry County
communities, and we intend to encourage other employees to become
involved in the community.
- Highly Visible Locations. SunBank's proposed main office and branch
locations are highly visible and near high concentrations of our
targeted commercial business and residential customers. We believe this
will enhance SunBank's image as a strong competitor in the local
banking community. SunBank will construct a main office building with
sufficient room to allow for future expansion. The size of our proposed
main office will allow for additional loan officers and for expansion
of our operations to include new products and services. In addition to
our Georgetown branch, in the future, we will consider adding
additional branches in other strategic locations, as appropriate. Any
additional branches will provide us with new channels through which we
can build our deposit and loan base, solicit new customers and better
serve existing customers with more convenient banking services.
- Individual Customer Focus. SunBank will focus on providing
individualized service and attention to our target customers, which
include individuals and small- to medium-sized businesses. We will
concentrate on establishing and maintaining long-term customer
relationships. As our employees, officers and directors develop
relationships with our customers, we will be able to respond to credit
requests more quickly and be more flexible in approving loans based on
collateral quality and personal knowledge of the customer's banking
needs. To facilitate the development of new customer relationships, we
intend to implement an active officer and director call program. The
purpose of this call program will be to personally visit prospective
customers at their places of business and describe SunBank's products,
services and philosophy.
- Local Decision Making. We want our customers to enjoy a professional
bank environment with access to their specific bank officer. We will
emphasize local decision-making with experienced bankers, a focus on
employee retention, and professional and responsive service. As SunBank
branches into other communities, we intend to maintain our policy of
making decisions locally and to utilize local advisory boards.
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<PAGE> 23
- Offer Customer-Focused Products and Services. SunBank's range of
services, pricing strategies, interest rates paid and charged, and
hours of operation will be structured to attract our target customers
and establish and grow our market share. SunBank will strive to offer
small businesses, professionals, entrepreneurs and consumers the best
loan services available while charging appropriate fees for these and
other services. We will also use technology and engage third-party
service providers to perform basic operational functions at a lower
cost than we might provide directly.
LENDING SERVICES
Lending Policy. We will offer a full range of lending products, including
commercial, real estate and consumer loans to individuals and small- and
medium-sized businesses and professional concerns. We will compete for these
loans with competitors who are well established in the Georgetown/Horry County
area and have greater resources and lending limits. As a result, we may have to
charge lower interest rates to attract borrowers.
SunBank intends to maintain a balanced loan portfolio. Our target loan mix
will be 35% commercial loans, 25% real estate loans, 20% consumer loans and 20%
residential mortgage loans. Based on our executive officers' past lending
experience, we believe that none of these categories represents a significantly
higher risk than the other. Additionally, SunBank plans to avoid concentrations
of loans to a single industry or based on a single type of collateral, although
we expect to offer a variety of products and services to our region's large
medical community.
Loan Approval and Review. SunBank's loan approval policies will provide
for various levels of officer lending authority. When the amount of total loans
to a single borrower exceeds that individual officer's lending authority, an
officer with a higher lending limit or SunBank's Loan Committee will determine
whether to approve the loan request. SunBank will not make any loans to any of
its directors or executive officers unless its board of directors approves the
loan, and the terms of the loan are no more favorable than would be available to
any other applicant.
Lending Limits. SunBank's lending activities will be subject to a variety
of lending limits imposed by federal law. Differing limits apply in certain
circumstances based on the type of loan or the nature of the borrower, including
the borrower's relationship to the bank. In general, however, SunBank will be
able to loan any one borrower a maximum amount equal to either:
- 15% of SunBank's capital and surplus; or
- 25% of its capital and surplus if the amount that exceeds 15% is fully
secured by readily marketable collateral.
Based on its proposed capitalization and projected pre-opening expenses,
SunBank's initial lending limit will be approximately $882,900 for loans not
fully secured plus an additional $588,600, or a total of approximately $1.5
million for loans fully secured by readily marketable collateral. Initially,
however, we intend to impose an internal lending limit of approximately $1.0
million, or 17%, of SunBank's capital for loans secured by readily marketable
collateral. These limits will increase or decrease as SunBank's capital
increases or decreases as a result of its earnings or losses, among other
reasons. SunBank will need to sell participations in its loans to other
financial institutions in order to meet all of the lending needs of loan
customers requiring extensions of credit above these limits.
Credit Risks. The principal economic risk associated with each category
of loans that SunBank expects to make is the creditworthiness of the borrower.
Borrower creditworthiness is affected by general economic conditions and the
strength of the relevant business market segment. General economic factors
affecting a borrower's ability to repay include interest, inflation and
employment rates, as well as other factors affecting a borrower's customers,
suppliers and employees.
The well established financial institutions in the Georgetown/Horry County
market are likely to make proportionately more loans to medium to large-sized
businesses than SunBank will make. Many of
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<PAGE> 24
SunBank's anticipated commercial loans will likely be made to small- to
medium-sized businesses that may be less able to withstand competitive, economic
and financial pressures than larger borrowers.
Commercial Loans. We expect that loans for commercial purposes in various
lines of businesses will be one of the primary components of SunBank's loan
portfolio. The terms of these loans will vary by purpose and by type of
underlying collateral, if any. SunBank will typically make equipment loans for a
term of five years or less at fixed or variable rates, with the loan fully
amortized over the term. Equipment loans generally will be secured by the
financed equipment, and the ratio of the loan principal to the value of the
financed equipment or other collateral will generally be 80% or less. Loans to
support working capital will typically have terms not exceeding one year and
will usually be secured by personal guarantees of the principals of the business
and accounts receivable and/or inventory. For loans secured by accounts
receivable or inventory, principal will typically be repaid as the assets
securing the loan are converted into cash, and for loans secured with other
types of collateral, principal will typically be due at maturity. The quality of
the commercial borrower's management and its ability both to properly evaluate
changes in the supply and demand characteristics affecting its markets for
products and services and to respond effectively to these changes are
significant factors in a commercial borrower's creditworthiness.
Real Estate Loans. SunBank will make commercial real estate loans,
construction and development loans, and residential real estate loans. These
loans may include certain commercial loans where SunBank takes a security
interest in real estate out of an abundance of caution and not as the principal
collateral for the loan, but will exclude home equity loans, which are
classified as consumer loans.
- Commercial Real Estate. Commercial real estate loan terms generally
will be limited to five years or less, although payments may be
structured on a longer amortization basis. Interest rates may be fixed
or adjustable, although rates will generally not be fixed for a period
exceeding 60 months. SunBank will generally charge an origination fee
from 0.5% to 1.0% on these loans. We will attempt to reduce credit risk
on our commercial real estate loans by emphasizing loans on
owner-occupied office and retail buildings where the ratio of the loan
principal to the value of the collateral, as established by independent
appraisal, does not exceed 80%, and net projected cash flow available
for debt service generally equals 120% of the debt service requirement.
In addition, SunBank will generally require personal guarantees from the
principal owners of the property supported by a review by SunBank's
management of the principal owners' personal financial statements. Risks
associated with commercial real estate loans include fluctuations in the
value of real estate, new job creation trends, tenant vacancy rates and
the quality of the borrower's management. SunBank will limit its risk by
analyzing borrowers' cash flow and collateral value on an ongoing basis.
SunBank will compete for real estate loans with competitors that are
well established in the Georgetown/Horry County market.
- Construction and Development Loans. Construction and development loans
will be made both on a pre-sold and speculative basis. If the borrower
has entered into an agreement to sell the property prior to beginning
construction, then the loan is considered to be on a pre-sold basis. If
the borrower has not entered into an agreement to sell the property
prior to beginning construction, then the loan is considered to be on a
speculative basis. Construction and development loans are generally made
with a term of nine to twelve months and interest is paid monthly or
quarterly. The ratio of the loan principal to the value of the
collateral as established by an independent appraisal generally will not
exceed 75%. Speculative loans will be based on the borrower's financial
strength and cash flow position. Normally, loan proceeds will be
disbursed based on the percentage of completion and only after the
project has been inspected by an experienced construction lender or
appraiser chosen by SunBank. Risks associated with construction loans
include fluctuations in the value of real estate and new job creation
trends.
- Residential Real Estate. SunBank's residential real estate loans will
consist of residential first and second mortgage loans and residential
construction loans. We will offer fixed and variable rates on our
mortgages with the amortization of first mortgages generally not to
exceed 15 years and the rates not to be fixed for over 60 months. These
loans will be made consistent with
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<PAGE> 25
SunBank's appraisal policy and with the ratio of the loan principal to
the value of collateral, as established by independent appraisal, not to
exceed 90%. We expect these loan to value ratios will be sufficient to
compensate for fluctuations in real estate market values and to minimize
losses that could result from a downturn in the residential real estate
market. SunBank plans to open a mortgage department to process home
loans within the first 12 months of operation, which will allow it to
originate long term mortgages to be sold on the secondary market.
SunBank intends to limit interest rate risk and credit risk on these
loans by locking in the interest rate for each loan with the secondary
market investor and receiving the investor's underwriting approval
before originating the loan.
Consumer Loans. SunBank will make a variety of loans to individuals for
personal, family and household purposes, including secured and unsecured
installment and term loans, home equity loans and lines of credit. Consumer loan
repayments depend upon the borrower's financial stability and are more likely to
be adversely affected by divorce, job loss, illness and personal hardships.
Because many consumer loans are secured by depreciable assets such as boats,
cars, and trailers, the loan should be amortized over the useful life of the
asset. To minimize the risk that the borrower cannot afford the monthly
payments, all fixed monthly obligations should not exceed 40% of the borrower's
gross monthly income. The borrower should also be continuously employed for at
least 12 months prior to obtaining the loan and an employee in good standing at
the time of the loan. The loan officer will review the borrower's past credit
history, past income level, debt history and, when applicable, cash flow and
determine the impact of all these factors on the ability of the borrower to make
future payments as agreed. We expect that the principal competitors for consumer
loans will be the established banks in the Georgetown/Horry County market.
Lending Officers. SunBank intends to initially hire at least one
commercial lender, one real estate lender and two consumer lenders in order to
develop its loan portfolios. Each lender will have experience within the
Georgetown/Horry County market and will be expected to bring substantial
contacts to SunBank.
INVESTMENTS
In addition to loans, SunBank will make other investments primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States and other taxable securities. No investment in any
of those instruments will exceed any applicable limitation imposed by law or
regulation. The Asset and Liability Management Committee will review the
investment portfolio on an ongoing basis in order to ensure that the investments
conform to SunBank's policy as set by the board of directors.
ASSET AND LIABILITY MANAGEMENT
The Asset and Liability Management Committee will manage SunBank's assets
and liabilities and will strive to provide a stable, optimized net interest
margin, a profitable after-tax return on assets and return on equity and
adequate liquidity. The committee will conduct these management functions within
the framework of written loan and investment policies that SunBank will adopt.
The committee will attempt to maintain a balanced position between rate
sensitive assets and rate sensitive liabilities. Specifically, it will chart
assets and liabilities on a matrix by maturity, effective duration and interest
adjustment period and attempt to manage any gaps in maturity ranges.
DEPOSIT SERVICES
SunBank will seek to establish a sound base of core deposits, including
checking accounts, money market accounts, savings accounts, a variety of
certificates of deposit and IRA accounts. To attract deposits, SunBank will
employ an aggressive marketing plan in the overall service area and feature a
broad product line and rates and services competitive with those offered in the
Georgetown/Horry County market. The primary sources of deposits will be
residents of, and businesses and their employees located in, the Waccamaw Neck
communities. SunBank plans to obtain these deposits through personal
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solicitation by its officers and directors, direct mail solicitations and
advertisements published in the local media.
OTHER BANKING SERVICES
Other anticipated bank services include cashier's checks, safe-deposit
boxes, travelers checks, bank by mail, direct deposit and U.S. Saving Bonds.
SunBank plans to associate with a shared network of automated teller machines
that its customers will be able to use throughout South Carolina and other
regions. We also plan to offer MasterCard(R) and VISA(R) credit card services
through a correspondent bank as an agent for SunBank. SunBank does not plan to
exercise trust powers during its initial year of operation. SunBank may in the
future offer a full-service trust department, but cannot do so without the prior
approval of the Office of the Comptroller of the Currency.
SunBank will also offer its targeted commercial customers a courier
service that will pick up non-cash deposits from the customer's place of
business and deliver them to the bank. We believe that this will be an important
convenience to our customers because SunBank will initially have only two
locations.
FUTURE SERVICES
We anticipate that, at some time in the future, we will also offer
discount brokerage and insurance services to our customers. We intend to delay
offering these services until both Sun Bancshares and SunBank are operating
profitably. We also plan to offer annuities, mutual funds and other financial
services through a third party that has not yet been chosen.
MARKETING AND ADVERTISING
SunBank's target customers will be the residents and the small- to
medium-sized businesses and their employees located in the Georgetown/Horry
County market.
We intend to develop our image as a community-oriented bank with an
emphasis on quality service and personal contact. We plan to use a targeted
marketing approach through local newspapers, radio advertisements during peak
driving times, direct mail campaigns and television spots, as necessary.
Additionally, we plan to sponsor community activities on an active, ongoing
basis. We have retained Brandon Advertising to coordinate our advertising and
marketing efforts.
Several of our directors and officers have developed business contacts
with numerous professionals within the medical service industry. Although we
intend to avoid concentrations to one industry, we intend to develop a niche in
providing banking services to these and other medical providers.
COMPETITION
The banking business is highly competitive. SunBank will compete with
other commercial banks, savings and loan associations, credit unions, money
market mutual funds and other financial institutions conducting business in the
Georgetown/Horry County market and elsewhere. According to information provided
by the FDIC as of June 30, 1999, the Georgetown/Horry County area was served by
25 banking and savings institutions with 18 offices in Georgetown County and 89
offices in Horry County. In aggregate, these institutions held over $3.2 billion
in local deposits as of June 30, 1999. A number of these competitors are well
established in the Georgetown/Horry County area.
Currently, no financial institution is headquartered in Murrells Inlet or
the City of Georgetown, and most of the institutions that have offices in our
primary service area are large national, super-regional or regional banks.
Additionally, on June 6, 2000, Anchor Financial Corporation, a regional bank
holding company headquartered in Myrtle Beach, South Carolina merged with The
South Financial Group, Inc., a regional bank holding company headquartered in
Greenville, South Carolina. We believe these types of mergers can diminish the
autonomy and community identity of local institutions, thereby creating more
demand for locally-owned and managed, community-oriented banks in our primary
market. We believe that larger banks often lack the consistency of local
leadership and decision-making authority necessary to
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<PAGE> 27
provide efficient service to individuals and small- to medium-sized business
customers. Through our local ownership and management, we believe we will be
uniquely situated to efficiently provide these customers with loan, deposit and
other financial products tailored to fit their specific needs.
Our competitors will include large national and super-regional banks like
Bank of America, Wachovia and BB&T, large regional banks like Carolina First
Bank, and local banks like Coastal Federal, Conway National Bank and Plantation
Federal. Many of these competitors are well established in the Georgetown/Horry
County area. Additionally, most of them have substantially greater resources and
lending limits than SunBank will have and provide other services, such as
extensive and established branch networks and trust services, that we either do
not expect to provide or will not provide initially. As a result of these
competitive factors, SunBank may have to offer more flexible pricing and terms
on its loans and deposits to attract borrowers.
INFORMATION SYSTEMS AND THE YEAR 2000
The year 2000 issue common to most corporations concerns the inability of
computer software and databases to recognize the year 2000 and other year
2000-sensitive dates such as February 29, 2000 or January 1, 2001. Since the
millennium change has already occurred and we do not intend to begin our banking
operations until the fourth quarter of 2000, we will not face the same date
recognition issues as other financial institutions that were in operation at
January 1, 2000. Sun Bancshares, SunBank, or any of their service providers,
correspondents, vendors or customers may, however, experience a disruption of
business resulting from a year 2000 problem occurring after January 1, 2000.
Year 2000 disruptions could cause a delay in beginning our banking operations
and could have an adverse effect on our financial performance.
To date, we have not experienced any disruptions to our organization
resulting from year 2000 problems, nor are we aware of any disruptions to the
business of any of our expected service providers, correspondents or vendors. We
believe most year 2000 issues which could affect our operations will have
surfaced prior to when we begin our banking operations. Consequently, we do not
expect any year 2000 issues to have a material effect on our operations.
EMPLOYEES
When it begins operations, SunBank will have approximately 16 full-time
employees. We do not expect that Sun Bancshares will have any employees who are
not also employees of SunBank.
FACILITIES
Main Office. SunBank's main office will be located at 4200 Highway 17
Bypass in Murrells Inlet, South Carolina in Georgetown County. Sun Bancshares is
leasing approximately 1.9 acres of land at this site at a monthly lease rate of
$7,500. The initial term of the land lease is 25 years with renewal options for
a total of 15 additional years. We plan to begin construction of our permanent
main office facility at this site in the first quarter of 2001, with the
completion anticipated in the fourth quarter of 2001. Our permanent main office
will be a two-story, traditional style building. The building will consist of
approximately 10,000 square feet and will include four drive-up lanes and one
ATM. We anticipate that this space will be sufficient to support our initial
operations and some expansion of our operations. The estimated construction
costs of the building total $1.5 million.
SunBank's proposed main office location offers high visibility in an area
with significant traffic, and is located within one-half mile of the main
shopping and retail area in Murrells Inlet. This area is the central location
for business, residential, commuting and shopping in Murrells Inlet and is on a
major highway serving the community.
We plan to begin our banking business in the fourth quarter of 2000 in a
temporary main office facility. We have purchased a temporary modular facility
to be used as our main office until our permanent main office is completed. The
purchase price of the modular facility was approximately $90,000, and it is
located one-tenth of a mile from the site for the permanent main office.
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Branch Office. We intend to open a branch office located at 1134 North
Fraser Street in Georgetown, South Carolina. We are leasing approximately 1.1
acres of land at this site at a yearly lease rate of $55,000. The initial term
of the land lease is 30 years with renewal options for a total of 20 additional
years. We plan to begin construction of the branch office in the fourth quarter
of 2000 and expect the construction to be complete in the second quarter of
2001. The branch office will be a one story, traditional style building,
consisting of approximately 5,000 square feet, three drive-up windows and one
ATM. The estimated construction costs of the building total $600,000.
During the construction of our permanent branch office, we intend to lease
temporary office space in Georgetown. We will not provide branch banking
services from this office, but will use this location to establish a market
presence in Georgetown and to allow our city manager to begin recruiting
employees and developing business. All business developed at this office prior
to the opening of the permanent branch office will be recorded at the main
office.
SunBank's proposed branch office location is on a corner lot in a planned
unit development. The branch office is in a high growth area in Georgetown. A
new Wal-Mart Super Center recently opened three-tenths of a mile north of the
site and a new 21,000 square foot post office recently opened within one-fifth
of a mile from the site. Additionally, the Georgetown Hospital and most of the
medical service providers within the area are located within a two-mile radius
of the site.
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MANAGEMENT
GENERAL
The following table sets forth the minimum number and percentage of
outstanding shares of common stock we expect to be beneficially owned by our
directors and executive officers after the completion of this offering. The
addresses of our directors and executive officers are the same as the address of
Sun Bancshares. Prior to the offering, Dalton B. Floyd, Jr. purchased one share
of common stock for $10.00 per share. We will redeem this share after the
offering. The numbers of shares indicated in the table are based on "beneficial
ownership" concepts as defined by the Securities and Exchange Commission.
Beneficial ownership includes shares owned by spouses, minor children and other
relatives residing in the same household, and trusts, partnerships, corporations
or deferred compensation plans which are affiliated with the principal. This
table does not reflect warrants that will be granted to each director to
purchase one share of common stock for each share of common stock purchased by
the director in this offering because these warrants will not be exercisable
within 60 days of the date of this prospectus.
<TABLE>
<CAPTION>
SHARES ANTICIPATED TO BE OWNED
FOLLOWING THE OFFERING
------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ ------- -------
<S> <C> <C>
DIRECTORS:
Thomas Bouchette 11,500 1.6%
Edsel J. ("Coupe") DeVille 15,500 2.2%
John S. Divine, III 27,500 3.8%
Dalton B. Floyd, Jr. 30,200 4.2%
Jeanne Louise Fourrier-Eggart 29,210 4.1%
David E. Grabeman 22,500 3.1%
Richard Edwin Heath 10,000 1.4%
Paul John Hletko 27,500 3.8%
Judy B. Long 15,200 2.1%
Georgie B. Martin 24,000 3.4%
Thomas O. Morris, Jr. 25,000 3.5%
Joel A. Pellicci 20,000 2.8%
Donald E. Perry 20,000 2.8%
Chandler C. Prosser 30,000 4.2%
Larry N. Prosser 30,000 4.2%
EXECUTIVE OFFICERS WHO ARE
NOT ALSO DIRECTORS:
Randy L. Carmon 1,000 *
------- ----
All Directors and Executive Officers as a
Group (16 persons) 339,110 47.4%
</TABLE>
---------------
* Represents ownership of less than 1.0%.
In addition to the shares listed in the table above, our directors may
purchase up to an aggregate of 125,000 additional shares of common stock in
order for 715,000 shares to be sold in this offering. If the directors were to
purchase the 125,000 additional shares, the number and percentage ownership
following the offering for all directors and executive officers as a group would
be 464,110 shares and 64.9%.
In addition to the individuals listed in the table above, Gary L. Schaal,
an organizer of Sun Bancshares, intends to purchase 10,000 shares, or 1.4%, of
our common stock in this offering and will receive a warrant to purchase an
additional 5,000 shares. We have also identified 16 proposed advisory board
members, whom we expect will purchase an aggregate of approximately 46,044
shares, or
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<PAGE> 30
6.4%, of our common stock in this offering. Our advisory board members will not
receive warrants to purchase additional shares.
The shares of common stock that our organizers, directors and executive
officers intend to purchase were not offered or sold to the organizers,
directors or executive officers prior to the date that we filed the registration
statement covering these shares. Additionally, under regulations and policies of
the OCC, our organizers were required to disclose in SunBank's charter
application the number and percentage of shares that each organizer, director or
executive officer is expected to purchase in the offering.
DIRECTORS AND EXECUTIVE OFFICERS OF SUN BANCSHARES
The following table sets forth the ages as of January 1, 2000 of our
directors and executive officers and the positions that they hold with Sun
Bancshares. Each person listed below as a director has served as a director of
Sun Bancshares since August 30, 1999, except for Ms. Martin, who has served as a
director since September 9, 2000. Both our president and chief executive officer
have served us in these capacities since August 30, 1999, and our chief
financial officer has served us since January 3, 2000. The directors of Sun
Bancshares will hold these same positions with SunBank. Sun Bancshares' articles
of incorporation provide for a staggered board of directors so that, as nearly
as possible, one-third of the directors are elected each year to serve
three-year terms. The terms of office of the classes of directors expire as
follows:
- Class I at the first annual meeting of shareholders, which we intend to
hold in the spring of 2001,
- Class II at the second annual meeting of shareholders, and
- Class III at the third annual meeting of shareholders.
Our executive officers serve at the discretion of the board of directors.
See "Description of Sun Bancshares' Capital Stock and Shareholders' Rights" on
page 50.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH SUN BANCSHARES
---- --- ----------------------------
<S> <C> <C>
CLASS I DIRECTORS:
Thomas Bouchette 41 President and Director
Edsel J. ("Coupe") DeVille 61 Director
John S. Divine, III 62 Director
Dalton B. Floyd, Jr. 61 Chairman of the Board of Directors and
Chief Executive Officer
Jeanne Louise Fourrier-Eggart 46 Director
CLASS II DIRECTORS:
David E. Grabeman 46 Director
Richard Edwin Heath 52 Director
Paul John Hletko 53 Director
Judy B. Long 48 Director
Thomas O. Morris, Jr. 50 Director
CLASS III DIRECTORS:
Georgie B. Martin 57 Director
Joel A. Pellicci 56 Director
Donald E. Perry 59 Director
Chandler C. Prosser 32 Director
Larry N. Prosser 53 Director
OTHER EXECUTIVE OFFICERS:
Randy L. Carmon 44 Chief Financial Officer
</TABLE>
The directors of Sun Bancshares will also serve as directors of SunBank.
Ms. Martin's service as a director of SunBank is subject to regulatory approval
because she did not join our organizational efforts until September, 2000. Each
of SunBank's initial directors will serve until SunBank's first shareholders
meeting, which will convene shortly after SunBank receives its charter. Sun
Bancshares, as the sole
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shareholder of SunBank, will nominate each proposed director to serve as
director of SunBank at that meeting. After the first shareholders meeting,
directors of SunBank will serve for a term of one year and will be elected by
Sun Bancshares each year at SunBank's annual meeting of shareholders. SunBank's
officers will be appointed by its board of directors and will hold office at the
will of its board. The initial officers of SunBank will be:
<TABLE>
<CAPTION>
NAME POSITION WITH SUNBANK
---- ---------------------
<S> <C>
Thomas Bouchette President and Chief Executive Officer
Randy L. Carmon Chief Financial Officer
John L. Truelove Senior Lending Officer
Lynn Wood Wilson Vice President, Georgetown Area Executive
Officer
</TABLE>
The following is a biographical summary of each of Sun Bancshares' and
SunBank's directors, executive officers, other officers, and an organizer who
will not serve as a director:
DIRECTORS OF SUN BANCSHARES AND SUNBANK
Thomas Bouchette. Mr. Bouchette has over thirteen years of banking
experience with five years of experience within the Georgetown/Horry County
area. Prior to when Mr. Bouchette began participating in the efforts to organize
Sun Bancshares and SunBank, from August 1997 until June 1999, he served as chief
credit officer and executive vice president of The Citizens Bank, Olanta, South
Carolina. While in this position, Mr. Bouchette was responsible for all lending
activities and management of the branch operations, including developing new
lending products, fostering the sales culture and implementing a disciplined
approach to underwriting and credit administration. From 1989 until 1997, Mr.
Bouchette served in various lending positions with Wachovia Bank, culminating in
his position as vice president and business banking executive for the Myrtle
Beach market including Horry, Georgetown, Dillon and Marion Counties. From 1987
until 1989, Mr. Bouchette served Pee Dee Farm Credit Banks in various capacities
including lending officer and vice president. Mr. Bouchette is an active member
and has held leadership roles in numerous civic organizations including a member
of the board of directors of the Georgetown County Chamber of Commerce,
treasurer and director of the Pee Dee Chapter of the Bank Administration
Institute, and member of the board of directors of the Pawleys Island and
Litchfield Business Association and the local Robert Morris Associates chapter
and member of the Pawleys Island Rotary Club.
Edsel J. ("Coupe") Deville. Currently, Mr. DeVille is the director of
community development for Commercial Landtec, Corp., which is a commercial real
estate firm. From 1995 until 1997, Mr. DeVille served on the Myrtle Beach
advisory board of First National South Bank, which was acquired during 1999 by
Anchor Bank. He served as a sales associate for Chicora Real Estate from 1994
until 1996 and has held a real estate license since 1994. Mr. DeVille served as
a fighter pilot in the United States Air Force from 1961 until 1989. When Mr.
DeVille retired from the Air Force in 1989 he was the base commander of the
Myrtle Beach Air Force Base with responsibility for over 7,500 enlisted, officer
and civilian personnel. He received a Masters of Science in administration
degree from Georgia College in 1976 and a Bachelor of Science in Industrial
Technology degree from Louisiana State University in 1961. Mr. DeVille currently
holds a commercial pilot license. Currently, Mr. DeVille represents Horry County
on the Partners Economic Development Commission. Mr. DeVille has also been
active in or held a leadership role in the Horry County March of Dimes Walk
America, Horry County Crime Stoppers, the South Carolina Commission on Aging,
the Surfside Area Business and Professional Organization, the Surfside Area
Rotary Club and the Myrtle Beach Area Chamber of Commerce. He has also served on
the South Carolina Aeronautics Commission, the South Carolina Defense Base
Development Commission and the Horry County Director of Airports Advisory
Committee.
John S. Divine, III. Since 1986, Mr. Divine has been a co-owner of Divine
Holdings, LLC, which invests in rental properties, secured mortgages and stocks.
Since 1971, he has been a co-owner of Divine Restaurant, Inc., which owns and
operates 15 restaurants in the Grand Strand area including Longhorn, Bovines and
Divine Fish House. Currently, Mr. Divine holds a 66.2% ownership interest in
Divine Holdings, LLC and a 75% ownership interest in Divine Restaurants, Inc.
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Dalton B. Floyd, Jr. Mr. Floyd has been an attorney in South Carolina
since 1963 and has been the sole owner of the Floyd Law Firm PC since 1974. Mr.
Floyd received a Bachelor of Science in Business Administration from the
University of South Carolina in 1960 and a Juris Doctorate, cum laude, from the
University of South Carolina School of Law in 1963. Mr. Floyd served as an
officer and director of, and general counsel to, Waccamaw State Bank in Surfside
Beach from 1980 to 1987 and Patriot Federal Savings & Loan Association in Lake
City from 1978 to 1982. Additionally, he served on the Myrtle Beach advisory
boards of First National South Bank from 1996 to 1998 and the Lake City advisory
board of Palmetto State Bank from 1982 to 1984. Mr. Floyd is also an owner or
partner in several other businesses which primarily invest in or develop
commercial real estate. Mr. Floyd is currently vice chairman of the South
Carolina Higher Education Commission. Mr. Floyd has held leadership roles in the
South Carolina Bar Association and the American Bar Association and has served
as a director of the Wachesaw Plantation Club, the Lake City Country Club, Inc.,
the Lake City Rotary Club, the Surfside Rotary Club and the Horry County
Business Coalition.
Jeanne Louise Fourrier-Eggart. Dr. Fourrier-Eggart has practiced as a
periodontist since 1980. She began private practice in Louisiana in 1982 and
moved her practice to the Georgetown County area in 1984. Dr. Fourrier-Eggart
received a Bachelors of Science in Dental Hygiene in 1976 and a Doctorate of
Dentistry in 1980 from the Louisiana State University School of Dentistry. In
1982, she received a Masters in Health Sciences and Certificate of Periodontics
from the Medical University of South Carolina. Dr. Fourrier-Eggart served on the
Myrtle Beach advisory board of First National South Bank from 1996 until 1998.
Dr. Fourrier-Eggart has been involved in numerous community programs which focus
on promoting dental hygiene and providing dental care for underprivileged
children and adults of the community. Additionally, she has been on three
medical and dental mission trips to Haiti where she has participated in
organizing a permanent mission outreach for dental care on the Island of
LaGanove, Haiti and training other dental healthcare providers for work in the
mission outreach. Dr. Fourrier-Eggart has also served as a "Just Say No" program
leader in several schools throughout the community.
David E. Grabeman. Dr. Grabeman has practiced general dentistry in
Georgetown, South Carolina since 1979, and he has been the sole owner of a
private dentistry practice in Georgetown since 1983. Dr. Grabeman received a
Bachelor of Science from Furman University in 1975, a Doctorate of Dentistry
from the Ohio State University in 1978 and completed a year General Practice
Residency at the Medical College of Ohio in 1979. He is an active participant in
the community and currently serves on the advisory board of the Georgetown
County Citizens for Life and is the president of the board of directors at the
Low Country Day School. In the past, Dr. Grabeman has been a member of the
Georgetown Jaycees, the Downtown Georgetown Revitalization Association and the
Andrews Rotary Club.
Richard Edwin Heath. Mr. Heath is a Certified Public Accountant and a
certified valuation analyst. Since 1991, Mr. Heath has been the sole proprietor
of a public accounting practice in Surfside Beach, South Carolina. Mr. Heath has
been a Certified Public Accountant since 1974 and has been a valuation analyst
since 1995. He received a Bachelor of Science in Accounting degree in 1969 and a
Masters of Accounting degree in 1974 from Florida State University. Mr. Heath is
also a one-third owner of RAR Exchange, LLC, which provides qualified
intermediary services. Mr. Heath has been a past member and chairman of the
Horry County School Board and has served on the board of directors of the South
Strand Chamber of Commerce and Long Bay Symphony. Currently Mr. Heath is a
member of the Surfside Rotary Club.
Paul John Hletko, M.D., F.A.A.P. Dr. Hletko has practiced medicine as a
pediatrician since 1972, and he has been the sole owner of a pediatric practice
in Georgetown, South Carolina since 1991. Dr. Hletko received a Bachelor of
Science in 1968 from the University of Illinois and received his Doctorate of
Medicine from Stritch School of Medicine, Loyola University in 1971. Dr. Hletko
has been involved in promoting child transportation safety concerns since 1977.
He has served on the board of the Association for the Advancement of Automotive
Medicine since 1986. He has also served on numerous hospital committees and as
the hospital chief of staff and chief of the department of pediatrics at
Georgetown Memorial Hospital. He has been involved in the United Way Physician's
Drive and on the
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<PAGE> 33
board of directors of Parents of Children with Cancer, the Association of
Prepared Child Birth and Hospitality House.
Judy B. Long. Ms. Long is the sole or part owner of several retail,
restaurant and printing businesses located throughout the Georgetown/Horry
County area in South Carolina. These businesses include Four Seasons Screen
Printing, Sports Spectacular, Inc., Super Sports Spectacular, Carol, Inc., and
Fins, Inc.
Georgie B. Martin. Ms. Martin has been the sole owner of Garden City
Pavilion, the president and sole owner of Independent Coin, Inc. and the
president and co-owner of Martin Coin Machine, Inc. since 1984. Independent Coin
and Martin Coin Machine operate arcade and amusement machines such as skeeball,
baseball, video games and pool tables. Additionally, Ms. Martin has been the
sole owner of Martin Rentals, which owns and rents office space, warehouses,
townhouses and apartments in the Grand Strand area, since 1984. Ms. Martin
received an Associates degree in business from Columbia Commercial College in
Columbia, South Carolina in 1960.
Thomas Ostavus Morris, Jr., R.Ph. Mr. Morris received his pharmacy
license in 1972, and has been the owner of Hemingway Pharmacy, Inc.
headquartered in Andrews, South Carolina since 1977. Mr. Morris received a
Bachelor of Science from Clemson University in 1975 and received a Bachelor of
Science in Pharmacy from the Medical University of South Carolina in 1972. Mr.
Morris is also the sole owner of Home Medical Care, which provides durable home
medical equipment, and is a part owner of Myrtle Road Park, Inc. Mr. Morris is a
member of the Georgetown County Chamber of Commerce and serves on the advisory
board of the Medical University of South Carolina.
Joel A. Pellicci. Mr. Pellicci is the owner and president of Jo-Lin
Enterprises, a McDonald's franchisee, since 1977. He was a naval aviator during
his years of service in the Navy. He received a Bachelor of Art and Education
from the University of Florida in 1965. Mr. Pellicci has served on the board of
directors of the Louisburg Chamber of Commerce and on the board of directors of
Ronald McDonald Children's Charities and several Ronald McDonald House boards of
directors.
Donald E. Perry. Since 1961, Mr. Perry has been the president and
co-owner of Lakewood Camping Resort which provides camp ground facilities in
Myrtle Beach, South Carolina. Mr. Perry is also a co-owner of Beachwood at the
Heritage, a retirement community, Perry Issue Company, a land lease company, and
Myrtle Beach National Golf Course. Mr. Perry has also been the sole owner of
Beechwood Estates, a mobile home park, since 1963. From 1997 until 1998, Mr.
Perry served on the Myrtle Beach advisory board of First National South Bank.
Mr. Perry has been active in or held a leadership role in Rotary International,
Myrtle Beach Campground Association and the Advisory Boards of Santee Electric
Cooperative and the Jaycees.
Chandler C. Prosser. Since 1993, Mr. Prosser has been the sole owner and
president of several real estate development and management companies, including
Prosser Realty Company, Inc. Mr. Prosser is a co-owner of Grove Development,
LLC, a real estate development company and is managing partner of Wachesaw Golf,
LLC, which owns and operates Wachesaw Plantation East Golf Resort. Mr. Prosser
received a Bachelor of Arts degree cum laude from Rhodes College in Memphis,
Tennessee in 1989 and a Master of Arts from the John Hopkins University Paul H.
Nitze School of Advanced International Studies in Washington, D.C. in 1991. In
1998, Mr. Prosser was elected to serve a four-year term as the Chairman of the
Horry County Council. Prior to this position, Mr. Prosser served for four years
as the district representative for the South Strand area on the Horry County
Council. Mr. Prosser was the founder and is a board member of the City of Hope
Myrtle Beach Classic LPGA Tournament, which is held each spring in Myrtle Beach.
He is also actively involved in a number of local charities and previously
served on the Myrtle Beach Advisory Board for First National South Bank.
Larry N. Prosser. Mr. Prosser has been the president and sole owner of
Glenn's Bay, Inc., a real estate development company since 1983. Mr. Prosser is
also the owner of numerous other real estate development and construction
companies. Mr. Prosser received an Associate of Science in Civil Engineering
degree from Florence-Darlington Technical College in Florence, South Carolina in
1967.
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<PAGE> 34
Mr. Prosser currently holds a general contractor's license in South Carolina.
Mr. Prosser served on the Myrtle Beach advisory board of United Carolina Bank
from 1994 until 1996 and on the Myrtle Beach advisory board of BB&T from 1996
until 1999. Mr. Prosser is currently a member of the Association of
Homebuilders.
ADDITIONAL EXECUTIVE OFFICER OF SUN BANCSHARES
Randy L. Carmon. Mr. Carmon has over 22 years banking experience with
both community and regional banks. Prior to Mr. Carmon joining Sun Bancshares
and SunBank, he served as a vice president at Anderson State Bank with
responsibility for various financial and operational functions. While in this
position, Mr. Carmon was responsible for the design and installation of their
in-house ATM network, the development of an ATM and VISA(R) CheckCard program,
the management of the year 2000 readiness project, and the design, analysis,
implementation and marketing of additional deposit products. From 1989 until
1996, Mr. Carmon was a vice president with The National Bank of South Carolina
with responsibilities in the deposit operations area that included transaction
and time deposit accounts, distribution, item processing, data control,
research, electronic funds transfer and automated clearing house transactions
and corporate services. From 1978 to 1988, Mr. Carmon was responsible for
operational and financial functions at Lake City State Bank. Mr. Carmon received
a Bachelor of Science in Education degree from the University of South Carolina
in 1978. Additionally, he has completed the South Carolina Bankers School in
Columbia, South Carolina, the Graduate School of Banking of the South held at
Louisiana State Institution in Baton Rouge, Louisiana, and the Graduate School
of Operations and Technology held at Vanderbilt University in Nashville,
Tennessee. Mr. Carmon's past and present civic leadership roles include chairman
of the Pee Dee Chapter of the Bank Administration Institute, board member of the
Operations Committee of the South Carolina Bankers Association, president of the
Lake City Lions Club, director and founder of the Pee Dee Regional EMS Council
and board member of Circle Park Associates.
ADDITIONAL OFFICERS OF SUNBANK
John L. Truelove. Mr. Truelove has over 20 years of banking and lending
experience. From 1997 until March 2000, he served as a vice president, community
banking lender for Coastal Federal Savings Bank in Surfside Beach, South
Carolina. While in this position, his primary emphasis was commercial, consumer,
construction and residential lending. He also planned and implemented strategies
for growth and business development for three regional sales offices. From 1979
until 1997, Mr. Truelove served NationsBank, N.A. in various positions of
increasing responsibility, culminating in his position as vice president, direct
lender in Myrtle Beach, South Carolina. While in this position from 1988 to
1997, he managed a consumer real estate department and was responsible for
personal loan production and business development. Mr. Truelove has received a
Bachelor of Science degree from the University of North Carolina at Wilmington
and is a graduate of the South Carolina Bankers School. He is a secretary and is
the president-elect of the Murrells Inlet Rotary Club.
Lynn Wood Wilson. Mr. Wilson has over 20 years banking experience with
several local banks located within our market area. From 1990 until June, 2000
he served as an assistant vice president of Carolina First Bank in Georgetown,
South Carolina where he was responsible for developing and managing a commercial
and an installment loan portfolio. Mr. Wilson was a branch manager of the
Pawleys Island branch office of First Federal Savings & Loan Association from
1998 to 1990 and of the Georgetown branch of Peoples Federal Savings & Loan
Association from 1973 until 1983. Since 1995, Mr. Wilson has also served as the
Mayor of the City of Georgetown, and he served on the Georgetown City Council
from 1984 until 1995. Mr. Wilson received a Bachelor of History degree from East
Carolina University in 1965 and is a graduate of the American Bankers
Association commercial lending school. Additionally, Mr. Wilson was the past
chairman of the Salvation Army advisory board and the past president of the
Georgetown Optimist Club and Georgetown Jaycees. His is currently a member of
the Georgetown County Chamber of Commerce, Georgetown County Economic
Development Corporation, Georgetown County United Way and Rotary International.
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ADDITIONAL ORGANIZER
Gary L. Schaal. Mr. Schaal has been a co-owner and vice-president of TSC
Golf, Inc., a golf course management company, since 1993 and has been the
president and sole owner of G.L. Sports, a golf management company, since 1981.
Mr. Schaal received a Bachelor of Business Administration from Ohio Wesleyan
University in Delaware, Ohio in 1963 and received a Masters of Business
Administration from East Carolina University in Greenville, North Carolina in
1972. Mr. Schaal has been a board member of the Myrtle Beach Convention Bureau
and has served as the Bureau's president. Additionally Mr. Schaal has served on
the board of directors of the Myrtle Beach Chamber of Commerce, the Carolinas
Professional Golf Association and the Myrtle Beach Golf Holiday. He has also
served as the chairman of the Tournament Player's Club Project and has served on
the Surfside Beach Planning and Advisory Commission. He served on the
Professional Golf Association Tour's Policy Board from 1988 to 1996 and served
as the Professional Golf Association president in 1993 and 1994.
Mr. Chandler C. Prosser is the son of Mr. Larry N. Prosser. No other
director, organizer or executive officer has a family relationship with any
other director, organizer or executive officer of Sun Bancshares as close as
first cousin.
ADVISORY BOARDS
Upon the opening of SunBank, we expect to establish advisory boards in
Murrells Inlet and Georgetown. The purpose of the advisory boards will be to:
- keep management informed of new banking and business opportunities in
the Murrells Inlet and Georgetown markets;
- introduce potential customers to SunBank; and
- assist management in developing banking products that meet the needs of
our target customers.
We expect that each of the advisory boards will consist of ten local
business and community leaders from each of the Murrells Inlet and Georgetown
areas. We have identified seven individuals in Murrells Inlet and nine
individuals in Georgetown whom we expect will serve on the advisory boards.
COMMITTEES OF THE BOARDS OF DIRECTORS
The boards of directors of Sun Bancshares and SunBank each has established
or will establish compensation, executive and audit and compliance committees.
The members of these committees will be the same for SunBank as they are for Sun
Bancshares. SunBank's board of directors will also establish a loan and an asset
and liability management committee. These committees are described below.
Compensation Committee. The Compensation Committee establishes
compensation levels for officers of Sun Bancshares and SunBank, reviews
management organization and development, reviews significant employee benefit
programs and establishes and administers executive compensation programs,
including the Stock Incentive Plan as described below.
Executive Committee. The Executive Committee meets as needed and, with
some exceptions, has the same powers as the board of directors in the management
of the business affairs of Sun Bancshares and SunBank between meetings of their
boards. This committee makes recommendations to the board of directors regarding
matters important to the overall management and strategic operation of Sun
Bancshares and SunBank.
Audit and Compliance Committee. The Audit and Compliance Committee is
responsible for oversight of all audit functions including monitoring compliance
with the Community Reinvestment Act, follow-up on loan reviews, responding to
financial and operational audits and correcting matters raised in regulatory
examinations and audit reports for Sun Bancshares and SunBank. This committee
recommends to the board of directors the independent public accountants to audit
Sun Bancshares and SunBank's annual financial statements, ensures that audits
and examinations are performed fully, properly and timely.
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<PAGE> 36
This committee also is responsible for reviewing the reports of the independent
auditors, regulatory examination reports, and all of our financial statements,
and evaluates internal accounting controls.
Loan Committee. The Loan Committee will be responsible for establishing
and approving all major policies and procedures pertaining to loan policy and
transactions with affiliates, directors or officers. This committee reviews the
actions of loan officers, past due and problem loans, the asset quality of the
loan portfolio and the adequacy of the loan loss reserve. This committee
approves all loans over any loan officers' pre-approved lending limit.
Asset and Liability Management Committee. The Asset and Liability
Management Committee will provide guidance to Sun Bancshares and SunBank in
balancing the yields and maturities of SunBank's loans and investments to its
deposits. This committee also reviews the investment portfolio on an ongoing
basis to assure investments are prudent and in accordance with SunBank's
investment policy.
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EXECUTIVE COMPENSATION
1999 COMPENSATION
The following table shows information for 1999 with regard to compensation
for services rendered in all capacities to Sun Bancshares and SunBank by their
chief executive officer and president. No executive officer earned more than
$100,000 in salary and bonus in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
OTHER ANNUAL
SALARY BONUS COMPENSATION
YEAR ($) ($) ($)
---- ------- ------- ------------
<S> <C> <C> <C> <C>
Dalton B. Floyd, Jr.,
Chief Executive Officer.................. 1999 -- -- --
Thomas Bouchette,.......................... 1999 42,000 -- --
President
</TABLE>
EMPLOYMENT AGREEMENT
We have entered into an employment agreement with Thomas Bouchette, under
which Mr. Bouchette will serve as president of Sun Bancshares and president and
chief executive officer of SunBank. Under the terms of the agreement, Mr.
Bouchette's compensation will include:
- A base salary of $7,000 per month until the opening of SunBank, at
which time his salary will increase to $8,000 per month;
- A cash bonus of $10,000 upon the opening of SunBank;
- An annual incentive bonus equal to 5% of Sun Bancshares consolidated
pre-tax earnings up to the amount of Mr. Bouchette's base salary,
provided SunBank meets specified performance criteria;
- Incentive stock options, which vest in one-fifth annual increments and
have a term of ten years, to purchase 5% of the number of shares of
common stock sold in this offering at an exercise price of $10.00 per
share; and
- Other customary benefits such as health and life insurance and
automobile allowance and membership to business and social
organizations.
The initial term of the employment agreement is three years. At the end of
the initial three-year term and at the end of any extension of the initial term,
the agreement will be automatically extended for a term of 12 months unless Mr.
Bouchette, Sun Bancshares or SunBank notifies the other parties that he or it
does not intend to extend the agreement. Mr. Bouchette will be entitled to
severance compensation of an amount up to six months of his base salary if,
during the term of the agreement, his employment is terminated for any of the
following reasons:
- SunBank does not receive regulatory approval to begin its banking
operations;
- We terminate Mr. Bouchette's employment without cause;
- Mr. Bouchette becomes disabled; or
- Mr. Bouchette terminates his employment with cause.
Additionally, upon a change of control of Sun Bancshares, Mr. Bouchette will be
entitled to severance compensation in an amount equal to 12 months of his base
salary if he terminates his employment for cause or if Sun Bancshares or its
successor terminates his employment without cause. Cause for terminating
employment is defined in the agreement.
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The agreement also generally provides that, for a period of 12 months
following the termination of Mr. Bouchette's employment, he will not compete
with SunBank in the banking business nor solicit SunBank's customers or
employees. The non-competition and non-solicitation provisions of the agreement
only apply if Mr. Bouchette terminates his employment without cause or in
connection with a change of control, or if we terminate his employment with
cause.
DIRECTOR COMPENSATION
We do not plan to compensate the directors of Sun Bancshares and SunBank
separately for their services as directors until net profits of Sun Bancshares
and SunBank exceed their net losses since inception on a cumulative basis.
Thereafter, Sun Bancshares and SunBank will adopt compensatory policies for
their directors that conform to applicable law.
ORGANIZERS' WARRANTS
The organizers, including Gary L. Schaal who will not serve as a director,
intend to purchase a total of at least 348,110 shares of common stock in this
offering at a price of $10.00 per share. This represents 48.7% of the shares
that will be outstanding after the offering, or 42.3% if the underwriter's
over-allotment option is exercised in full. Each of our organizers has
guaranteed a portion of our $1,500,000 line of credit from The Bankers Bank for
up to $200,000 each.
In recognition of the efforts made and financial risks undertaken by the
organizers in organizing Sun Bancshares and SunBank, Sun Bancshares will issue
to the organizers warrants to purchase an aggregate of 291,350 additional shares
of its common stock. Accordingly, the organizers may purchase up to 291,350
shares through the exercise of these warrants. The number of shares subject to
each organizer's warrant is listed below and varies depending on the number of
shares that the organizer will purchase in the offering, whether the organizer
will serve as a director and when the organizer joined our organizational
efforts. In no event will any organizer receive a warrant to purchase a greater
number of shares than he or she purchases in this offering.
<TABLE>
<CAPTION>
SHARES
SUBJECT TO
ORGANIZER WARRANT
--------- ----------
<S> <C>
Thomas Bouchette 10,750
Edsel J. ("Coupe") DeVille 15,500
John S. Divine, III 22,500
Dalton B. Floyd, Jr. 25,000
Jeanne Louise Fourrier-Eggart 17,500
David E. Grabeman 17,500
Richard Edwin Heath 10,000
Paul John Hletko 22,500
</TABLE>
<TABLE>
<CAPTION>
SHARES
SUBJECT TO
ORGANIZER WARRANT
--------- ----------
<S> <C>
Judy B. Long 15,100
Georgie B. Martin 12,500
Thomas O. Morris, Jr. 25,000
Joel A. Pellicci 15,000
Donald E. Perry 17,500
Chandler C. Prosser 30,000
Larry N. Prosser 30,000
Gary L. Schaal 5,000
</TABLE>
The organizers may also purchase up to 125,000 shares in addition to those
described above in order for 715,000 shares to be sold in this offering. No
additional warrants will be issued as a result of these additional purchases, if
any.
The warrants will become exercisable in equal one-third annual increments
beginning on the one-year anniversary of the date of this prospectus.
Exercisable warrants will remain exercisable for the ten-year period following
the date of this prospectus or, in the case of the directors, for 90 days after
he or she ceases to be a director, whichever period is shorter. Additionally, if
SunBank's capital falls below the minimum level as determined by the Office of
the Comptroller of the Currency, Sun Bancshares may be directed to require the
organizers to exercise or forfeit their warrants.
Each warrant will be exercisable at a price of $10.00 per share subject to
adjustment for stock splits, recapitalizations or other similar events. The
exercise price was determined by Sun Bancshares based on the public offering
price of the common stock. The public offering price was determined
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<PAGE> 39
arbitrarily by Sun Bancshares and the underwriter after considering several
factors. These factors include prevailing market conditions and the price of
comparable publicly traded companies.
The warrants that will be granted to our organizers were not offered or
sold to the organizers, directors or executive officers prior to the date that
we filed the registration statement covering the warrants. Additionally, under
regulations and policies of the OCC, our organizers were required to disclose in
SunBank's charter application the terms of the warrants to be granted to the
organizers.
STOCK INCENTIVE PLAN
General. Sun Bancshares' 2000 Stock Incentive Plan provides Sun
Bancshares with the flexibility to grant incentive stock options and
non-qualified stock options to key employees, officers, directors and organizers
of Sun Bancshares or its affiliates for the purpose of giving them a proprietary
interest in, and encouraging them to remain in the employ of, Sun Bancshares or
its affiliates. The board of directors has reserved 100,000 shares of common
stock, an amount equal to 14.0% of the shares of common stock sold in this
offering, or 12.2% if the underwriter's over-allotment option is exercised in
full, for issuance under the plan. The number of shares reserved for issuance
may be adjusted in the event of a stock split, stock dividend, recapitalization
or similar event as described in the plan.
Upon the close of this offering, in accordance with the terms of Mr.
Bouchette's employment agreement, we will grant an option to our president to
purchase a number of shares equal to 5% of the common stock sold in this
offering, which will equal 35,750 shares if the underwriter does not exercise
its over-allotment option and 41,113 shares if the underwriter exercises its
over-allotment option in full. We also plan to grant our chief financial officer
an option to purchase 5,000 shares of common stock. Accordingly, if the
underwriter does not exercise its over-allotment option, we will issue our
president and chief financial officer options to purchase an aggregate of 40,750
shares, or 40.8% of the shares reserved under the plan.
Administration. The plan is administered by a committee appointed by the
board of directors. The board of directors will consider the standards contained
in both Section 162(m) of the Internal Revenue Code of 1986, as currently in
effect, and Rule 16(b)(3) under the Securities Exchange Act of 1934, as
currently in effect, when appointing members to the committee. The committee
will have the authority to grant awards under the plan, to determine the terms
of each award, to interpret the provisions of the plan and to make all other
determinations that it may deem necessary or advisable to administer the plan.
Sun Bancshares' Compensation Committee, which is comprised of at least two
directors appointed by its board of directors, will administer the plan.
The plan permits the committee to grant stock options to eligible persons.
The committee may grant these options on an individual basis or design a program
providing for grants to a group of eligible persons. The committee determines,
within the limits of the plan, the number of shares of common stock subject to
an option, to whom an option is granted and the exercise price and forfeiture or
termination provisions of each option. A stock option may not be transferred
during the holder's lifetime and may only be exercised by the holder, or in the
event of the holder's disability, by his or her legal representative.
Option Terms. The plan provides for incentive stock options and
non-qualified stock options. The committee will determine whether an option is
an incentive stock option or a non-qualified stock option when it grants the
option, and the option will be evidenced by an agreement describing the material
terms of the option. The maximum number of shares of common stock with respect
to which options may be granted during any one year period to any employee may
not exceed 75,000.
The committee determines the exercise price of an option. The exercise
price of an incentive stock option may not be less than the fair market value of
the common stock on the date of the grant, or less than 110% of the fair market
value if the participant owns more than 10% of the outstanding common stock of
Sun Bancshares or its affiliates. When the incentive stock option is exercised,
Sun Bancshares will be entitled to place a legend on the certificates
representing the shares of common stock purchased upon exercise of the option to
identify them as shares of common stock purchased upon the exercise of an
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<PAGE> 40
incentive stock option. The exercise price of non-qualified stock options may
not be less than the fair market value of the common stock on the date that the
option is awarded, based upon any reasonable measure of fair market value. The
committee may permit the exercise price to be paid in cash or through a cashless
exercise executed through a broker. The committee may make cash awards designed
to cover tax obligations of participants that result from the receipt or
exercise of a stock option.
The committee will also determine the term of an option, subject to the
terms of the plan which provide that no option may exceed ten years in length.
Any incentive stock option granted to a participant who owns more than 10% of
the outstanding common stock of Sun Bancshares or its affiliates will not be
exercisable more than five years after the date the option is granted. Subject
to any further limitations in the applicable agreement, if a participant's
employment terminated, an incentive stock option will expire and become
unexercisable no later than three months after the date of termination of
employment. If, however, termination of employment is due to death or
disability, one year may be substituted for the three-month period.
Incentive stock options are also subject to the further restriction that
the aggregate fair market value, determined as of the date of the grant, of
common stock as to which any incentive stock option first becomes exercisable in
any calendar year is limited to $100,000 per recipient. If incentive stock
options covering common stock with a value in excess of $100,000 first become
exercisable in any one calendar year, the excess will be non-qualified options.
For purposes of determining which options, if any, have been granted in excess
of the $100,000 limit, options will be considered in the order they were
granted.
Termination of Options. The terms of particular options may provide that
they terminate, among other reasons, upon the holder's termination of employment
or other status with Sun Bancshares or any affiliate, upon a specified date,
upon the holder's death or disability, or upon the occurrence of a change in
control of Sun Bancshares or SunBank. An agreement may provide that if the
holder dies or becomes disabled, the holder's estate or personal representative
may exercise the option. The committee may, within the terms of the plan and the
applicable agreement, cancel, accelerate, pay or continue an option that would
otherwise terminate for the reasons discussed above.
Stock Splits, Reorganizations and other Capital Changes. The plan
provides for appropriate adjustment, as determined by the committee, in the
number and kind of shares subject to and the exercise price of unexercised
options in the event of any change in the outstanding shares of common stock by
reason of any subdivision or combination of shares, payment of a stock dividend
or other increase or decrease in the number of outstanding shares without the
receipt of consideration. In the event of certain corporate reorganizations, the
committee may, within the terms of the plan and the applicable agreement,
substitute, cancel (with or without consideration), accelerate, remove
restrictions or otherwise adjust the terms of an option.
Amendment and Termination of the Plan. The board of directors has the
authority to amend or terminate the plan. The board of directors is not required
to obtain shareholder approval to amend or terminate the plan, but may condition
any amendment or termination of the plan upon shareholder approval if it
determines that shareholder approval is necessary or appropriate under tax,
securities or other laws. The board's action may not adversely affect the rights
of a holder of a stock option without the holder's consent.
Federal Income Tax Consequences. The following discussion generally
outlines the federal income tax consequences of participation in the plan.
Individual circumstances may vary and each participant should rely on his or her
own tax counsel for advice regarding federal income tax treatment under the
plan.
- Incentive Stock Options. A participant who exercises an incentive stock
option will not be taxed when he or she exercises the option or a
portion of the option. Instead, the participant will be taxed when he or
she sells the shares of common stock purchased upon exercise of the
incentive stock option. The participant will be taxed on the difference
between the price he or she paid for the common stock and the amount for
which he or she sells the common stock. If the participant
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does not sell the shares of common stock prior to two years from the
date of grant of the incentive stock option and one year from the date
the common stock is transferred to him or her, any gain will be a
capital gain and Sun Bancshares will not be entitled to a corresponding
deduction. If the participant sells the shares of common stock at a gain
before that time, the difference between the amount the participant paid
for the common stock and the lesser of its fair market value on the date
of exercise or the amount for which the stock is sold will be taxed as
ordinary income and Sun Bancshares will be entitled to a corresponding
deduction. If the participant sells the shares of common stock for less
than the amount he or she paid for the stock prior to the one- or
two-year period indicated, no amount will be taxed as ordinary income
and the loss will be taxed as a capital loss. Exercise of an incentive
stock option may subject a participant to, or increase a participant's
liability for, the alternative minimum tax.
- Non-Qualified Options. A participant will not recognize income upon the
grant of a non-qualified option or at any time before the exercise of
the option or a portion of the option. When the participant exercises a
non-qualified option or portion of the option, he or she will recognize
compensation taxable as ordinary income in an amount equal to the excess
of the fair market value of the common stock on the date the option is
exercised over the price paid for the common stock, and Sun Bancshares
will then be entitled to a corresponding deduction.
Depending upon the time period for which shares of common stock are held
after exercise of a non-qualified option, the sale or other taxable disposition
of shares acquired through the exercise of a non-qualified option generally will
result in a short- or long-term capital gain or loss equal to the difference
between the amount realized on the disposition and the fair market value of such
shares when the non-qualified option was exercised.
Special rules apply to a participant who is subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934.
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RELATED PARTY TRANSACTIONS
We expect to enter into banking and other business transactions in the
ordinary course of business with our directors and officers, including members
of their families and corporations, partnerships or other organizations in which
they have a controlling interest. If these transactions occur, each transaction
will:
- In the case of banking transactions, be on substantially the same terms,
including price or interest rate and collateral, as those prevailing at
the time for comparable transactions with unrelated parties, and any
banking transactions will not be expected to involve more than the
normal risk of collectibility or present other unfavorable features to
SunBank;
- In the case of business transactions, be on terms no less favorable than
could be obtained from an unrelated third party; and
- In the case of all related party transactions, be approved by a majority
of the directors, including a majority of the directors who do not have
an interest in the transaction.
In addition to transactions in the ordinary course of our business, we
have entered into the following business transactions with the directors
indicated:
- Lease of Main Office Site. We have entered into a lease agreement with
Riverwood Enterprises, LLC, a South Carolina limited liability company,
for the lease of the site for our permanent main office building. Mr.
Dalton B. Floyd, Jr., the chairman of our board of directors and chief
executive officer of Sun Bancshares, and Mr. Larry N. Prosser, one of
our directors, each own a one-third interest in Riverwood Enterprises.
The amount of the annual rent for the first year of the lease is
$90,000, with annual adjustments based on the consumer price index
thereafter. The initial term of the lease will be 25 years with renewal
options for a total of 15 additional years. The lease calls for us to
pay taxes, insurance and repairs on the leased property. Based on our
review of two independent appraisals, we believe the terms of the lease
are no less favorable than those that could be obtained from an
unrelated third party.
- Lease of Site for Temporary Main Office. Currently and through the
construction of our main office, we will operate out of a temporary
modular facility, which is located on a temporary site approximately
one-tenth of a mile from our permanent main office site. We are leasing
this temporary site from Wachesaw Development, LLC. Mr. Larry N.
Prosser, one of our directors, is the sole owner of Wachesaw
Development, LLC. The lease is on a month to month basis and began in
May 2000 and will end in the fourth quarter of 2001. The monthly rental
rate is $2,000. Based on our review of the independent appraisals for
our permanent main office site and the recent purchase price of a
similar property located across the street, we believe the terms of this
lease are no less favorable than those that could be obtained from an
unrelated third party. Due to the short term of the lease and limited
amount of the lease payments, the board determined that an independent
appraisal was neither cost effective nor necessary for it to establish
that the lease arrangement is on no less favorable terms than could be
obtained from an unrelated third party.
Each of these transactions has been approved by a majority of our
directors, including a majority of the directors who do not have an interest in
the transaction.
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SUPERVISION AND REGULATION
Both Sun Bancshares and SunBank will be subject to extensive state and
federal banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that will apply.
SUN BANCSHARES
Since Sun Bancshares will own all of the capital stock of SunBank, it will
be a bank holding company under the federal Bank Holding Company Act of 1956 and
the South Carolina Banking and Branching Efficiency Act. As a result, Sun
Bancshares will primarily be subject to the supervision, examination, and
reporting requirements of the Bank Holding Company Act and the regulations of
the Federal Reserve.
Acquisitions of Banks. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
- Acquiring direct or indirect ownership or control of any voting shares
of any bank if, after the acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the bank's voting
shares;
- Acquiring all or substantially all of the assets of any bank; or
- Merging or consolidating with any other bank holding company.
Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in South Carolina may purchase a
bank located outside of South Carolina. Conversely, an adequately capitalized
and adequately managed bank holding company located outside of South Carolina
may purchase a bank located inside South Carolina. In each case, however,
restrictions may be placed on the acquisition of a bank which has only been in
existence for a limited amount of time or an acquisition which may result in
specified concentrations of deposits.
In addition, under the South Carolina Banking and Branching Efficiency
Act, no company or person may acquire Sun Bancshares or SunBank until SunBank
has been in existence and continuous operations for five years.
Change in Bank Control. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or a company acquires 10% or more, but less than 25%, of any class
of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Act of 1934, or no other person
owns a greater percentage of that class of voting securities immediately after
the transaction.
Permitted Activities. On November 12, 1999, President Clinton signed the
Gramm-Leach-Bliley Act, which amends the Bank Holding Company Act and greatly
expand the activities in which bank holding companies and affiliates of banks
are permitted to engage. The Gramm-Leach-Bliley Act eliminates many federal and
state law barriers to affiliations among banks and securities firms, insurance
companies, and other financial service providers. The provisions of the
Gramm-Leach-Bliley Act relating to permitted activities of bank holding
companies and affiliates of banks became effective on March 11, 2000.
Generally, if Sun Bancshares qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
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activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, SunBank and any other
depository institution subsidiary of Sun Bancshares must be well capitalized and
well managed and must have a Community Reinvestment Act rating of at least
satisfactory. Additionally, Sun Bancshares must file an election with the
Federal Reserve to become a financial holding company and must provide the
Federal Reserve with 30 days written notice prior to engaging in a permitted
financial activity. We have no plans to elect to become a financial holding
company.
Under the Bank Holding Company Act, a bank holding company, which has not
qualified or elected to become a financial holding company is generally
prohibited from engaging in or acquiring direct or indirect control of more than
5% of the voting shares of any company engaged in nonbanking activities unless
prior to the enactment of the Gramm-Leach-Bliley Act the Federal Reserve found
those activities to be so closely related to banking as to be a proper incident
to the business of banking. Activities that the Federal Reserve has found to be
so closely related to banking to be a proper incident to the business of banking
include:
- factoring accounts receivable,
- acquiring or servicing loans,
- leasing personal property,
- conducting discount securities brokerage activities,
- performing selected data processing services,
- acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions, and
- performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
Support of Subsidiary Institutions. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries. This
support may be required at times when, without this Federal Reserve policy, the
bank holding company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to a bank will be repaid only after its
deposits and other indebtedness are repaid in full. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
South Carolina State Regulation. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. Prior to acquiring the capital stock of a national bank,
we are not required to obtain the approval of the Board, but we must notify them
at least 15 days prior to doing so. Prior to engaging in the acquisition of
nonbanking institutions or state chartered banks, we must receive the Board's
approval, and we must file periodic reports with respect to our financial
condition and operations, management and intercompany relationships between Sun
Bancshares and its subsidiaries.
SUNBANK
SunBank will be subject to numerous state and federal statutes and
regulations that will affect its business, activities and operations, and it may
be supervised and examined by one or more state or federal bank regulatory
agencies. Since SunBank will be chartered as a national bank, it will primarily
be subject to the supervision, examination and reporting requirements of the
National Bank Act and the regulations of the Office of the Comptroller of the
Currency. The Office of the Comptroller of the Currency will
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regularly examine SunBank's operations and has the authority to approve or
disapprove mergers, the establishment of branches and similar corporate actions.
The Office of the Comptroller of the Currency also has the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law. Additionally, SunBank's deposits will be insured by the FDIC
to the maximum extent provided by law.
Branching. National banks are required by the National Bank Act to adhere
to branch office banking laws applicable to state banks in the states in which
they are located. Under current South Carolina law, SunBank may open branch
offices throughout South Carolina with the prior approval of the Office of the
Comptroller of the Currency. In addition, with prior regulatory approval,
SunBank will be able to acquire existing banking operations in South Carolina.
SunBank and any other national or state-chartered bank generally may branch
across state lines by merging with banks in other states if allowed by the
applicable states' laws. South Carolina law, with limited exceptions, currently
permits branching across state lines through interstate mergers.
Under the Federal Deposit Insurance Act, states may "opt-in" and allow
out-of-state national banks to branch into their state by establishing a new
start-up branch in the state. Currently, South Carolina has not opted-in to this
provision. Therefore, interstate merger is the only method through which a bank
located outside of South Carolina may branch into South Carolina. This provides
a barrier of entry into the South Carolina banking market.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed. To qualify as well capitalized, a bank must have a leverage ratio of no
less than 5%, a Tier 1 risk-based capital ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%. These ratios are described below
under "Capital Adequacy." Additionally, the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific
capital level. Initially, we will qualify as well capitalized. The federal
banking agencies have also specified by regulation the relevant capital levels
for each of the other categories.
Federal banking regulators are required to take some mandatory supervisory
actions and are authorized to take other discretionary actions with respect to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a
receiver or conservator for an institution that is critically undercapitalized.
An institution in any of the undercapitalized categories is required to submit
an acceptable capital restoration plan to its appropriate federal banking
agency. A bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan up to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except under
an accepted capital restoration plan or with FDIC approval. The Federal Reserve
regulations also establish procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment
system for determining an insured depository institutions' insurance assessment
rate. The system that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. An institution is
placed into one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized and critically
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subgroups based on a supervisory evaluation that the institution's
primary federal regulator provides to the FDIC and information that the FDIC
determines to be relevant to the
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institution's financial condition and the risk posed to the deposit insurance
funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on
the institution's capital group and supervisory subgroup. In addition, the FDIC
imposes assessments to help pay off the $780 million in annual interest payments
on the $8 billion Financing Corporation bonds issued in the late 1980s as part
of the government rescue of the thrift industry. This assessment rate is
adjusted quarterly and is set at 2.08 cents per $100 of deposits for the second
quarter of 2000.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
Community Reinvestment Act. The Community Reinvestment Act requires that,
in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on SunBank. Under the Gramm-Leach-Bliley Act, banks with
aggregate assets of not more than $250 million will be subject to a Community
Reinvestment Act examination only once every 60 months if the bank receives an
outstanding rating, once every 48 months if it receives a satisfactory rating
and as needed if the rating is less than satisfactory. Additionally, under the
Gramm-Leach-Bliley Act, banks will be required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.
Other Regulations. Interest and other charges collected or contracted for
by SunBank are subject to state usury laws and federal laws concerning interest
rates. SunBank's loan operations are also subject to federal laws applicable to
credit transactions, such as:
- The federal Truth-In-Lending Act, governing disclosures of credit terms
to consumer borrowers;
- The Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
- The Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
- The Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
- The Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
- The rules and regulations of the various federal agencies charged with
the responsibility of implementing these federal laws.
The deposit operations of SunBank are subject to:
- The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records; and
- The Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which governs automatic deposits
to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
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CAPITAL ADEQUACY
Sun Bancshares and SunBank will be required to comply with the capital
adequacy standards established by the Federal Reserve, in the case of Sun
Bancshares, and the Office of the Comptroller of the Currency, in the case of
SunBank. The Federal Reserve has established a risk-based and a leverage measure
of capital adequacy for bank holding companies that is substantially similar to
that adopted by the Office of the Comptroller of the Currency for banks.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items,
such as letters of credit and unfunded loan commitments, are assigned to broad
risk categories, each with appropriate risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consist of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consist of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. The guidelines also provide that bank holding companies experiencing
internal growth, as will be the case for Sun Bancshares, or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
The Federal Reserve considers the leverage ratio and other indicators of capital
strength in evaluating proposals for expansion or new activities.
SunBank and Sun Bancshares are also both subject to other capital
guidelines issued by the Office of the Comptroller of the Currency and the
Federal Reserve, respectively, which provide for minimum ratios of total capital
to total assets.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and certain other restrictions on its business. As
described above, substantial additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "- Prompt Corrective Action" on page 45.
PAYMENT OF DIVIDENDS
Sun Bancshares is a legal entity separate and distinct from SunBank. The
principal sources of Sun Bancshares' cash flow, including cash flow to pay
dividends to its shareholders, are dividends that SunBank pays to its sole
shareholder, Sun Bancshares. Statutory and regulatory limitations apply to
SunBank's payment of dividends to Sun Bancshares as well as to Sun Bancshares'
payment of dividends to its shareholders.
SunBank is required by federal law to obtain the prior approval of the
Office of the Comptroller of the Currency for payments of dividends if the total
of all dividends declared by its Board of Directors in any year will exceed (1)
the total of SunBank's net profits for that year, plus (2) SunBank's retained
net profits of the preceding two years, less any required transfers to surplus.
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The payment of dividends by Sun Bancshares and SunBank may also be
affected by other factors, such as the requirement to maintain adequate capital
above regulatory guidelines. If, in the opinion of the Office of the Comptroller
of the Currency, SunBank were engaged in or about to engage in an unsafe or
unsound practice, the Office of the Comptroller of the Currency could require,
after notice and a hearing, SunBank to cease and desist from the practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's capital base to an inadequate level would be an unsafe
and unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. Moreover, the federal agencies have issued policy statements
that provide that bank holding companies and insured banks should generally only
pay dividends out of current operating earnings. See "- Prompt Corrective
Action" on page 45.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
Sun Bancshares and SunBank are subject to the provisions of Section 23A of
the Federal Reserve Act. Section 23A places limits on the amount of:
- loans or extensions of credit to affiliates;
- investment in affiliates;
- the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
- loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
- any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. Sun Bancshares must also
comply with certain provisions designed to avoid the taking of low-quality
assets.
Sun Bancshares and SunBank are also subject to the provisions of Section
23B of the Federal Reserve Act which, among other things, prohibits an
institution from engaging in the above transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
SunBank is also subject to restrictions on extensions of credit to its
executive officers, directors, certain principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties, and (2) must not involve more
than the normal risk of repayment or present other unfavorable features.
PRIVACY
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market the institutions' own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing through electronic mail to the consumer.
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PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
EFFECT OF GOVERNMENTAL MONETARY POLICES
Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies. The
Federal Reserve Bank's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and
deposits through its open market operating in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.
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DESCRIPTION OF SUN BANCSHARES' CAPITAL STOCK
AND SHAREHOLDERS' RIGHTS
COMMON STOCK
Sun Bancshares' articles of incorporation authorize it to issue up to
10,000,000 shares of common stock, par value not stated, of which at least
715,000 shares will be issued in this offering. As of the date of this
prospectus, 100,000 shares of common stock, or an amount equal to 14.0% of the
shares of common stock offered in this prospectus, were reserved for issuance
upon the exercise of stock options to be issued under our stock incentive plan
and 291,350 shares of common stock were reserved for issuance upon the exercise
of the warrants to be issued to the organizers.
All shares of common stock will be entitled to share equally in dividends
from legally available funds, when, as and if declared by the board of
directors. We do not anticipate, however, that Sun Bancshares will pay any cash
dividends on the common stock in the near future. Upon Sun Bancshares' voluntary
or involuntary liquidation or dissolution, all shares of common stock will be
entitled to share equally in all of Sun Bancshares' assets that are available
for distribution to the shareholders. Each holder of common stock will be
entitled to one vote for each share on all matters submitted to the
shareholders. Holders of common stock will not have any right to acquire
authorized but unissued capital stock of Sun Bancshares whenever it issues new
shares of capital stock. No cumulative voting, redemption, sinking fund or
conversion rights or provisions apply to the common stock. All shares of the
common stock issued in the offering as described in this prospectus will be
fully paid and non-assessable.
PREFERRED STOCK
Sun Bancshares' articles of incorporation also authorize its board of
directors to issue up to 2,000,000 shares of preferred stock, par value not
stated, without any further action by the holders of the common stock. The board
of directors may determine the terms of the preferred stock including, but not
limited to, dividend rates and voting, conversion, redemption or sinking fund
rights. Preferred stock may have voting rights, subject to applicable law and as
determined by the board of directors. Any preferred stock that we issue may rank
senior to our common stock with respect to the payment of dividends and/or the
distribution of assets upon liquidation or dissolution of Sun Bancshares. Sun
Bancshares has not issued any preferred stock and will not issue preferred stock
to the organizers except on the same terms as it is offered to all other
existing shareholders or to new shareholders. Although Sun Bancshares has no
present plans to issue any preferred stock, the ownership and control of Sun
Bancshares by the holders of the common stock would be diluted if Sun Bancshares
were to issue preferred stock that had voting or conversion rights.
TRANSFER AGENT
The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta, Georgia.
PROTECTIVE PROVISIONS
General. Sun Bancshares' shareholders' rights and related matters are
governed by the South Carolina Business Corporation Act of 1988 and Sun
Bancshares' articles of incorporation and bylaws. Sun Bancshares' articles of
incorporation and bylaws contain protective provisions that could have the
effect of delaying or impeding an attempt to change or remove Sun Bancshares'
management or to gain control of Sun Bancshares in a transaction not supported
by its board of directors. These provisions are discussed in more detail below.
In general, one purpose of these provisions is to assist our board of directors
in playing a role in connection with attempts to acquire control of Sun
Bancshares. They allow the board of directors to further and protect Sun
Bancshares' interests and those of its shareholders, as appropriate, under the
circumstances.
Although we believe the protective provisions are beneficial to our
shareholders, they also may tend to discourage some takeover bids. As a result,
our shareholders may be deprived of opportunities to sell
50
<PAGE> 51
some or all of their shares at prices that represent a premium over prevailing
market prices. On the other hand, defeating undesirable acquisition offers can
be a very expensive and time-consuming process. To the extent that the
protective provisions discourage undesirable proposals, Sun Bancshares may be
able to avoid those expenditures of time and money.
The protective provisions also may discourage open market purchases by a
potential acquirer. These purchases could increase the market price of the
common stock temporarily, enabling shareholders to sell their shares at a price
higher than that which otherwise would prevail. In addition, the provisions
could decrease the market price of the common stock by making the stock less
attractive to persons who invest in securities in anticipation of price
increases from potential acquisition attempts. The provisions also could make it
more difficult and time consuming for a potential acquirer to obtain control of
Sun Bancshares by replacing its board of directors and management. Furthermore,
the provisions could make it more difficult for our shareholders to replace the
board of directors or management, even if a majority of the shareholders
believes that replacing them would be in Sun Bancshares' best interests. As a
result, the protective provisions could tend to keep the incumbent board of
directors and management in place.
Restriction on Acquisitions. Under the South Carolina Banking and
Branching Efficiency Act of 1996, no company or person may acquire Sun
Bancshares or SunBank until SunBank has been in existence and continuous
operation for five years.
Control Share Act. Sun Bancshares has specifically elected to opt out of
a provision of the South Carolina Business Corporation Act which may deter or
frustrate unsolicited attempts to acquire certain South Carolina corporations.
This statute, commonly referred to as the "Control Share Act," applies to public
corporations organized in South Carolina unless the corporation specifically
elects to opt out. The Control Share Act generally provides that shares of a
public corporation acquired in excess of specific thresholds will not possess
any voting rights unless the voting rights are approved by a majority vote of
the corporation's disinterested shareholders.
Authorized but Unissued Stock. Sun Bancshares' authorized but unissued
shares of common stock and preferred stock will be available for future issuance
without shareholder approval. These additional shares may be used for a variety
of corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence of
authorized but unissued and unreserved shares of common stock and preferred
stock may enable the board of directors to issue shares to persons friendly to
current management, which could render more difficult or discourage any attempt
to obtain control of Sun Bancshares by means of a proxy contest, tender offer,
merger or otherwise, and as a result protect the continuity of our management.
In addition, the issuance of shares of common stock or preferred stock with
voting rights may adversely affect the rights of the existing holders of common
stock and, in certain circumstances, could decrease the market price of the
common stock.
Staggered Terms for Board of Directors. Sun Bancshares' articles of
incorporation and bylaws provide that Sun Bancshares' board of directors will be
divided into three classes. Directors serve staggered terms, which means that
one-third of the directors will be elected each year at our annual meeting of
shareholders. As a result, unless the existing directors were to resign, it
would take at least two annual meetings of shareholders to replace a majority of
our directors.
Change in Number of Directors. Sun Bancshares' articles of incorporation
provide that any change in the number of directors, as set forth in its bylaws,
would have to be made by the affirmative vote of two-thirds of the entire board
of directors or by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of common stock entitled to vote in an election of
directors.
Removal of Directors. Sun Bancshares' articles of incorporation provide
that one or more directors may be removed for cause during their terms only if
the number of votes cast to remove the director exceeds the number of votes cast
against removing the director. Sun Bancshares articles of incorporation also
provide that directors may be removed during their terms without cause only by
the affirmative vote of the holders of two-thirds of the issued and outstanding
shares of common stock entitled to vote in an election of directors.
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<PAGE> 52
Supermajority Voting. Under Sun Bancshares' articles of incorporation,
with some exceptions, any merger or consolidation involving Sun Bancshares or
any sale or other disposition of all or substantially all of its assets will
require the affirmative vote of a majority of Sun Bancshares' directors then in
office and the affirmative vote of the holders of at least two-thirds of the
outstanding shares of common stock. However, if Sun Bancshares' board of
directors has approved the particular transaction by the affirmative vote of
two-thirds of the entire Board, then shareholder approval of the transaction
would require the affirmative vote of the holders of only a majority of the
outstanding shares of common stock entitled to vote on the transaction.
Advance Notice Requirements for Shareholder Nominations of Director. Sun
Bancshares' bylaws establish advance notice procedures with regard to
shareholder nominations, other than by or at the direction of the board of
directors or a committee of the board, of candidates for election as directors.
Shareholder nominations for the election of directors must be made in writing
and delivered to the secretary of the company no later than 30 days prior to the
date of meeting at which directors will be elected, or in the case a meeting for
the election of directors for which shareholders are given less than 40 days
notice, the close of business on the tenth day following the date on which
notice of the meeting is first given to shareholders. We may reject a
shareholder nomination that is not made in accordance with these procedures.
Nomination Requirement. Sun Bancshares' bylaws establish nomination
requirements for an individual to be elected as a director, including that the
nominating party provide (1) notice that the party intends to nominate the
proposed director; (2) the name of and biographical information on the nominee;
and (3) a statement that the nominee has consented to the nomination. The
chairman of any shareholders' meeting may, for good cause shown, waive the
operation of these provisions. These provisions could reduce the likelihood that
a third party would nominate and elect individuals to serve on the board of
directors.
Consideration of Sun Bancshares' Constituencies. Sun Bancshares' articles
of incorporation provide that in determining what is in the best interest of Sun
Bancshares and its shareholders the board of directors, in addition to
considering the effect of any action on Sun Bancshares and its shareholders, may
also consider the (1) interest of Sun Bancshares' employees, customers,
suppliers, creditors, and other constituencies; (2) the communities in which Sun
Bancshares operates; and (3) other factors the directors consider pertinent.
INDEMNIFICATION
Sun Bancshares' articles of incorporation and bylaws contain provisions
which provide that Sun Bancshares shall indemnify directors to the maximum
extent provided by South Carolina law. This protection is broader than the
protection expressly mandated in Sections 33-8-510 and 33-8-520 of the South
Carolina Business Corporation Act. These statutory sections provide that a
company shall indemnify a director or an officer only to the extent that he has
been wholly successful, on the merits or otherwise, in the defense of any action
or proceeding brought by reason of the fact that the person was a director or
officer. This requirement would include indemnifying directors against expenses,
including attorney's fees, actually and reasonably incurred in connection with
the matter. In addition to this mandatory indemnification right, Sun Bancshares'
bylaws provide additional protections that include, but are not limited to,
situations where:
- The director conducted him or herself in good faith;
- The director reasonably believed that conduct in his or her official
capacity with the corporation was in the corporation's best interest or
was not opposed to the best interest of the corporation; and
- In the case of a criminal proceeding, the director had no reasonable
cause to believe his or her conduct was unlawful.
52
<PAGE> 53
No director will, however, be indemnified if he or she is found liable to Sun
Bancshares in a proceeding brought on Sun Bancshares' behalf or he or she is
found liable on the basis that he or she received an improper personal benefit.
Sun Bancshares' board of directors also has the authority to extend to
officers, employees, and agents the same indemnification rights held by
directors, subject to all of the conditions and obligations described above. The
board of directors intends to extend indemnification rights to all of its
executive officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Sun Bancshares pursuant to these provisions, or otherwise, Sun Bancshares has
been informed that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
LIMITATION OF LIABILITY
Sun Bancshares' articles of incorporation contain a provision which,
subject to the following exceptions, limits the liability of a director for any
breach of duty as a director. There is no limitation of liability for:
- A breach of the director's duty of loyalty to Sun Bancshares or its
shareholders;
- An act or omission not in good faith or which involves gross negligence,
intentional misconduct or a knowing violation of law;
- Any payment of a dividend or any other type of distribution that is
illegal under Section 33-8-330 of the South Carolina Business
Corporation Act;
- Any transaction from which the director derives an improper personal
material tangible benefit.
In addition, if the South Carolina Business Corporation Act is amended to
authorize further elimination or limitation of the liability of director, then
the liability of each director shall be eliminated or limited to the fullest
extent permitted by the provisions of the Act, as then in effect without further
action by the shareholders, unless the law requires shareholder action. The
provision does not limit the right of Sun Bancshares or its shareholders to seek
injunctive or other equitable relief not involving payments in the nature of
monetary damages.
53
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Sun Bancshares will have 715,000 shares
of common stock outstanding, or 822,250 shares of common stock outstanding if
the underwriter exercises its over-allotment option in full. These shares of
common stock will be freely tradable without restriction, except that
"affiliates" of Sun Bancshares must comply with the resale limitations of Rule
144 under the Securities Act of 1933. Rule 144 defines an "affiliate" of a
company as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the company. Affiliates of a company generally include its directors, officers
and principal shareholders. A total of at least 349,110 shares owned directly or
indirectly by affiliates of Sun Bancshares will be eligible for public sale
under Rule 144, subject to the contractual and volume restrictions discussed
below, beginning 180 days after the date of this prospectus.
In general, under Rule 144 affiliates are entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the outstanding shares of common stock; or
- The average weekly trading volume during the four calendar weeks
preceding his or her sale.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about Sun
Bancshares. Affiliates will no longer be subject to the volume restrictions and
other limitations under Rule 144 beginning 90 days after their status as an
affiliate terminates.
Even though Rule 144 would otherwise permit the sale of shares held by
affiliates beginning 90 days after the date of this prospectus, the directors
and executive officers have each agreed with the underwriter that they will not
sell, contract to sell, or otherwise dispose of any shares of common stock or
any securities convertible into or exchangeable for any shares of common stock
for a period of 180 days from the date of this prospectus without the
underwriter's prior written consent except in limited circumstances.
Sun Bancshares intends to issue warrants to purchase up to a total of
291,350 shares of common stock, representing an amount equal to 40.7% of the
common stock sold in the offering. Sun Bancshares may also grant options, under
its stock incentive plan, to purchase up to a total of 100,000 shares of common
stock, representing an amount equal to 14.0% of the common stock sold in the
offering. Sun Bancshares intends to register the shares issuable upon exercise
of warrants and options granted under the plan. Upon registration, these shares
will be eligible for resale in the public market without restriction by persons
who are not affiliates of Sun Bancshares, and to the extent they are held by
affiliates, under Rule 144 without a holding period.
Prior to the offering, there has been no public market for the common
stock, and we cannot predict the effect, if any, that the sale of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of common stock in the
public market could adversely affect prevailing market prices and our ability to
raise equity capital in the future.
54
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Sun Bancshares and the underwriter named below, the underwriter has agreed to
purchase from us, and we have agreed to sell to the underwriter, the number of
shares of common stock listed opposite the underwriter's name below.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF OVER-ALLOTMENT
UNDERWRITER FIRM SHARES SHARES
----------- ----------- --------------
<S> <C> <C>
Wachovia Securities, Inc.................................... 715,000 107,250
</TABLE>
The underwriting agreement provides that the underwriter's obligations are
subject to approval of certain legal matters by counsel and to various other
conditions customary in a firm commitment underwritten public offering. The
underwriter is required to purchase and pay for the shares offered by this
prospectus other than those covered by the over-allotment option described
below.
The underwriter will not charge an underwriting discount on shares
purchased in this offering by Sun Bancshares' organizers, directors and
executive officers. The underwriter will charge an underwriting discount equal
to 3.5% of the public offering price, or $0.35 per share, on shares purchased by
the advisory board members of SunBank. The underwriter will charge an
underwriting discount equal to 7.5% of the public offering price, or $0.75 per
share, on all other shares sold in this offering. Additionally, Sun Bancshares
will reimburse the underwriter for its reasonable out-of-pocket expenses,
including legal fees, and travel and marketing expenses. We estimate that these
out-of-pocket expenses will total approximately $67,000.
The underwriter proposes to offer the common stock directly to the public
at the public offering price listed on the cover page of this prospectus and to
selected securities dealers at that price less a concession not in excess of
$0.45 per share. The underwriter may allow, and the selected dealers may
reallow, a concession not in excess of $0.10 per share to other brokers and
dealers. We expect that the shares of common stock will be ready for delivery on
or about November 1, 2000. After the offering, the offering price and other
selling terms may change.
The public offering price was determined arbitrarily by Sun Bancshares and
the underwriter after considering several factors. These factors include
prevailing market conditions and the price of comparable publicly traded
companies.
Sun Bancshares has granted the underwriter an option, exercisable within
30 days after the date of this prospectus, to purchase up to 107,250 additional
shares of common stock to cover over-allotments, if any, at the public offering
price listed on the cover page of this prospectus, less the 7.5% underwriting
discount. The underwriter may purchase these shares only to cover
over-allotments made in connection with this offering.
In addition, Sun Bancshares has granted to the underwriter a right of
first refusal to serve as exclusive or lead advisor on all corporate finance
transactions undertaken or considered by Sun Bancshares for a period of three
years after the date of this prospectus.
The underwriter does not intend to sell shares of common stock to any
account over which it exercises discretionary authority.
Each of our organizers, directors and executive officers has agreed with
the underwriter not to sell, contract to sell, or otherwise dispose of any
shares of common stock or any securities that can be converted into or exchanged
for shares of common stock for a period of 180 days from the date of this
prospectus without the underwriter's prior written consent, except in limited
circumstances. The underwriter and its affiliates may on occasion be a customer
of, engage in transactions with, and perform services for Sun Bancshares or
SunBank in the ordinary course of business.
55
<PAGE> 56
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as currently in effect,
or to contribute to payments that the underwriter may be required to make in
connection with these liabilities.
In connection with this offering, the underwriter may purchase and sell
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions, and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the common stock, and syndicate short positions involve the
underwriter's sale of a greater number of shares of common stock than it is
required to purchase from Sun Bancshares in the offering. These activities may
stabilize, maintain or otherwise affect the market price of the common stock,
which may be higher than the price that might otherwise prevail in the open
market. The underwriter may effect these transactions on the OTC Bulletin Board
or otherwise and may discontinue them at any time.
LEGAL MATTERS
Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia will pass upon
the validity of the shares of common stock offered by this prospectus for Sun
Bancshares. Smith Helms Mulliss & Moore, L.L.P., Charlotte, North Carolina is
acting as counsel for the underwriter in connection with legal matters relating
to the shares of common stock offered by this prospectus.
EXPERTS
Sun Bancshares' audited financial statements at December 31, 1999 and for
the period from August 3, 1999 through December 31, 1999, included in this
prospectus have been included in reliance on the report of Tourville, Simpson &
Caskey, L.L.P., Columbia, South Carolina independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
REPORTS TO SHAREHOLDERS
Upon the effective date of the Registration Statement on Form SB-2 that
registers the shares of common stock offered by this prospectus with the
Securities and Exchange Commission, Sun Bancshares will be subject to the
reporting requirements of the Securities Exchange Act of 1934, as currently in
effect, which include requirements to file annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB with the Securities and Exchange Commission.
This reporting obligation will exist for at least one year and will continue for
successive fiscal years, except that these reporting obligations may be
suspended for any subsequent fiscal year if at the beginning of the year the
common stock is held of record by less than 300 persons.
At any time that Sun Bancshares is not a reporting company, it will
furnish its shareholders with annual reports containing audited financial
information for each fiscal year on or before the date of the annual meeting of
shareholders. Sun Bancshares' fiscal year ends on December 31. Additionally, Sun
Bancshares will also furnish such other reports as it may determine to be
appropriate or as otherwise may be required by law.
ADDITIONAL INFORMATION
Sun Bancshares has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933, as
currently in effect, with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information contained in
the Registration Statement. For further information with respect to Sun
Bancshares and the common stock, we refer you to the Registration Statement and
the exhibits to it. The Registration Statement may be examined and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
and at the
56
<PAGE> 57
regional offices of the Securities and Exchange Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of the
Registration Statement are available at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission, Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a Web site (http://www.sec.gov) that contains
registration statements, reports, proxy and information statements and other
information regarding registrants, such as Sun Bancshares, that file
electronically with the Securities and Exchange Commission.
Sun Bancshares and the organizers have filed or will file various
applications with the Office of the Comptroller of the Currency, the FDIC and
the Federal Reserve. These applications and the information they contain are not
incorporated into this prospectus. You should rely only on information contained
in this prospectus and in the related Registration Statement in making an
investment decision. To the extent that other available information not
presented in this prospectus, including information available from Sun
Bancshares and information in public files and records maintained by the Office
of the Comptroller of the Currency, FDIC and the Federal Reserve, is
inconsistent with information presented in this prospectus or provides
additional information, that information is superseded by the information
presented in this prospectus and should not be relied on. Projections appearing
in the applications are based on assumptions that the organizers believe are
reasonable, but as to which they can make no assurances Sun Bancshares
specifically disaffirms those projections for purposes of this prospectus and
cautions you against relying on them for purposes of making an investment
decision.
57
<PAGE> 58
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 2000 (unaudited) and December
31, 1999 F-3
Statements of Operations and Accumulated Deficit for the
Period August 3, 1999 (Inception) to June 30, 2000
(unaudited), for the Six and Three Month Periods Ended
June 30, 2000 (unaudited) and for the Period August 3,
1999 (Inception) to December 31, 1999 F-4
Statement of Changes in Stockholders' Equity (deficit) for
the Period beginning August 3, 1999 (Inception) through
June 30, 2000 F-5
Statements of Cash Flows for the Six Months Ended June 30,
2000 (unaudited) and for the Period August 3, 1999
(Inception) to December 31, 1999 F-6
NOTES TO FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE> 59
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
To the Organizers
SUN BANCSHARES, INC.
We have audited the accompanying balance sheet of Sun Bancshares, Inc., (a
Company in the development stage) as of December 31, 1999 and related statements
of operations and accumulated deficit, stockholders' equity and cash flows for
the period from inception August 3, 1999 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
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SUN BANCSHARES, INC., (a
Company in the development stage) as of December 31, 1999, and the results of
its operations and its cash flows for the period from inception August 3, 1999
to December 31, 1999 in conformity with generally accepted accounting
principles.
Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
March 31, 2000 (except for the
notes to the financial statements,
as to which the date is
October 27, 2000)
F-2
<PAGE> 60
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,062 $ 10,750
Premises and equipment 227,258 30,740
Deferred stock offering costs 59,198 34,557
Lease deposits 51,833 9,167
Prepaid membership 20,250 --
----------- -----------
Total assets $ 393,601 $ 85,214
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Borrowings $ 775,000 $ 250,000
Accounts payable 17,415 --
----------- -----------
Total liabilities 792,415 250,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value not stated; 10,000,000 shares
authorized; 1 shares issued and outstanding 10 10
Preferred stock, par value not stated; 2,000,000 shares
authorized, no shares issued and outstanding -- --
Deficit accumulated in the development stage (398,824) (164,796)
----------- -----------
Total stockholders' equity (deficit) (398,814) (164,786)
----------- -----------
Total liabilities and stockholders' equity $ 393,601 $ 85,214
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 61
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
AUGUST 3, 1999 FOR THE SIX FOR THE THREE AUGUST 3, 1999
(INCEPTION) TO MONTHS ENDED MONTHS ENDED (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 2000 DECEMBER 31, 1999
-------------- ------------- ------------- -----------------
(UNAUDITED)
----------------------------------------------
<S> <C> <C> <C> <C>
Income - interest $ 259 $ 22 $ -- $ 237
------------ ------------ ------------ ------------
Expenses:
Interest 13,978 12,832 7,294 1,146
Salaries and employee
benefits 157,182 106,759 64,055 50,423
Land rent 9,167 9,167 9,167 --
Consultant and professional
fees 129,114 48,644 37,026 80,470
Application fee 15,350 -- -- 15,350
Other operating expenses 74,292 56,648 32,856 17,644
------------ ------------ ------------ ------------
Total expenses 399,083 234,050 150,398 165,033
------------ ------------ ------------ ------------
Net loss $ (398,824) $ (234,028) $ (150,398) $ (164,796)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 62
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD BEGINNING AUGUST 3, 1999 (INCEPTION) THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK IN
--------------- THE DEVELOP-
SHARES AMOUNT MENT STAGE TOTAL
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
Issuance of common stock 1 $10 $ $ 10
Net loss for the period August 3, 1999 to
December 31, 1999 (164,796) (164,796)
-- --- ---------------- ----------------
Balance, December 31, 1999 1 10 (164,796) (164,786)
Net income (loss) for the six month period
ended June 30, 2000 (unaudited) -- -- (234,028) (234,028)
-- --- ---------------- ----------------
Balance, June 30, 2000 (unaudited) 1 $10 $ (398,824) $ (398,814)
== === ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 63
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
SIX MONTHS AUGUST 3, 1999
ENDED (INCEPTION) TO
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss and accumulated deficit $ (234,028) $ (164,796)
---------------- ----------------
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Increase in accounts payable 17,415 --
---------------- ----------------
Net cash used by operating activities (216,613) (164,796)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit on lease (42,666) (9,167)
Prepaid membership (20,250) --
Purchases of premises and equipment (196,518) (30,740)
---------------- ----------------
Net cash used by investing activities (259,434) (39,907)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 525,000 250,000
Proceeds from issuance of common stock -- 10
Increase in stock offering costs (24,641) (34,557)
---------------- ----------------
Cash provided by financing activities 500,359 215,453
---------------- ----------------
Net increase in cash 24,312 --
Cash, beginning of period 10,750 --
---------------- ----------------
CASH BALANCE AT END OF PERIOD $ 35,062 $ 10,750
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 64
--------------------------------------------------------------------------------
SUN BANCSHARES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION
Sun Bancshares, Inc. (the Company) was formed to organize and own all of
the capital stock of SunBank, N.A. (the Bank), a proposed national bank to be
located in Murrells Inlet, South Carolina, by a group of sixteen individuals
(the Organizers). Upon receipt of required regulatory approvals, the proposed
bank will engage in general banking. The Organizers have received preliminary
conditional approval of their application to the Office of The Comptroller of
the Currency to obtain a national bank charter and have filed an application
with the Federal Deposit Insurance Corporation (FDIC) for deposit insurance.
Provided the necessary capital is raised and the necessary final regulatory
approvals are received, it is expected that operations will commence in the
fourth quarter of 2000.
The Company plans to raise a minimum of $7,150,000 by offering for sale
715,000 shares of its common stock. The Company will use $6,500,000 of the
proceeds to capitalize the proposed Bank. The Organizers, directors, executive
officers, and members of their immediate families expect to purchase at least
349,110 shares at an aggregate purchase price of approximately $3,491,100. The
directors may also purchase up to an aggregate of 125,000 additional shares in
order for 715,000 shares to be sold in the offering.
ORGANIZATIONAL AND PRE-OPENING COSTS
Activities since inception have consisted of organizational activities
necessary to obtain regulatory approvals and preparation activities to commence
business as a commercial bank. Organizational costs are primarily legal fees,
consulting fees, and application fees related to the incorporation of the
Company and initial organization of the Bank. Pre-opening costs are primarily
employees' salaries and benefits, temporary occupancy expense and other
operational expenses related to the preparation for the Bank's opening. The
organizational and pre-opening costs will be charged against the initial
period's operating results.
It is estimated the Company will incur approximately $664,000 in
organizational and pre-opening costs.
OFFERING EXPENSES
Offering expenses, consisting principally of direct incremental costs of
the public stock offering, will be deducted from the proceeds of the offering.
These expenses are estimated to be approximately $267,000.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the requirements for interim financial statements. The financial
statements as of June 30, 2000 and for the interim period ended June 30, 2000
are unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. The financial information as of December 31, 1999 has been derived
from the audited financial statements as of that date.
F-7
<PAGE> 65
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NOTE 2 - PREMISES AND EQUIPMENT
The Company has entered into an agreement to lease a lot from two of the
organizers. The lot is located in Murrells Inlet, South Carolina and will be the
site of the Bank's main office facility. This agreement is contingent upon it
being approved by the FDIC. The lease will be a triple-net lease for a
twenty-five year term with three five year renewals. The rent for the first year
is $90,000. From years two through twenty five, the proposed rent is the amount
computed for year one plus the increase in the consumer price index.
The Company has entered into an agreement to lease a lot located in
Georgetown, South Carolina, for the purpose of constructing a branch bank
facility. The agreement requires the Company to pay the lessor rent in an annual
installment on May 1 of each year. The proposed lease will be a triple net lease
for an initial thirty year term, with four five year renewal options.
The rent is $55,000 per year for years one through three. The rent for
subsequent years will be adjusted by the corresponding changes in the consumer
price index.
NOTE 3 - BORROWINGS
As of December 31, 1999, borrowings consist of $250,000 drawn on an
$850,000 unsecured line of credit obtained from The Bankers Bank, Atlanta,
Georgia. As of June 30, 2000, borrowings consist of $775,000 drawn on an
$1,500,000 unsecured line of credit obtained from The Bankers Bank, Atlanta,
Georgia. The Organizers have individually guaranteed the line of credit.
Interest is payable monthly, at the prime rate minus 1/2 percent, with the
principal being due on November 30, 2000.
The line of credit is being used to fund the Bank's organizational and
pre-opening costs.
NOTE 4 - STOCKHOLDERS' EQUITY
COMMON STOCK
Sun Bancshares, Inc. has the authority to issue up to 10,000,000 shares of
voting common stock, par value not stated.
PREFERRED STOCK
Sun Bancshares, Inc. has the authority to issue up to 2,000,000 shares of
preferred stock, par value not stated. Also, Sun Bancshares, Inc. has the right
to establish and designate from time to time any part or all of the shares by
filing an amendment to Sun Bancshares, Inc.'s Articles of Incorporation, which
is effective without shareholder action, in such series and with such
preferences, limitations, and relative rights as may be determined by the Board
of Directors. The number of authorized shares of preferred stock may be
increased or decreased by the affirmative vote of the holders of the majority of
the shares of common stock, without a vote of the holders of the shares of
preferred stock.
CUMULATIVE VOTING RIGHTS
Sun Bancshares, Inc. has elected not to have cumulative voting, and no
shares issued by Sun Bancshares, Inc. may be cumulatively voted.
PREEMPTIVE RIGHTS
The stockholders of Sun Bancshares, Inc. shall not have any preemptive
rights regarding any issuance of Sun Bancshares, Inc.'s capital stock.
F-8
<PAGE> 66
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NOTE 4 - STOCKHOLDERS' EQUITY, CONTINUED
STOCK OFFERING
Upon receiving preliminary regulatory approvals, the Company, through its
underwriter, Wachovia Securities, Inc., plans to offer for sale to the general
public 715,000 shares of no stated par value common stock at an offering price
of $10.00 per share. Wachovia Securities has the right to exercise its over-
allotment option to purchase up to an additional 107,250 shares of common stock
at $10.00 per share, less a 7.5% underwriting discount. The Organizers,
directors and executive officers intend to purchase at least 349,110 shares of
common stock to be sold in the offering which represent approximately 48.8% of
the offering. The directors may also purchase up to an aggregate of 125,000
additional shares in order for 715,000 shares to be sold in the offering. The
Organizers will receive a warrant to purchase up to one share of common stock
for each share of common stock purchased in the offering. The exercise price for
the warrants will be $10.00 per share and may be exercised over a ten (10) year
period. The warrants will be subject to certain conditions and limitations.
NOTE 5 - INCOME TAXES
As of December 31, 1999, Sun Bancshares, Inc. had a net operating loss
carryforward of $164,796.
There was no provision (benefit) for income taxes for the period from
August 3, 1999 to December 31, 1999, since a 100% valuation reserve is being
maintained for the net operating loss carryforward.
As of June 30, 2000, the Company had a net operating loss carryforward of
$398,824. There was no provision (benefit) for income taxes for the three months
ended June 30, 2000 or for the period August 3, 1999 (inception) to June 30,
2000, since a 100% valuation reserve is being maintained for the net operating
loss carryforward.
NOTE 6 - EMPLOYMENT CONTRACT
Sun Bancshares, Inc. intends to enter into a three-year employment
contract with its President. Subject to certain conditions, at the end of the
initial three-year term of the contract, the contract shall be extended for an
additional year so that the remaining term of the contract will be one year. The
contract provides that the President will receive an initial annual salary of
$96,000.
The contract provides that the President shall receive a $10,000 cash
bonus on the date the Bank opens for business and shall be eligible to receive
an annual cash bonus not to exceed 5% of the Bank's pretax income if the Bank
achieves certain performance levels established by the board of directors.
Additionally, the President will receive other benefits including being
eligible for the grant of stock options. Upon the adoption of a stock option
plan the President will be granted the option to purchase 5% of the Company's
common stock sold in the stock offering.
F-9
<PAGE> 67
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PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NO ONE HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 7
Caution Regarding Forward-Looking
Statements.......................... 13
Use of Proceeds....................... 14
Capitalization........................ 16
Dividends............................. 16
Management's Discussion and Analysis
of Financial Condition and Plan of
Operations.......................... 17
Proposed Business..................... 20
Management............................ 29
Executive Compensation................ 37
Related Party Transactions............ 42
Supervision and Regulation............ 43
Description of Sun Bancshares' Capital
Stock and Shareholders' Rights...... 50
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Reports to Shareholders............... 56
Additional Information................ 56
Index to Financial Statements......... F-1
</TABLE>
UNTIL JANUARY 25, 2001 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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715,000 SHARES
SUN
BANCSHARES, INC.
A PROPOSED BANK HOLDING COMPANY FOR
[SUN BANCSHARES, INC. LOGO]
SUNBANK, N.A.
(IN ORGANIZATION)
COMMON STOCK
----------
PROSPECTUS
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WACHOVIA SECURITIES, INC.
OCTOBER 27, 2000
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