March 31, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Britton & Koontz Capital Corporation (the "Company")
Annual Report on Form 10-KSB for Period Ended
December 31, 1998 (Commission File No. 0-22606)
Ladies and Gentlemen:
Pursuant to Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Act"), transmitted herewith for filing, is
the Company's Annual Report on Form 10-KSB, with exhibits, for the
period ended December 31, 1998.
The financial statements in the annual report do not reflect
any change from the prior year in any accounting principles or
practices or in the method of applying any such principles or
practices.
Sincerely yours,
William M Salters
Vice President/Controller
Enclosures
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File Number: 0-22606
Britton & Koontz Capital Corporation
(Name of Small Business Issuer in its Charter)
Mississippi 64-0665423
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 Main Street
Natchez, Mississippi 39120
(Address of Principal Executive Offices) (Zip Code)
(601) 445-5576
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $2.50 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the 1998 fiscal year were $14,562,095.
The aggregate market value of the issuer's voting stock held by non-affiliates
computed by reference to the price at which the stock was sold as of February
23, 1999 is $21,235,160 for 1,117,640 shares at an estimated $19.00 per share.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of March 31, 1999.
Common Stock, $2.50 Par Value: 1,767,064 shares
Transitional Small Business Disclosure Format (check one): Yes No [X]
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's annual report to shareholders for the
fiscal year ended December 31, 1998 are incorporated by
reference into Part II of this annual report on Form 10-KSB.
2. Portions of the Registrant's definitive proxy statement, which
was filed on March 22, 1999 with the Securities and Exchange
Commission, are incorporated by reference into Part III of this
annual report on Form 10-KSB.
<PAGE>
CROSS REFERENCE INDEX
TO
FORM 10-KSB
Certain information required by Form 10-KSB is incorporated by
reference from the annual report to shareholders as indicated below. Only
that information expressly incorporated by reference is deemed filed with the
Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . *
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . *
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . *
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . **
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . **
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT . . . . . . . . . . . . . . ***
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . ***
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . ***
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . ***
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K. . . . . . . . . . . . *
______________
* This information is included in this annual report on Form 10-KSB and is not
incorporated by reference from the Company's annual report to shareholders.
** This information is incorporated by reference from the Company's annual
report to shareholders pursuant to Instruction E(2) of Form 10-KSB, which
annual report is included as Exhibit 13 to this annual report on Form 10-KSB.
*** The material required by Items 9 through 12 is incorporated by reference
from the Company's definitive proxy statement pursuant to Instruction E(3) of
Form 10-KSB. The Company filed a definitive proxy statement with the
Securities and Exchange Commission on March 22, 1999.
<PAGE>
PART I
Item 1. Description of Business.
General
The Company
Britton & Koontz Capital Corporation (the "Company") was organized
as a Mississippi business corporation in July of 1982 and became a one-bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), when it acquired all of the issued and outstanding
shares of Britton & Koontz First National Bank, a national banking
association (the "Bank"), later that same year. The Bank is the only
wholly-owned subsidiary of the Company and its stock is the Company's most
significant asset. In July, 1993, the Company acquired Natchez First Federal
Savings Bank ("Natchez First Federal"), located in Natchez, Mississippi, and
merged it into the Bank. As a result of this merger, the Bank's total assets
were increased by approximately $48 million. On November 10, 1998, the
Company announced the intent to acquire two local branches owned by a regional
bank with deposits of $12 million and $1.8 million in loans. The acquisition
was completed in January 1999. In December 1998, the Company invested $1.0
million for a 35% interest in Sumx Inc., a company formed to develop and
market internet-based electronic banking to financial institutions.
The Company's major source of income in 1998 was dividends from the
Bank in the amount of $2,262,449. The Company expects that dividends from
the Bank will continue to be the Company's major source of income in 1999.
As of December 31, 1998, the Company had total consolidated assets of
approximately $174 million, and total consolidated shareholders' equity of
approximately $19 million.
The Bank
The Bank conducts a full service banking business from its main office
and two branch offices, all of which are located in Natchez, Mississippi. The
Bank provides commercial and consumer banking and trust services to customers
in Adams County and the adjoining counties and parishes of Mississippi and
Louisiana, respectively. The geographical area serviced by the Bank is
economically diverse and includes public and private sector industries,
including government service, manufacturing, tourism, agriculture and oil and
gas exploration.
The products and services offered by the Bank include personal and
commercial checking accounts, money market deposit accounts, savings
accounts, and automated clearinghouse services. The Bank also offers money
transfer services, safe deposit box facilities and access to a network of
automated teller machines. In recent years and primarily as a result of its
merger with Natchez First Federal in July, 1993, the Bank has become a full-
service residential and commercial mortgage lender. The Bank also engages in
other commercial and consumer lending activities, including, among other
things, the issuance of VISA and MasterCard credit cards. The Bank's trust
department offers a range of trust services, acting as trustee, executor,
administrator, custodian, guardian and agent with responsibility for total
assets as of December 31, 1998, of approximately $25 million.
<PAGE>
As of December 31, 1998, the Bank had total assets of approximately
$172 million and total deposits of approximately $144 million.
As of December 31, 1998, the Company and the Bank had
approximately 67 full-time and 7 part-time employees for a total of 74
employees. The employees are not represented by a collective bargaining unit.
The Company believes that its relationship with its employees is good.
Sumx Inc.
On December 3, 1998, the Company acquired 1,000,000 shares of Series
A Preferred Stock in Sumx, Inc. ("Sumx"), a Mississippi corporation, formerly
InterBank Systems, Inc. ("InterBank") for $1,000,000 (the "Acquisition").
Following the acquisition and related transactions, Sumx is owned 35% by the
Company, 19.5% by Mr. Bazile R. Lanneau, Jr., President and CEO of Sumx, and
Executive Vice President of the Bank and Vice President of the Company, and
45.5% by Summit Research, Inc., a Texas corporation ("Summit"). The funds
provided to Sumx will be used for marketing and continued development of the
SumxNet Internet banking system and for service bureau operations. Sumx
maintains offices in Madison, Mississippi and Highland Village, Texas.
<PAGE>
Supervision and Regulation
The banking industry is extensively regulated under federal and state
law. As a bank holding company, the Company is subject to regulation under
the BHCA and to supervision by the Board of Governors of the Federal Reserve
System (the "FRB"). Pursuant to the BHCA, the Company may not directly or
indirectly acquire the ownership or control of more than 5% of any class of
voting shares or substantially all of the assets of any other company,
including a bank, without the prior approval of the FRB. The BHCA further
limits the activities of both the Company and the Bank to the business of
banking and activities closely related or incidental to banking.
As a national bank, the Bank is subject to supervision and regular
examination by the Office of the Comptroller of the Currency (the
"Comptroller"). Such examinations, however, are for the protection of the
Bank Insurance Fund ("BIF") and, indirectly to a degree, for depositors, and
not for the protection of investors and shareholders. Pursuant to the terms
of the Federal Deposit Insurance Act (the "FDIA"), the deposits of the Bank are
insured through the BIF and the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation (the "FDIC"). Accordingly, the
Bank is subject to regulation by the FDIC and is also subject to the Federal
Reserve's requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered.
In 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"), which, among other things, substantially revised
the depository institution regulatory and funding provisions of the FDIA.
FDICIA also expanded the regulatory and enforcement powers of bank
regulatory agencies. Most significantly, FDICIA mandates annual examinations
of banks by their primary regulators and requires the federal banking agencies
to take prompt "corrective action" whenever financial institutions do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A depository
institution's capitalization status will depend on how well its capital
levels compare to various relevant capital measures and certain other factors,
as established by regulation. As of December 31, 1997, the Bank maintained a
capital level which qualified it as being "well capitalized" under such
regulations.
FDICIA also prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
"undercapitalized." For additional information regarding restrictions on the
Bank's payment of dividends, see Item 5 - "Market for Common Equity and
Related Stockholder Matters -- Dividends," below.
<PAGE>
The banking industry is affected by the policies of the FRB. An
important function of the FRB is to regulate the national supply of bank credit
to moderate recessions and to curb inflation. Among the instruments of
monetary policy used by the FRB to implement its objectives are: open-market
operations in U.S. Government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements on bank deposits.
Interstate Banking and Branching Legislation
Federal Law
In 1994, Congress passed the Riegle-Neal Interstate Banking and
Branching Efficiency Act ("Riegle-Neal"), which affected the interstate banking
and branching abilities of bank holding companies and banks.
Beginning June 1, 1997, Riegle-Neal authorizes a national bank
domiciled in one state to establish branches in any other state as long as
neither state has opted out of interstate branching between the date of
enactment of Riegle-Neal and May 31, 1997. Riegle-Neal, however, does allow
states to preserve certain restrictions on the entry of out-of-state banks,
such as the fashion in which entry can be made, an age requirement for a bank
being merged or acquired, and a deposit cap. Under Riegle-Neal, once a bank
has established a branch in another state, it may exercise the same rights in
that state as national and state banks enjoy in that state, including the
ability to branch intra-state. Riegle-Neal provides that states may opt in
early to interstate branching prior to June 1, 1997.
Riegle-Neal also permits states to allow banks to enter the state by
establishing a de novo branch in that state. In order to allow de novo entry
into a state, that state must expressly provide for de novo branching. Once a
bank has established a branch in a host state through de novo branching, it may
exercise the same rights in that state as national and state banks enjoy,
including the ability to branch intra-state. If a state opts out of interstate
branching, no bank domiciled in that state may establish branches in other
states, and no bank domiciled in another state may establish branches in that
state.
Mississippi Law
On March 29, 1996, the Governor of Mississippi signed into law a bill
in which Mississippi elected to opt in to interstate branching, effective
May 1, 1997. As enacted, the bill would (1) allow all Mississippi banks to
establish branches in any other state pursuant to the entry rules in the
potential host state, and (2) allow out-of-state banks to establish branches
in Mississippi pursuant to Mississippi's entry rules. The bill as enacted,
however, does not authorize de novo branching into Mississippi. An
out-of-state bank can establish branches in Mississippi only by (1) merging
with a Mississippi domiciled bank, (2) buying all of the assets of a
Mississippi domiciled bank, or (3) buying all of the assets in Mississippi of
an out-of-state bank which has branches in Mississippi. All interstate
branching transactions require appropriate regulatory approval.
<PAGE>
Consequence of Increased Interstate Activity
Because of the increasing liberalization of the laws and regulations
affecting the conduct of interstate banking activities, it is anticipated that
competition in the Bank's geographical market area will increase. If large,
regional bank holding companies acquire branches in the Bank's market area,
they may offer a wider range of services than are currently offered by the
Bank. In addition, some of these competitors may be more highly capitalized
than the Bank and the Company.
Further Changes in Regulatory Requirements
The United States Congress and the Mississippi legislature have
periodically considered and adopted legislation that has resulted in
deregulation of, among other matters, banks and other financial institutions,
or adversely affected the profitability of the banking industry. Future
legislation could further modify or eliminate geographic restrictions on banks
and bank holding companies and current prohibitions with other financial
institutions, including mutual funds, securities brokerage firms, insurance
companies, banks from other states and investment banking firms. The effect
of any such legislation on the business of the Company or the Bank cannot be
accurately predicted. The Company also cannot predict what legislation might
be enacted or what other implementing regulations might be adopted, and if
enacted or adopted, the effect thereof.
Restriction on Dividends
The Company is a legal entity separate and distinct from the Bank and
substantially all of the Company's revenues result from amounts paid by the
Bank, as dividends, to the Company. The payment of dividends by the Bank
is, of course, dependent upon its earnings and financial condition. The Bank,
however, as a national bank, is also subject to legal limitations on the amount
of its earnings that it may pay as dividends. For additional information
regarding the restrictions on the Bank's payment of dividends, see Item 5 -
"Market for Common Equity and Related Stockholder Matters--Dividends,"
below.
<PAGE>
Competition
There is significant competition among banks and bank holding
companies in Mississippi. The Bank competes with both national and state
banks for deposits, loans and trust accounts and with savings and loan
associations and credit unions for loans and deposits. The Bank also competes
with large national banks from the principal cities in Louisiana and
Mississippi for certain commercial loans.
The deregulation of depository institutions as well as the increased
ability of nonbanking financial institutions, such as finance companies,
investment companies, insurance companies and several governmental agencies,
to provide services previously reserved to commercial banks has further
intensified competition. Accordingly, the Bank now competes with these
nonbanking financial institutions, all of which are engaged in marketing
various types of loans, commercial paper, short-term obligations, investments
and other services. Because nonbanking financial institutions are not subject
to the same regulatory restrictions as banks and bank holding companies, in
many instances they may operate with greater flexibility. The continued
deregulation of the financial services industry may have a detrimental effect
on the Bank's long-term growth and profitability.
Environmental
The Company is subject to various federal, state and local statutes
and ordinances regulating the discharge of materials into the environment.
The Company does not believe that it will be required to expend any material
amounts to comply with these laws and regulations.
Item 2. Description of Property.
The Company has its principal offices in its headquarters building at
500 Main Street, Natchez, Adams County, Mississippi 39120, which is owned and
occupied by the Bank. The Bank also owns the properties on which its two
branch offices are located, as well as other residential and commercial
properties which it has acquired primarily through foreclosure proceedings
along with one commercial property acquired as a result of the acquisition of
the assets and deposits of two branches from a regional bank. In the judgment
of management, the facilities of the Company and the Bank are generally
suitable and adequate for the needs of the Company and the Bank.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information
On October 17, 1996, the Company listed its Common Stock on the
NASDAQ Small Cap Market. Prior to that date, there was no established public
trading market for the Common Stock. The table below sets forth the NASDAQ
Small Cap Market price high and low ranges for the Common Stock.
Dividends
Per Share High Low
Period 1998
4th Quarter $ .30 $21.50 $18.00
3rd Quarter $23.00 $19.50
2nd Quarter $ .29 $22.50 $20.50
1st Quarter $23.00 $20.50
Period 1997
4th Quarter $ .29 $23.00 $18.25
3rd Quarter $19.75 $17.00
2nd Quarter $ .27 $23.00 $16.25
1st Quarter $18.75 $14.00
(b) Holders
On December 31, 1998, there were 514 shareholders of record of the
Company's stock.
(c) Dividends
Pursuant to Mississippi law, the Company's Board of Directors may
authorize the Company to pay cash dividends to its shareholders. The only
limitation on such a dividend is that no distribution may be made if, after
giving effect to the distribution (a) the Company would not be able to pay
its debts as they come due in the usual course of business, or (b) the
Company's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of any shareholders whose preferential rights are superior to
those receiving the distribution.
The principal source of the Company's cash revenues, however, are
dividends from the Bank. There are certain limitations under federal law on
the payment of dividends by national banks. Under federal law, the directors
of a national bank, after making proper deduction for all expenses and other
deductions required by the Comptroller, may credit net profits to the bank's
undivided profits account, and may declare a dividend from that account of so
much of the net profits as they judge expedient.
<PAGE>
The prior approval of the Comptroller is required, however, if the
total of all dividends declared by a national bank in any calendar year will
exceed the sum of such bank's net profits for that year and its retained net
profits for the preceding two calendar years, less any required transfers to
surplus. Federal law also prohibits national banks from paying dividends which
would be greater than the bank's undivided profits after deducting statutory
bad debt in excess of the bank's allowance for loan losses. Finally, FDICIA
generally prohibits a depository institution from making any capital
distribution to its holding company if the depository institution would
thereafter be "undercapitalized."
In addition, both the Company and the Bank are subject to various
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a national bank
or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof. The Comptroller has
indicated that paying dividends that deplete a national bank's capital base
to an inadequate level would be an unsound and unsafe banking practice.
The Comptroller and the Federal Reserve Board have each indicated that banking
organizations should generally pay dividends only out of current operating
earnings. The Bank's ability to pay dividends is also limited by prudence,
statutory and regulatory guidelines, and a variety of other factors.
Further, in connection with the acquisition of Natchez First Federal
in 1993, the Bank assumed a liquidation account of approximately $2.8 million
which has the effect of prohibiting the payment of dividends if the Bank's net
worth would thereby be reduced below the amount required for the liquidation
account. Management does not anticipate that this restriction will have a
material adverse effect on the Bank's ability to pay dividends to the Company.
The Company has declared semiannual cash dividends in each of the last
three fiscal years totalling, on an annual basis, $.50 per share for 1996, $.56
per share for 1997 and $.59 per share for 1998. Historical dividend payout
ratios, expressed as a percentage of net income, for 1996 to 1998 were 43.41%,
41.27% and 44.72%, respectively.
The declaration of future dividends is at the discretion of the
Company and generally will be dependent upon the earnings of the Bank, the
assessment of capital requirements, considerations of safety and soundness,
applicable law and regulation and other factors. Subject to the limitations
set forth above, it is the present policy of the Board of Directors of the
Company to continue the declaration of cash dividends on the Company's Common
Stock on a semiannual basis, to the extent practicable.
Retained earnings of the Bank available for payment of cash dividends
under applicable dividend regulations exceeded $2.6 million as of December 31,
1998, although the Bank intends to retain most of these funds for capital and
not to pay them out as dividends.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
This information is incorporated by reference to the Company's Annual
Report to shareholders, which is included as Exhibit 13 to Form 10-KSB.
Item 7. Financial Statements.
The following consolidated financial statements of the Company and the
Bank are incorporated by reference to the Company's Annual Report to
shareholders, which is included as Exhibit 13 to Form 10-KSB.
- Independent Auditor's Report;
- Consolidated Statements of Financial Condition - December 31,
1998 and 1997;
- Consolidated Statements of Income - Years ended December 31,
1998 and 1997;
- Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1998 and 1997;
- Consolidated Statements of Cash Flows - Years ended December
31, 1998 and 1997; and
- Notes to the Consolidated Financial Statements.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
This information is incorporated by reference to the Company's
definitive proxy statement filed with the Commission pursuant to
Regulation 14A.
Item 10. Executive Compensation.
This information is incorporated by reference to the Company's
definitive proxy statement filed with the Commission pursuant to
Regulation 14A.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Company's
definitive proxy statement filed with the Commission pursuant to
Regulation 14A.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
This information is incorporated by reference to the Company's
definitive proxy statement filed with the Commission pursuant to
Regulation 14A.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
The response to this portion of Item 13 is submitted as the Exhibit
Index attached hereto and hereby incorporated herein by this reference.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated November 10, 1998,
reporting third quarter 1998 earnings.
The Company filed a report on Form 8-K, dated November 10, 1998,
announcing a semi-annual dividend.
The Company filed a report on Form 8-K, dated November 10, 1998,
announcing the acquisition of two Union Planters Bank Offices.
The Company filed a report on Form 8-K, dated December 18, 1998,
announcing the investment in an Internet Banking Company
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BRITTON & KOONTZ CAPITAL CORPORATION
(Registrant)
______________________________________
By: /s/ W. Page Ogden
W. Page Ogden
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
_________________
/s/ W. Page Ogden President, March 30, 1999
W. Page Ogden Chief Executive
Officer and
Director
(Principal Executive Officer)
____________________
/s/ W. W. Allen, Jr. Director March 30, 1999
W. W. Allen, Jr.
_____________________
/s/ Craig A. Bradford Director March 30, 1999
Craig A. Bradford, DMD
_________________
/s/ James J. Cole Director March 30, 1999
James J. Cole
{SIGNATURES CONTINUE ON FOLLOWING PAGE}
<PAGE>
{SIGNATURES CONTINUED FROM PRECEDING PAGE}
Signature Title Date
__________________
/s/ Wilton R. Dale Director March 30, 1999
Wilton R. Dale
__________________________
/s/ William J. Feltus, Jr. Chairman and March 30, 1999
William J. Feltus, Jr. Director
__________________
/s/ A. J. Ferguson Director March 30, 1999
A. J. Ferguson
_________________________
/s/ C. Hayden Kaiser, Jr. Vice Chairman March 30, 1999
Hayden Kaiser, Jr. and Director
______________________
/s/ Donald E. Killelea Director March 30, 1999
Donald E. Killelea, M.D.
__________________________
/s/ Bazile R. Lanneau, Sr. Director March 30, 1999
Bazile R. Lanneau, Sr.
__________________________
/s/ Bazile R. Lanneau, Jr. Vice President, Chief March 30, 1999
Bazile R. Lanneau, Jr. Financial Officer, Treasurer,
Assistant Secretary and Director
(Principal Financial Officer)
(Principal Accounting Officer)
______________________
/s/ Albert W. Metcalfe Secretary and March 30, 1999
Albert W. Metcalfe Director
______________________
/s/ Bethany L. Overton Director March 30, 1999
Bethany L. Overton
_____________________
/s/ Robert R. Punches Director March 30, 1999
Robert R. Punches
<PAGE>
EXHIBITS TO ANNUAL REPORT ON FORM 10-KSB
OF BRITTON & KOONTZ CAPITAL CORPORATION
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
3.1 Restated Articles of Incorporation of Britton & Koontz *
Capital Corporation, incorporated by reference to Exhibit 4.1
to Registrant's Registration Statement on Form S-8,
Registration No. 333-20631, filed with the Commission on
January 29, 1997.
3.2 By-Laws of Britton & Koontz Capital Corporation, as *
amended and restated, incorporated by reference to Exhibit
3.2 to Registrant's Annual Report on Form 10-KSB filed
with the Commission on March 30, 1998.
4.1 Certain provisions defining the rights of Shareholders are *
found in the Articles of Incorporation and By-Laws of
Britton & Koontz Capital Corporation. See Exhibits 3.1 and
3.2, above.
4.2 Shareholder Rights Agreement dated June 1, 1996 between *
Britton & Koontz Capital Corporation and Britton & Koontz
First National Bank, as Rights Agent, incorporated by
reference to Exhibit 4.3 to Registrant's Registration
Statement on Form S-8, Registration No. 333-20631, filed
with the Commission on January 29, 1997.
10.01 Employment Agreement dated December 31, 1996, between *
Britton & Koontz Capital Corporation and W. Page Ogden,
incorporated by reference to Exhibit 10.1 to Registrant's
Annual Report on Form 10-KSB filed with the Commission
on March 28, 1997.
10.02 Employment Agreement dated December 31, 1996, between *
Britton & Koontz Capital Corporation and Bazile R.
Lanneau, Jr., incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-KSB filed with the
Commission on March 28, 1997.
10.03 Employment Agreement dated December 31, 1998, between
Britton & Koontz Capital Corporation and James J. Cole.
10.04 Salary Continuation Plan Agreements dated September 26, *
1994, between Britton & Koontz Capital Corporation and
W. Page Ogden, Bazile R. Lanneau, Jr. and James J. Cole,
incorporated by reference to Exhibit 10 to Registrant's
Current Report on Form 10-QSB filed with the Commission
on November 14, 1994.
<PAGE>
10.05 System Purchase Agreement dated January 22, 1996 *
between the Britton & Koontz First National Bank and
InterBank Systems, Inc., incorporated by reference to
Exhibit 10.5 to Registrant's Annual Report on Form 10-KSB
filed with the Commission on March 29, 1996 and Form 10-
KSB/A, Amendment Number 1, filed with the Commission
on June 14, 1996.
10.06 Independent Contractor Agreement dated January 22, 1996 *
between InterBank Systems, Inc. and Summit Research, Inc.,
incorporated by reference to Exhibit 10.6 to Registrant's
Annual Report on Form 10-KSB filed with the Commission
on March 29, 1996 and Form 10-KSB/A, Amendment
Number 1, filed with the Commission on June 14, 1996.
10.07 Britton & Koontz Capital Corporation Long-Term Incentive *
Compensation Plan and Amendment, incorporated by
reference to Exhibit 4.4 to Registrant's Registration
Statement on Form S-8, Registration No. 333-20631, filed
with the Commission on January 29, 1997.
10.09 Stock Purchase Agreement dated December 3, 1998, between
Britton & Koontz Capital Corporation and Sumx Inc.
10.10 Investor Rights Agreement dated December 3, 1998, among
Britton & Koontz Capital Corporation, Summit Research,
Inc., Bazile R. Lanneau, Jr. and Sumx Inc.
10.11 Voting Agreement dated December 3, 1998, among Britton &
Koontz Capital Corporation, Summit Research, Inc. and
Bazile R. Lanneau, Jr.
10.12 Management Services Agreement dated December 3, 1998, among
Britton & Koontz Capital Corporation, Sumx Inc. and Bazile R.
Lanneau, Jr.
11 Statement re: computation of per share earnings.
13 Annual Report to shareholders for fiscal year 1997.
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27 Financial Data Schedule
* As indicated in the column entitled "Description of Exhibit," this
exhibit is incorporated by reference to another filing or document.
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<PAGE>
Computation of Per Share Earnings
Twelve Months Ended
December 31
--------------------
1998 1997
---------- ----------
Basic:
Average shares outstanding: 1,767,064 1,766,007
========== ==========
Net Income $2,331,518 $2,397,560
========== ==========
Net income per share $1.32 $1.36
========== ==========
Diluted:
Average shares outstanding: 1,767,064 1,766,007
Net effect of the assumed exercise of
stock options based on the treasury
stock method using average market price. 1,636 1,101
---------- ----------
Total 1,768,700 1,767,108
========== ==========
Net income $2,331,518 $2,397,560
========== ==========
Net income per share $1.32 $1.36
========== ==========
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
Message to Shareholders
Our company enjoyed another rewarding year characterized by
solid earnings and continued growth of both loans and deposits.
Net after-tax earnings were $2.3 million, or $1.32 per share.
The cash dividends totaled $.59 per share, which represented a
45% payout of annual earnings. Returns on average assets and
average equity were 1.36% and 12.34% respectively. Total assets
grew to $173.6 million from $162.1 million in 1997.
Earnings were about the same as the previous year. Increased
revenue from the growth of both deposits and loans offset higher
expenses associated with the implementation of new bank
technology and the launching of a 35% investment in Sumx Inc., a
new company formed to develop and market Internet-based
electronic banking software to financial institutions.
Further growth is indicated by our announcement in September of
the acquisition of two local branches owned by a regional bank.
Completed in January of 1999, the acquisition brings another $12
million in deposits and $1.8 million in loans to the balance
sheet of B&K. Such growth is essential to continued increases
in earnings per share. The board and management are committed
to growing in our existing marketplace and to expanding the
boundaries of the banking franchise.
A valuable aspect of the company's stock is its public trading
under the symbol BKBK in the NASDAQ Small Cap Market. Like many
bank stocks, the price for the company's stock softened in 1998.
The ending price was $19 compared to $22 a year ago. However,
brisk trading volume continued and the price/earnings multiple
of many larger banks dropped closer to that of BKBK. The
growing liquidity and competitive P/E ratio make the company's
stock attractive currency for other institutions considering
sale.
A major area of discussion for the public in 1999 will be the
banking industry's readiness for year 2000, or Y2k. As part of
our desire to keep our technology not only up-to-date, but also
leading edge, we have invested heavily during the last two years
in new hardware and software for our core processing, check
processing and imaging, and networking. These recent technology
investments have had the added advantage of significantly
reducing the bank's exposure to Y2k risks. Nevertheless, the
bank continues to test mission critical systems, as well as an
extensive inventory of related systems, to make the risk of any
Y2k problems remote.
Last year we noted several economic challenges before us, namely
the spread of difficulties in major foreign markets and the
narrowing net interest margins resulting from lower interest
rates and a flat yield curve. These challenges remain
significant issues into 1999. However, your company is poised
for further growth and earnings enhancement. B&K employees have
adopted new technologies with eagerness and continue to deliver
a high level of banking service that distinguishes B&K not only
in its marketplace, but also throughout the banking industry.
We appreciate our shareholders' confidence in us and look
forward to building wealth for you in the next millennium.
Yours truly,
W. J. Feltus III W. Page Ogden
Chairman of the Board President & CEO
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
HIGHLIGHTS
($ in thousands, except for per share data)
1998 1997
-------- --------
Net Income $ 2,332 $ 2,398
Net Income Per Share 1.32 1.36
Net Loans 118,285 106,156
Deposits 143,186 133,481
Total Assts 173,573 162,057
Total Stockholders' Equity 19,249 17,982
CONTENTS
Message to shareholders
Financial Statements
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Corporate Information
Directors and Officers
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1998 and 1997
with
Independent Auditor's Report
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
Page
Number
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS 2
Consolidated Statements of Financial Condition 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Changes in Stockholders' Equity 7
Consolidated Statements of Cash Flows 8-9
Notes to the Consolidated Financial Statements 10-44
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Britton & Koontz Capital Corporation and Subsidiary
We have audited the accompanying consolidated statements of financial
condition of Britton & Koontz Capital Corporation and Subsidiary as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Britton & Koontz Capital Corporation and Subsidiary at December 31, 1998
and 1997, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Vicksburg, Mississippi
January 20, 1999
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
------------- -------------
<S> <C> <C>
ASSETS:
Cash and due from banks:
Non-interest bearing $ 4,337,900 $ 5,806,360
Interest bearing 472,727 123,283
------------- -------------
Total cash and due from banks 4,810,627 5,929,643
Investment securities:
Held-to-maturity (market value of $31,300,856 and
$39,371,180, respectively) 30,724,063 38,727,543
Available for sale (amortized cost of $10,900,039 and
$3,969,053, respectively) 10,923,838 4,031,005
Equity securities, at cost less equity in undistributed losses 990,149 -
Other equity securities 1,197,350 1,197,850
Loans, less unearned income of $182,917 in 1998 and
$246,813 in 1997, and allowance for loan losses of
$746,738 in 1998 and $676,745 in 1997 118,285,228 106,156,237
Bank premises and equipment, net 4,090,692 3,947,207
Other real estate, net 96,322 74,038
Accrued interest receivable 1,371,834 1,233,181
Cash surrender value of life insurance 716,313 679,925
Other assets 367,027 80,501
------------- -------------
TOTAL ASSETS $ 173,573,443 $ 162,057,130
============= =============
See accompanying notes to the consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
------------- -------------
LIABILITIES:
Deposits:
Non-interest bearing $ 21,681,170 $ 21,412,471
Interest bearing 121,505,227 112,068,906
------------- -------------
Total deposits 143,186,397 133,481,377
Federal Home Loan Bank advances 5,000,000 3,000,000
Federal funds purchased 350,000 1,650,000
Securities sold under repurchase agreements 2,416,043 2,133,977
Accrued interest payable 951,472 956,016
Negative goodwill, net of accumulated amortization
of $2,075,441 in 1998 and $1,833,810 in 1997 984,981 1,226,612
Advances from borrowers for taxes and insurance 357,025 370,228
Accrued taxes and other liabilities 1,078,342 1,257,176
------------- -------------
Total liabilities 154,324,260 144,075,386
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $2.50 par value per share;
12,000,000 shares authorized;
1,767,064 shares issued and outstanding 4,417,660 4,417,660
Additional paid-in capital 3,414,927 3,414,927
Retained earnings 11,399,263 10,110,313
Accumulated other comprehensive income 17,333 38,844
------------- -------------
Total stockholders' equity 19,249,183 17,981,744
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 173,573,443 $ 162,057,130
============= =============
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
<C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,967,320 $ 8,990,804
Interest on investment securities:
Taxable interest income 2,898,549 2,997,906
Exempt from federal income taxes 91,217 85,912
Interest on federal funds sold 109,372 47,501
------------ ------------
Total interest income 13,066,458 12,122,123
------------ ------------
INTEREST EXPENSE:
Interest on deposits 5,592,734 5,011,690
Interest on federal funds purchased 97,272 69,596
Interest on securities sold under
repurchase agreements 119,151 152,386
------------ ------------
Total interest expense 5,809,157 5,233,672
------------ ------------
NET INTEREST INCOME 7,257,301 6,888,451
PROVISION FOR LOAN LOSSES 162,000 160,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,095,301 6,728,451
------------ ------------
OTHER INCOME:
Service charges on deposit accounts 759,060 669,619
Income from fiduciary activities 81,787 58,721
Insurance premiums and commissions 29,291 34,320
Other real estate income 6,408 5,511
Amortization of negative goodwill 241,631 290,130
Equity in investee losses (9,851) -
Other 387,311 386,818
------------ ------------
Total other income 1,495,637 1,445,119
------------ ------------
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
<C> <C>
OTHER EXPENSES:
Salaries 2,381,824 2,144,159
Director fees 144,960 112,205
Employee benefits 326,429 357,449
Net occupancy expense 375,912 358,675
Equipment expense 555,059 456,401
FDIC assessment 37,679 36,902
Stationery and supplies 166,590 145,746
Other 1,114,749 954,338
------------ ------------
Total other expenses 5,103,202 4,565,875
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 3,487,736 3,607,695
INCOME TAX EXPENSE 1,156,218 1,210,135
------------ ------------
NET INCOME $ 2,331,518 $ 2,397,560
============ ============
EARNINGS PER SHARE DATA:
Basic earnings per share $ 1.32 $ 1.36
============ ============
Diluted earnings per share $ 1.32 $ 1.36
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Additional
---------------------- Paid-In Retained
Shares Amount Capital Earnings Other Total
--------- ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 441,072 $ 4,410,720 $ 3,395,617 $ 8,715,045 $ - $ 16,521,382
Comprehensive income:
Net income - - - 2,397,560 - 2,397,560
Other comprehensive
income (net of tax):
Net change in
unrealized gain on
securities available
for sale, net of taxes
of $23,108 - - - - 38,844 38,844
--------- ------------ ------------ ------------ --------- ------------
Total comprehensive income - - - 2,397,560 38,844 2,436,404
--------- ------------ ------------ ------------ --------- ------------
Cash dividends declared
(.56 per share) - - - (989,556) - (989,556)
New shares issued 2,776 6,940 19,310 (12,736) - 13,514
Four-for-one stock split 1,323,216 - - - - -
--------- ------------ ------------ ------------ --------- ------------
Balance, December 31, 1997 1,767,064 4,417,660 3,414,927 10,110,313 38,844 17,981,744
Comprehensive income:
Net income - - - 2,331,518 - 2,331,518
Other comprehensive
income (net of tax):
Net change in
unrealized gain on
securities available
for sale, net of taxes
of $16,642 - - - - (21,511) (21,511)
--------- ------------ ------------ ------------ --------- ------------
Total comprehensive income - - - 2,331,518 (21,511) 2,310,007
--------- ------------ ------------ ------------ --------- ------------
Cash dividends declared
(.59 per share) - - - (1,042,568) - (1,042,568)
--------- ------------ ------------ ------------ --------- ------------
Balance, December 31, 1998 1,767,064 $ 4,417,660 $ 3,414,927 $ 11,399,263 $ 17,333 $ 19,249,183
See accompanying notes to the consolidated financial statements.
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,331,518 $ 2,397,560
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred taxes (37,124) (36,014)
Provision for loan losses 162,000 160,000
Provision for depreciation 464,055 381,616
Gain on sale of mortgage loans (16,658) (9,589)
Stock dividends received (55,900) (56,200)
Amortization (accretion) of investment security
premiums (discounts), net (50,104) (58,799)
Amortization of valuation adjustment
on acquired loans 47,360 71,160
Amortization of valuation adjustment
on acquired deposits (700) (10,510)
Amortization of negative goodwill (241,631) (290,130)
Equity in investee losses 9,851 -
Increase in accrued interest receivable (138,653) (175,070)
Increase in cash surrender value of life insurance (36,388) (44,995)
(Increase) decrease in other assets (286,526) 37,473
Increase (decrease) in accrued interest payable (4,544) 116,555
Decrease in accrued taxes and other liabilities (125,068) (682,697)
------------ ------------
Net cash provided by operating activities 2,021,488 1,800,360
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in federal funds sold - 700,000
Proceeds from maturities and paydowns
of investment securities 11,069,298 11,181,192
Redemption of securities 56,400 56,000
Purchases of investment securities (10,946,700) (10,406,981)
Net increase in loans (12,343,977) (11,050,739)
Purchases of premises and equipment (607,540) (654,426)
------------ ------------
Net cash used in investing activities (12,772,519) (10,174,954)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits 8,761,908 7,616,740
Net increase (decrease) in time deposits 943,812 (565,278)
Increase in Federal Home Loan Bank advances 2,000,000 1,000,000
Increase (decrease) in federal funds purchased (1,300,000) 1,650,000
Net increase in securities sold under
repurchase agreements 282,066 469,838
Increase (decrease) in advances from borrowers
for taxes and insurance (13,203) 2,494
Cash dividends paid (1,042,568) (989,556)
Proceeds from the sale of common stock, net - 13,514
------------ ------------
Net cash provided by financing activities 9,632,015 9,197,752
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS (1,119,016) 823,158
------------ ------------
CASH AND DUE FROM BANKS AT
BEGINNING OF YEAR 5,929,643 5,106,485
------------ ------------
CASH AND DUE FROM BANKS AT
END OF YEAR $ 4,810,627 $ 5,929,643
============ ============
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of loans foreclosed to other real estate $ 22,284 $ 19,038
============ ============
Transfer of other real estate to loans $ - $ (23,928)
============ ============
Total increase (decrease) in unrealized gains
(losses) on securities available-for-sale $ (38,153) $ 61,952
============ ============
Total (increase) decrease in deferred income taxes
on unrealized gains on securities
available-for-sale $ 16,642 $ (23,108)
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Britton &
Koontz Capital Corporation and its wholly-owned subsidiary, Britton & Koontz
First National Bank ("the Bank"). All material intercompany profits, balances
and transactions have been eliminated.
Nature of Operations
The Company operates under a national bank charter and provides full
banking services, including trust services. The primary area served by the
Company is the southwest region of Mississippi and services are provided at
three locations in Natchez, Mississippi.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans. In
connection with the determination of the allowances for losses on loans,
management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in local
economic conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for losses
on loans. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. Because of these factors, it is reasonably
possible that the allowance for losses on loans may change materially.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investment Securities
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and the Bank has the ability
at the time of purchase to hold debt securities until maturity, they are
classified as held-to-maturity and carried at cost, adjusted for amortization
of premiums and accretion of discounts using methods approximating the
interest method. Available-for-sale securities include securities that
management intends to use as part of its asset and liability management
strategy and that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rates and
resultant prepayment risk changes. These securities are carried at fair
value. Equity securities include stock in the Federal Reserve Bank and the
Federal Home Loan Bank, which are restricted and are carried at cost. Equity
securities also includes an investment in the voting stock of Sumx, Inc. This
investment is carried at cost adjusted for the Company's share of the
investee's earnings or losses. There is no readily available market for the
voting stock of Sumx, Inc. and, accordingly, no quoted market price is
available.
Realized gains and losses on dispositions are based on the net proceeds
and the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment securities
available-for-sale are based on the difference between book value and fair
value of each security. These gains and losses are credited or charged to
stockholders' equity, net of applicable taxes. Realized gains and losses flow
through the Company's yearly operations. The Bank does not engage in trading
account activities.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Loans
Loans are stated at the amount of principal outstanding, reduced by unearned
income and an allowance for loan losses. Unearned income on certain
installment loans is recognized as income over the terms of the loans by a
method which approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Loans are ordinarily placed on nonaccrual when
a loan is specifically determined to be impaired or when principal or interest
is delinquent for 90 days or more; however, management may elect to continue
the accrual when the estimated net realizable value of collateral is
sufficient to cover the principal balance and the accrued interest. Any
unpaid interest previously accrued on nonaccrual loans is reversed from
income. Interest income, generally, is not recognized on specific impaired
loans unless the likelihood of further loss is remote.
Interest payments received on such loans are applied as a reduction of the
loan principal balance. Interest income on other nonaccrual loans is
recognized only to the extent of interest payments received.
Allowance for Loan Losses
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions that may affect the
borrower's ability to pay. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. Credits deemed uncollectible are charged to the allowance. Provisions
for loan losses and recoveries on loans previously charged off are added to
the allowance.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation expense is computed by the straight-line method and
is charged to expense over the estimated useful lives of the assets.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Other Real Estate
Other real estate consists primarily of foreclosed property. Properties
acquired through foreclosure or in settlement of loans and in-substance
foreclosures are classified as foreclosed properties and are valued at the
lower of the loan value or estimated fair value of the property acquired less
estimated selling costs. At the time of foreclosure, the excess, if any, of
the loan value over the estimated fair value of the property acquired less
estimated selling costs is charged to the allowance for loan losses.
Additional decreases in the carrying values of foreclosed properties or
changes in estimated selling costs, subsequent to the time of foreclosure, are
recognized through provisions charged to operations. Revenues and expenses
associated with owning and operating other real estate, and gains and losses
on dispositions of such assets are recorded in earnings in the period
incurred.
The fair value of foreclosed properties is determined based upon appraised
value, utilizing either the estimated replacement cost, the selling price of
properties utilized for similar purposes or discounted cash flow analyses of
the properties' operations.
Compensated Absences
Employees of the Bank are entitled to paid vacation, emergency and sick
days off, depending on length of service in the banking industry. Vacation,
emergency and sick days are granted on an annual basis to eligible employees.
Unused vacation and emergency days expire on December 31 of each year. Unused
sick days expire on each related employee's employment anniversary date each
year.
The estimated amount of compensation for future absences is deemed
immaterial to the consolidated financial statements, and, accordingly, no
liability has been recorded in the accompanying financial statements. The
Bank's policy is to recognize the costs of compensated absences when actually
paid to employees.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes
The provision for income taxes is based on amounts reported in the
statements of income after exclusion of nontaxable income such as interest on
state and municipal securities. Also, certain items of income and expenses
are recognized in different time periods for financial statement purposes than
for income tax purposes. Thus, provisions for deferred taxes are recorded in
recognition of such temporary differences.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
The Company and its wholly-owned subsidiary file a consolidated federal
income tax return. Consolidated income tax expense is allocated on the basis
of each company's income adjusted for permanent differences.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Earnings Per Share
Basic earnings per share is the income available to the weighted average
number of shares of common stock outstanding for each period presented. All
per share amounts reflect the effects of the 1997 four-for-one stock split.
All shares held by the Employee Stock Ownership Plan (ESOP) are treated as
outstanding in computing the earnings per share. Stock options are used in
the calculation of diluted earnings per share if they are dilutive (i.e., the
average market price exceeds the exercise price). The following table
reconciles the basic and diluted earnings per share amounts:
</TABLE>
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Year ending December 31, 1998:
Basic earnings per share:
Income available to common
shareholders $ 2,331,518 1,767,064 $ 1.32
Diluted earnings per share: ==========
Options - 1,636
----------- ---------
Income available to common
shareholders assuming conversion $ 2,331,518 1,768,700 $ 1.32
=========== ========= ==========
Year ending December 31, 1997:
Basic earnings per share:
Income available to common
shareholders $ 2,397,560 1,766,007 $ 1.36
Diluted earnings per share: ==========
Options - 1,101
----------- ---------
Income available to common
shareholders assuming conversion $ 2,397,560 1,767,108 $ 1.36
=========== ========= ==========
Options to purchase 30,000 shares of common stock at $19.94 per share were
granted on November 18, 1997. These options were not included in the
computation of 1997 diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
However, during 1998, the average price exceeded the exercise price and,
therefore, the effects of the options have been included. The options, which
expire on November 18, 2007, were still outstanding at December 31, 1998.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of interest-rate cap
agreements, commitments to extend credit and commercial letters of credit.
Financial instruments related to loans are recorded in the financial
statements when they become payable.
Cash Flows
For purposes of the statements of cash flows, the Company considers only
cash and due from banks to be cash equivalents.
The Company paid income taxes of $1,500,849 in 1998 and $1,019,185 in
1997. Interest paid on deposit liabilities and other borrowings was
$5,813,701 in 1998 and $5,117,117 in 1997.
Recent Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans. This statement is effective for fiscal years beginning after
December 15, 1998. The adoption of this statement should not have a material
effect on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board also issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This statement is effective for all fiscal quarters
beginning after June 15, 1999. The adoption of this statement should not have
a material effect on the consolidated financial statements.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Advertising Costs
Advertising and marketing costs are recorded as expenses in the year in
which they are incurred. Advertising and marketing costs charged to
operations during 1998 and 1997 were $93,756 and $83,155, respectively.
Stock Split
During 1997, the Company effected a four-for-one stock split. To effect
the split, the Company's authorized shares increased from 3,000,000 to
12,000,000, and issued and outstanding shares increased from 441,072 to
1,764,288.
Negative Goodwill
During 1993, the Company purchased Natchez First Federal Savings Bank in
a business combination accounted for as a purchase. The combination created
negative goodwill of $3,060,422. This amount is being amortized into income
over the life of the acquired, long-term, interest bearing assets which is
approximately fifteen years.
Interest-Rate Cap
The cost of interest-rate cap agreements is amortized to interest expense over
the terms of the caps. The unamortized cost is included in other assets in
the consolidated statement of financial position. Amounts receivable under
cap agreements are accrued as a reduction of interest expense. The Company
does not engage in trading of derivatives. All such financial instruments are
used to manage interest rate risk.
Reclassifications
Certain 1997 amounts have been reclassified to conform with the 1998
presentation.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE B. INVESTMENT SECURITIES
The amortized cost and approximate market value of investment securities
classified as held-to-maturity at December 31, 1998, are summarized as
follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Obligations of other U. S.
Government agencies and
corporations $27,632,404 $ 644,707 $ (110,005) $28,167,106
Obligations of states and
political subdivisions 1,044,554 41,990 - 1,086,544
Privately issued collateralized
mortgage obligations 2,047,105 101 - 2,047,206
----------- ---------- ---------- -----------
$30,724,063 $ 686,798 $ (110,005) $31,300,856
=========== ========== ========== ===========
The amortized cost and approximate market value of investment securities
classified as available-for-sale at December 31, 1998, are summarized as
follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ------------
<C> <C> <C> <C>
U. S. Treasury obligations $ 5,989,208 $ 60,812 $ - $ 6,050,020
Obligations of other U.S.
Government agencies
and corporations 4,910,831 - (37,013) 4,873,818
----------- -------- --------- -----------
$10,900,039 $ 60,812 $ (37,013) $10,923,838
=========== ======== ========= ===========
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE B. INVESTMENT SECURITIES - CONTINUED
The amortized cost and approximate market value of investment securities
classified as held-to-maturity at December 31, 1997, are summarized as
follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<C> <C> <C> <C>
U. S. Treasury obligations $ 1,997,265 $ 6,914 $ - $ 2,004,179
Obligations of other U. S.
Government agencies and
corporations 34,528,790 704,558 (177,415) 35,055,933
Obligations of states and
political subdivisions 1,123,872 44,740 - 1,168,612
Privately issued collateralized
mortgage obligations 1,077,616 64,840 - 1,142,456
----------- ---------- ---------- -----------
$38,727,543 $ 821,052 $ (177,415) $39,371,180
=========== ========== ========== ===========
The amortized cost and approximate market value of investment securities
classified as available-for-sale at December 31, 1997, are summarized as
follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<C> <C> <C> <C>
U. S. Treasury obligations $ 3,969,053 $ 61,952 $ - $ 4,031,005
----------- --------- ---------- -----------
$ 3,969,053 $ 61,952 $ - $ 4,031,005
=========== ========= ========== ===========
Proceeds from maturities of investment securities held-to-maturity were
$2,075,000 and $4,530,000 during 1998 and 1997, respectively. The Bank
purchased $3,002,276 and $6,449,168 of investment securities held-to-maturity
and received $8,967,819 and $6,651,192 from principal paydowns during 1998 and
1997, respectively. The Bank also purchased $6,944,424 and $3,957,813 of
investment securities available for sale and received $26,479 and $-0- from
principal paydowns during 1998 and 1997, respectively.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE B. INVESTMENT SECURITIES - CONTINUED
Equity securities include the Bank's investment in the Federal Home Loan
Bank and the Federal Reserve Bank. The Bank acquired $55,900 and $56,200 of
additional stock in the Federal Home Loan Bank and no additional stock in the
Federal Reserve Bank during 1998 and 1997, respectively. The Bank
subsequently redeemed $56,400 and $56,000 of stock in the Federal Home Loan
Bank during 1998 and 1997, respectively. This stock is considered a
restricted stock as only banks which are members of these organizations may
acquire or redeem the stock. The stock is redeemable at its face value;
therefore, there are no gross unrealized gains or losses associated with these
investments.
Equity securities also reflect an investment in Sumx, Inc. During 1998,
Britton & Koontz Capital Corporation invested $1 million in this electronic
banking development and marketing company. This investment reflects a 35%
ownership of the voting stock of Sumx, Inc. This investment is carried at
equity, which is the cost of the investment adjusted for the Company's
proportionate share of the investee's earnings or losses.
During 1998, Sumx, Inc. incurred a net loss of $84,439. The Company's
proportionate share of that loss adjusted for the portion of the year the
investment was actually owned was $9,851 and is reflected in other income.
The President and CEO and the Vice President of Britton & Koontz Capital
Corporation serve as two of the three members of the Board of Directors of
Sumx, Inc. In addition, the Vice President of Britton & Koontz Capital
Corporation individually owns 19.5% of the voting stock of Sumx, Inc. The
Company has also entered into an agreement with Sumx, Inc. whereby this Vice
President will devote substantially all of his time to the management of Sumx,
Inc. for up to two years for an annual fee of $90,000.
Investment securities carried at approximately $32,957,000 (approximate
market value $33,179,000) at December 31, 1998, and approximately
$19,040,000 (approximate market value $19,289,000) at December 31, 1997, were
pledged to collateralize public deposits, and for other purposes as required
by law or agreement.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE B. INVESTMENT SECURITIES - CONTINUED
The amortized cost and approximate market value of investment debt
securities at December 31, 1998, by contractual maturity (including
mortgage-backed securities), are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Securities held-to-maturity
---------------------------
Approximate
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ - $ -
Due after one year through five years 5,348,451 5,297,363
Due after five years through ten years 6,401,088 6,600,464
Due after ten years 18,974,524 19,403,029
------------ ------------
$ 30,724,063 $ 31,300,856
============ ============
Securities available-for-sale
-----------------------------
Approximate
Amortized Market
Cost Value
------------ --------------
Due in one year or less $ 4,003,868 $ 4,023,760
Due after one year through five years 1,985,340 2,026,260
Due after five years through ten years - -
Due after ten years 4,910,831 4,873,818
------------ --------------
$ 10,900,039 $ 10,923,838
============ ============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE C. SALES-TYPE LEASE INVESTMENT
During 1994, the Bank entered into a sales-type lease agreement with the City
of Natchez. In this agreement, the Bank sold the City certain land and
buildings included in other real estate and certain land, buildings and
improvements included in bank premises and equipment for a contract price of
$830,000. The City agreed to make annual lease payments and semi-annual
interest payments. The interest will accrue at 6.25% per year. The Bank will
retain title to the property until the end of the lease. Upon receipt of the
final lease payment in May 2004, the title will pass to the
City of Natchez. The obligation of the City to the Bank is evidenced by a
series of Certificates of Participation. Each Certificate represents an
annual principal payment. The Certificates do not represent a legal
obligation of the City and are contingent and expressly limited to the extent
of any specific, annual appropriation made by the City to fund the lease. The
Bank currently carries these Certificates in its investment portfolio as
held-to-maturity.
The following is a summary of the components of the Bank's net investment
in sales-type leases at December 31, 1998:
Total minimum lease payments to be received $ 588,750
Portion of payments representing interest 108,750
-------------
Net investment $ 480,000
=============
Minimum lease payments to be received as of December 31, 1998, for each
of the next five years are:
1999 $ -
2000 85,000
2001 90,000
2002 95,000
2003 100,000
Thereafter 110,000
-------------
$ 480,000
=============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE D. LOANS
The Bank's loan portfolio at December 31, 1998 and 1997, consists of the
following:
1998 1997
------------- -------------
Commercial, financial and agricultural $ 22,365,655 $ 20,869,265
Real estate construction 1,895,106 1,252,872
Real estate mortgage 80,286,252 70,672,806
Installment 14,521,075 14,202,884
Overdrafts 146,795 81,968
------------- -------------
Total loans $ 119,214,883 $ 107,079,795
============= =============
Loans on which accrual of interest has been discontinued or reduced
amount to approximately $222,000 and $29,000 at December 31, 1998 and 1997,
respectively. If interest on such loans had been accrued, the income would
have approximated $5,100 and $400 in 1998 and 1997, respectively.
In the ordinary course of business, the Bank makes loans to its executive
officers, principal stockholders, directors and to companies in which these
borrowers are principal owners. Loans outstanding to such borrowers
(including companies in which they are principal owners) amounted to
$2,841,291 and $1,641,355 at December 31, 1998 and 1997, respectively. These
loans were made on substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of collectibility or
present other unfavorable features.
Changes in these loans are as follows:
Balance at January 1, 1998 $ 1,641,355
New loans 1,915,953
Repayments 716,017
---------------
Balance at December 31, 1998 $ 2,841,291
===============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE E. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
1998 1997
--------- ---------
Balance at January 1 $ 676,745 $ 622,975
--------- ---------
Credits charged off (117,448) (133,764)
Recoveries 25,441 27,534
--------- ---------
Net credits charged off (92,007) (106,230)
--------- ---------
Provision for loan losses 162,000 160,000
--------- ---------
Balance at December 31 $ 746,738 $ 676,745
========= =========
NOTE F. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of these loans are summarized as follows:
1998 1997
----------- -----------
Mortgage loans serviced for:
Federal National Mortgage Association (FNMA) $ 4,806,937 $ 6,338,432
=========== ===========
Custodial escrow balances maintained in connection with the foregoing
loan servicing and included in advances from borrowers for taxes and insurance
in the accompanying consolidated statements of financial condition were
$62,259 and $73,889 at December 31, 1998 and 1997, respectively.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE G. BANK PREMISES AND EQUIPMENT
A summary of Bank premises and equipment is as follows:
1998 1997
----------- -----------
Land $ 442,675 $ 442,675
Buildings 3,723,251 3,719,251
Furniture and equipment 3,794,474 3,192,804
----------- -----------
7,960,400 7,354,730
Less accumulated depreciation 3,869,708 3,407,523
----------- -----------
Bank premises and equipment, net $ 4,090,692 $ 3,947,207
=========== ===========
NOTE H. TRUST DEPARTMENT ASSETS
Property (other than cash deposits) held by the Bank in fiduciary or
agency capacities for its customers is not included in the accompanying
consolidated statements of financial condition as such items are not assets of
the Bank. Trust fees are reported on the cash basis. The difference between
cash basis and the accrual basis is immaterial.
NOTE I. DEPOSITS
Maturities of certificates of deposit of $100,000 or more outstanding at
December 31, 1998 and 1997, are summarized as follows:
1998 1997
------------ ------------
Time remaining until maturity:
Three months or less $ 4,886,521 $ 5,053,918
Over three through six months 11,096,570 7,329,803
Over six through twelve months 2,654,412 2,566,144
Over twelve months 4,861,294 5,456,053
------------ ------------
$ 23,498,797 $ 20,405,918
============ ============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE I. DEPOSITS - CONTINUED
Approximate scheduled maturities of certificates of deposits for each of
the next five years are:
1999 $ 56,246,000
2000 6,791,000
2001 3,821,000
2002 4,423,000
2003 3,311,000
Thereafter -
------------
$ 74,592,000
============
Deposits at December 31, 1998 and 1997, consisted of the following:
1998 1997
------------- -------------
Non-interest bearing demand deposits $ 21,681,170 $ 21,412,471
NOW accounts 24,705,808 19,792,486
Money market deposit accounts 10,622,990 7,933,842
Savings accounts 11,584,129 10,693,390
Certificates of deposit 74,592,300 73,649,188
------------- -------------
$ 143,186,397 $ 133,481,377
============= =============
NOTE J. FEDERAL HOME LOAN BANK ADVANCES
During 1998, the Bank received advances from and remitted payments to the
Federal Home Loan Bank. On November 24, 1998, the Bank received a $5,000,000
advance which remained outstanding at December 31, 1998. This advance accrues
interest at an annual rate of 4.94% and matures on January 11, 1999. The
advance is collateralized by a portion of the Bank's one to four family
residential mortgage portfolio in accordance with the Advance Security and
Collateral Agreement with the Federal Home Loan Bank.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE K. EMPLOYEE BENEFIT PLANS
The Bank has an employee stock ownership plan which is designed to invest
primarily in employer stock. Essentially, all employees of the Britton &
Koontz Capital Corporation and its wholly-owned subsidiary are covered under
this plan, with employees becoming fully vested in their benefits after seven
years of participation. Employer contributions are determined by the Board of
Directors each year and are allocated among participants on the basis of their
total annual compensation. Dividends on the Company stock owned by the plan
are recorded as a reduction of retained earnings. Operating expenses include
contributions to the plan of $40,000 in 1998 and 1997. This plan owned
213,070 shares of Britton & Koontz Capital Corporation stock, as of December
31, 1998 and 1997, at an overall cost to the plan of $4.79 per share.
Employees with one or more years of service are eligible to participate in a
401(k) plan established by the Company effective January 1, 1997. Under this
plan, employees may contribute up to 12% of their yearly salary, not to exceed
$7,000. These contributions are immediately 100% vested. Employer
contributions are vested 20% after three years of service and an additional
20% for each additional year of service, fully vested after seven years of
service. Employer contributions to the plan are made at the discretion of the
Board of Directors and aggregated $80,000 for the years ended December 31,
1998 and 1997.
During 1996, the Company adopted a long-term incentive plan in which all
employees of the Company and the Bank are eligible to participate. The plan
provides for discretionary grants of various incentives including stock
options; shares of common stock subject to restrictions on transfer,
forfeitability provisions or other limitations; and shares of common stock,
the issuance and delivery of which may be subject to the attainment of
specified performance objectives. A maximum of 160,000 shares of common stock
is available for grant under the plan, subject to adjustment on account of
stock dividends or stock splits, recapitalizations, mergers, consolidations or
other corporate reorganizations. The plan is administered by a committee of
at least two non-
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE K. EMPLOYEE BENEFIT PLANS - CONTINUED
employee directors as appointed by the full Board of Directors. On November
18, 1997, options to purchase 30,000 shares were granted as part of this
plan. These options are exercisable in installments beginning six months
after the date of grant and become fully exercisable nine and one-half years
after the date of grant. All options expire 10 years from the date of grant.
Three thousand three hundred (3,300) and zero (-0-) shares were exercisable as
of December 31, 1998 and 1997, respectively. The summary of stock option
activity is shown below:
Weighted
Options Average
Outstanding Exercise Price
------------ --------------
December 31, 1996 - $ -
Options granted 36,000 $ 18.20
Stock options exercised 6,000 $ 9.50
-----------
December 31, 1997 30,000 $ 19.94
Options granted - $ .00
Stock options exercised - $ .00
December 31, 1998 30,000 $ 19.94
The following table summarizes information about stock options outstanding at
December 31, 1998:
Exercise Price Options Outstanding Remaining Contractual Life
$19.94 30,000 8.9 years
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE K. EMPLOYEE BENEFIT PLANS - CONTINUED
During fiscal 1997, the Company adopted SFAS No 123, Accounting for
Stock-Based Compensation, which requires companies to estimate the fair value
for stock options on date of grant. Under SFAS No. 123, the Company is
required to record the estimated fair value of stock options issued as
compensation expense in its income statements over the related service periods
or, alternatively, continue to apply accounting methodologies as prescribed by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and disclose the pro forma effects of the estimated fair
value of stock options issued in the accompanying footnotes to its financial
statements. The determination of fair value is only required for stock
options issued beginning in 1996. In adopting SFAS No. 123, the Company
decided to continue to follow the accounting methodologies as prescribed by
APB Opinion No. 25.
The pro forma effects of the total compensation expense that would have been
recognized under SFAS No. 123 are as follows:
1998 1997
------------- -------------
Net income, as reported $ 2,331,518 $ 2,397,560
Pro forma net income $ 2,308,678 $ 2,393,716
Basic earnings per share, as reported $ 1.32 $ 1.36
Pro forma basic earnings per share $ 1.31 $ 1.36
Diluted earnings per share, as reported $ 1.32 $ 1.36
Pro forma diluted earnings per share $ 1.31 $ 1.35
In adopting SFAS No. 123, the Company utilized the Black-Scholes Option
Pricing Model to estimate the fair value of stock options granted using the
following weighted average assumptions:
Expected dividend yield 2.94%
Expected option life 7.25 years
Expected volatility 25.00%
Risk-free interest rates 5.85%
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE K. EMPLOYEE BENEFIT PLANS - CONTINUED
Based on the results of the model, the fair value of the stock options issued
on the date of grant were $5.57 per share for the 30,000 shares granted in
1997.
During 1994, the Bank entered into a nonqualified salary continuation plan
with its executive officers. These officers will be entitled to agreed-upon
benefits which will begin vesting when each participant reaches the age of
fifty-five. The vested percentage will increase annually through the age of
sixty-five when the officers will be fully vested. Payment of any benefits is
contingent upon the officers' continued employment with the Bank through the
age of fifty-five. The projected benefit to each officer at age sixty-five is
allocated through a present value calculation to each year from inception of
the plan through age sixty-five. The Plan also includes a change of control
benefit for these officers. If any or all of the covered executives are
terminated from employment within 36 months of a sale or acquisition of the
Bank, the executive(s) may elect from the acquirer to receive fully vested
income benefits as stated above, or to receive an agreed-upon lump-sum
distribution, which would total $640,000 if all covered executives selected
this option. The financial statements for the years ended December 31, 1998
and 1997, respectively, include $30,572 and $28,230 of expense related to this
plan.
In addition to other benefits, the Company provides medical insurance to its
employees and makes medical insurance available to its employees' families.
The Company self-insures up to $15,000 per person per year with a total annual
maximum based on the number of covered employees ($127,613 and $118,588 at
December 31, 1998 and 1997, respectively). Claims exceeding these annual
limits are covered by traditional insurance contracts.
NOTE L. LEASES
The Company had no material lease obligations or similar commitments at
December 31, 1998 or 1997. All leases are of the normal cancelable operating
type and generally short-term in nature and not susceptible to capitalization
for financial accounting reporting purposes. Rent expense charged to income
was $3,067 and $4,915 in 1998 and 1997, respectively.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE M. INCOME TAX PROVISION
The provision for income taxes included in the consolidated statements of
income is as follows:
1998 1997
------------ ------------
Current $ 1,193,342 $ 1,246,149
Deferred (37,124) (36,014)
------------ ------------
$ 1,156,218 $ 1,210,135
============ ============
Income taxes payable of $273,887 in 1997 are included in accrued taxes
and other liabilities. Refundable income taxes of $59,082 in 1998 are
included in other assets.
Net deferred tax liabilities of $715,974 in 1998 and $769,740 in 1997,
are included in accrued taxes and other liabilities. Amounts comprising
deferred tax assets and liabilities are as follows:
1998 1997
----------- ------------
Deferred tax liability:
Bad debt recapture $ - $ 61,549
Insurance 45,082 33,234
Discount accretion 10,025 3,876
Depreciation 588,976 548,715
Federal Home Loan Bank dividends 131,641 118,146
Purchase accounting 32,566 50,178
Self-insured medical plan 13,410 5,616
Unrealized gain on
available-for-sale securities 6,466 23,108
------------ ------------
Total gross deferred tax liability $ 828,166 $ 844,422
============ ============
1998 1997
Deferred tax asset: ------------ ------------
Bad debts $ 68,650 $ 42,543
Deferred compensation 43,542 32,139
------------ ------------
Total gross deferred tax asset, net
of valuation allowance of $-0- $ 112,192 $ 74,682
============ ============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE M. INCOME TAX PROVISION - CONTINUED
The temporary differences resulting in deferred income taxes and the tax
effect of each are as follows:
1998 1997
------------ -----------
Accretion of discount $ 6,149 $ 954
Depreciation 40,261 36,092
FHLB stock dividend 13,495 14,482
Provision for loan losses (87,656) (81,567)
Amortization of purchase
accounting adjustments (17,612) (28,252)
Insurance 11,848 11,753
Deferred compensation (11,403) (10,530)
Self-insured medical plan 7,794 21,054
Unrealized gain on
available-for-sale securities (16,642) 23,108
------------ -----------
$ 53,766 $ (12,906)
============ ===========
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% in 1998 and 1997, as indicated in
the following analysis:
1998 1997
----------- -----------
Tax based on statutory rate $ 1,185,830 $ 1,226,616
State taxes 134,809 149,494
Effect of tax-exempt income (29,002) (31,789)
Amortization of negative goodwill (82,154) (98,644)
Officers' life insurance 1,220 1,137
Other (54,485) (36,679)
----------- -----------
$ 1,156,218 $ 1,210,135
=========== ===========
The income tax provision includes no amounts in 1998 and 1997, resulting
from securities transactions.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE N. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 1998 and 1997, the Bank had sold various investment
securities with an agreement to repurchase these securities at various times
within one year. The underlying securities are U.S. Government obligations
and obligations of other U.S. Government agencies and corporations. These
securities generally remain under the Bank's control and are included in
investment securities and the related liability to repurchase these securities
is included in securities sold under repurchase agreements. These securities
have coupon rates ranging from 5.875% to 7.00% and maturity dates ranging from
2000 to 2031. The maximum amount of outstanding agreements at any month-end
was $2,904,167 and $4,414,678 during 1998 and 1997, respectively. The monthly
average amount of outstanding agreements was $2,203,615 and $2,852,426 during
1998 and 1997, respectively. At December 31, 1998, the securities underlying
the repurchase agreements had an approximate amortized cost of $3,576,000 and
an approximate market value of $3,609,000.
NOTE O. REGULATORY MATTERS
The primary sources of revenue of Britton & Koontz Capital Corporation
are dividends from its subsidiary, Britton & Koontz First National Bank. On
December 31, 1998, approximately $2,618,000 was available for future
distribution by the Bank as dividends without prior approval of the banking
regulatory agencies. However, such distribution would be subject to the
requirements described in the following paragraphs.
In accordance with Office of Thrift Supervision regulations, a special
"Liquidation Account" has been established for the benefit of certain
Qualifying Depositors of Natchez First Federal Savings Bank (acquired by
Britton & Koontz First National Bank in 1993) in an amount of approximately
$2.8 million. The Liquidation Account serves as a restriction on the
distribution of stockholders' equity in Britton & Koontz First National Bank,
and no cash dividend may be paid on its capital stock if the effect thereof
would be to cause the regulatory capital of Britton & Koontz First National
Bank to be reduced below an amount equal to the adjusted Liquidation Account
balance.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE O. REGULATORY MATTERS - CONTINUED
In the event of a complete liquidation of Britton & Koontz First National
Bank, each Qualifying Depositor would be entitled to his or her pro rata
interest in the Liquidation Account. Such claims would be paid before payment
to Britton & Koontz Capital Corporation as the Britton & Koontz First National
Bank's sole shareholder. A merger, consolidation, purchase of assets and
assumption of deposits and/or other liabilities or similar transaction, with
an FDIC-insured institution, would not be a complete liquidation for the
purpose of paying the Liquidation Account. In such a transaction, the
Liquidation Account would be required to be assumed by the surviving
institution.
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory---and possibly additional
discretionary---actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulation) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent regulatory notification
categorized the Bank as well capitalized under the regulatory capital
framework. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE O. REGULATORY MATTERS - CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table.
To Be Adequately To Be Well
Actual Capitalized Capitalized
--------------- ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------- ----- ------- ------
(amounts in thousands)
<C> <C> <C> <C> <C> <C>
As of December 31, 1998
- -----------------------
Total Capital (to Risk-
Weighted Assets) $18,126 15.81% $ 9,172 8.00% $11,465 10.00%
Tier I Capital (to Risk-
Weighted Assets) $17,380 15.16% $ 4,586 4.00% $ 6,879 6.00%
Tier I Capital (to Average
Assets) $17,380 10.15% $ 5,137 3.00% $ 8,562 5.00%
As of December 31, 1997
- -----------------------
Total Capital (to Risk-
Weighted Assets) $17,920 18.52% $ 7,741 8.00% $ 9,676 10.00%
Tier I Capital (to Risk-
Weighted Assets) $17,244 17.82% $ 3,871 4.00% $ 5,806 6.00%
Tier I Capital (to Average
Assets) $17,244 10.82% $ 4,781 3.00% $ 7,969 5.00%
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE P. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and commercial letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated statements of financial condition.
Commitments to extend credit are agreements to lend money with fixed
expiration dates or termination clauses. The Bank applies the same credit
standards used in the lending process when extending these commitments, and
periodically reassesses the customer's creditworthiness through ongoing credit
reviews. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Collateral is obtained based on the Bank's assessment of
the transaction.
Commercial letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk and collateralization policy involved in issuing standby letters of
credit is essentially the same as that involved in extending loans to
customers.
The Bank's maximum exposure to credit loss is represented by the
contractual amount of the commitments to extend credit and letters of credit
as follows:
1998 1997
------------- -------------
Commitments to extend credit $ 18,779,289 $ 15,756,588
============= =============
Commercial letters of credit $ 848,950 $ 820,336
============= =============
The Bank is required to maintain average reserves at the Federal Reserve
Bank. This requirement approximated $275,000 at December 31, 1998 and 1997,
respectively. The Bank is in compliance with this requirement.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE P. COMMITMENTS AND CONTINGENCIES - CONTINUED
Britton & Koontz Capital Corporation and its wholly-owned subsidiary,
Britton & Koontz First National Bank, are involved in certain litigation
incurred in the normal course of business. In the opinion of management and
legal counsel, liabilities arising from such claims, if any, would not have a
material effect upon the Bank's consolidated financial statements.
On September 18, 1998, Britton & Koontz First National Bank and Union Planters
Bank, NA, entered into an agreement whereby Britton & Koontz First National
Bank will acquire certain assets and liabilities of two Union Planters Bank,
NA, branch locations in Natchez, Mississippi. This transaction was
consummated on January 21, 1999. The Bank acquired approximately $1,800,000
in loans, $1,000,000 in premises and equipment and $8,900,000 in cash and
other assets, and assumed approximately $11,700,000 in deposit liabilities.
It is impracticable to disclose operating data as if the transaction had
occurred on January 1, 1997, due to the characteristics of a branch
acquisition. Operating data of branch locations can differ significantly
because of home office cost allocations and other branch accounting
differences.
NOTE Q. CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and commercial
letters of credit have been granted to customers in the Bank's market area.
Investments in state and municipal securities also involve governmental
entities in and around the Bank's market area. The concentrations of credit
by type of loan are set forth in Note D. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. Commercial
letters of credit are granted primarily to commercial borrowers.
NOTE R. DIVIDENDS
Britton & Koontz Capital Corporation's only subsidiary, Britton & Koontz
First National Bank, paid dividends to the Capital Corporation amounting to $2,2
62,449; $1,076,358; and $952,858 for the years 1998, 1997, and 1996,
respectively.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE S. INTEREST RATE RISK MANAGEMENT
During 1998, the Bank entered into an off-balance-sheet interest-rate cap
agreement to reduce the potential impact of increases in interest rates on
floating-rate liabilities. The agreement entitles the Bank to receive from
counterparties on a quarterly basis the amounts, if any, by which the three
month LIBOR exceeds 6.0% computed on a $10 million notional amount. This
interest-rate cap expires on September 22, 2000. At December 31, 1998, the
original cost of the cap of $20,000 had been amortized into interest expense
to a balance of $17,500.
NOTE T. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December of 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107 relative to disclosures about fair
values of
financial instruments. The statement requires disclosure of financial
instruments' fair values, as well as the methodology and significant
assumptions used in estimating fair values. These requirements have been
incorporated throughout the notes to the consolidated financial statements.
In cases where quoted market prices are not available, fair values are based
on estimates using present value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates for those assets or liabilities cannot be substantiated by
comparison to independent markets and, in many cases, can not be realized in
immediate settlement of the instrument. All nonfinancial instruments, by
definition, have been excluded from these disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation and may not be indicative of amounts that
might ultimately be realized upon disposition or settlement of those assets
and liabilities.
The following methods and assumptions are used to estimate the fair value
of each class of financial instruments for which it is possible to estimate
that value:
Cash and Due From Banks
Fair value equals the carrying value of such assets.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE T. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Investment Securities
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Cash Surrender Value of Life Insurance
The fair value of this item approximates its carrying value.
Loans
For variable rate loans which are re-pricing immediately, fair values are
based on carrying values. Other variable rate loans, fixed rate commercial
loans, installment loans, and mortgage loans are valued using discounted cash
flows. The discount rates used to determine the present value of these loans
are based on interest rates currently being charged by the bank on comparable
loans as to credit risk and term.
Deposits
The fair values of demand deposits are equal to the carrying value of
such deposits. Demand deposits include non-interest bearing demand deposits,
savings accounts, NOW accounts, and money market demand accounts. Discounted
cash flows have been used to value fixed rate term deposits. The discount
rate used is based on interest rates currently being offered by the Bank on
comparable deposits as to amount and term.
Federal Funds Purchased and Federal Home Loan Bank Advance
Due to the short-term nature of this liability, the carrying value of
this item approximates its fair value.
Securities Sold Under Repurchase Agreements
The fair value of these items approximates their carrying values.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE T. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The estimated fair values of the Bank's financial instruments are as
follows:
1998
----------------------------
Carrying Fair
Amount Value
------------- -------------
Financial assets:
Cash and due from banks $ 4,811,000 $ 4,811,000
Investment securities:
Held-to-maturity $ 30,724,063 $ 31,300,856
Available for sale $ 10,923,838 $ 10,923,838
Equity securities $ 2,187,499 $ 2,187,499
Cash surrender value of life insurance $ 716,000 $ 716,000
Loans $ 119,215,000 $ 119,978,000
Financial liabilities:
Deposits $ 143,124,000 $ 143,590,000
Federal Home Loan Bank advances $ 5,000,000 $ 5,000,000
Federal funds purchased $ 350,000 $ 350,000
Securities sold under
repurchase agreements $ 2,416,043 $ 2,416,043
Face Fair
Amount Value
------------- -------------
Other:
Commitments to extend credit $ 18,779,000 $ 18,779,000
Commercial letters of credit $ 849,000 $ 849,000
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE T. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
1997
---------------------------
Carrying Fair
Amount Value
------------- ------------
Financial assets:
Cash and due from banks $ 5,930,000 $ 5,930,000
Investment securities:
Held-to-maturity $ 38,728,000 $ 39,371,000
Available for sale $ 4,031,000 $ 4,031,000
Equity securities $ 1,198,000 $ 1,198,000
Cash surrender value of life insurance $ 680,000 $ 680,000
Loans $ 107,080,000 $ 107,538,000
Financial liabilities:
Deposits $ 133,481,000 $ 133,807,000
Federal Home Loan Bank advances $ 3,000,000 $ 3,000,000
Federal funds purchased $ 2,134,000 $ 2,134,000
Securities sold under
repurchase agreements $ 1,650,000 $ 1,650,000
Face Fair
Amount Value
------------- -------------
Other:
Commitments to extend credit $ 15,757,000 $ 15,757,000
Commercial letters of credit $ 820,000 $ 820,000
Off-Balance-Sheet Instruments
Loan commitments are negotiated at current market rates and are
relatively short-term in nature. Therefore, the estimated value of loan
commitments approximates the face amount.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE U. SUMMARIZED FINANCIAL INFORMATION OF BRITTON & KOONTZ CAPITAL
CORPORATION
Summarized financial information of Britton & Koontz Capital Corporation,
parent company only, is as follows:
STATEMENTS OF FINANCIAL CONDITION
December 31,
1998 1997
ASSETS: ----------- -----------
Cash $ 766,970 $ 620,535
Investments in:
Britton & Koontz First National Bank 17,397,196 17,282,517
Sumx, Inc. 990,149 -
Cash surrender value of life insurance 70,450 65,825
Other assets 24,418 12,867
----------- -----------
TOTAL ASSETS $19,249,183 $17,981,744
=========== ===========
STOCKHOLDERS' EQUITY $19,249,183 $17,981,744
=========== ===========
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE U. SUMMARIZED FINANCIAL INFORMATION OF BRITTON & KOONTZ CAPITAL
CORPORATION - CONTINUED
STATEMENTS OF INCOME
Years Ended December 31,
1998 1997
----------- -----------
REVENUE:
Dividends received:
Britton & Koontz First National Bank $ 2,262,449 $ 1,076,358
Interest and other income earned 10,545 14,129
----------- -----------
2,272,994 1,090,487
EXPENSES 67,815 35,758
----------- ---------
2,205,179 1,054,729
EQUITY IN UNDISTRIBUTED
EARNINGS (LOSSES):
Britton & Koontz First National Bank 136,190 1,342,831
Sumx, Inc. (9,851) -
----------- -----------
NET INCOME $ 2,331,518 $ 2,397,560
=========== ===========
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE U. SUMMARIZED FINANCIAL INFORMATION OF BRITTON & KOONTZ CAPITAL
CORPORATION - CONTINUED
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997
----------- -----------
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,331,518 $ 2,397,560
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity on undistributed earnings of affiliates (126,339) (1,342,831)
Increase in cash surrender value of life insurance (4,625) (13,486)
Increase in other assets (11,551) (2,516)
----------- -----------
Net cash provided by operating activities 2,189,003 1,038,727
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Sumx, Inc. (1,000,000) -
----------- -----------
Net cash used in investing activities (1,000,000) -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,042,568) (989,556)
Proceeds from sale of common stock - 13,514
----------- -----------
Net cash used in financing activities (1,042,568) (976,042)
----------- -----------
NET INCREASE IN CASH 146,435 62,685
CASH AT BEGINNING OF YEAR 620,535 557,850
----------- -----------
CASH AT END OF YEAR $ 766,970 $ 620,535
=========== ===========
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Change in unrealized gain on securities
available-for-sale, net of deferred
income taxes $ (21,511) $ 38,844
=========== ===========
<PAGE>
Britton & Koontz Capital Corporation (the "Company") was
organized in July, 1982, under the Mississippi Business
Corporation Act, and became a one-bank holding company when it
acquired all of the outstanding shares of Britton & Koontz First
National Bank (the "Bank") in 1982. In July, 1993, the Company
acquired Natchez First Federal Savings Bank ("Natchez First
Federal") located in Natchez, Mississippi, and merged it into
the Bank, increasing total assets by approximately $48 million.
In January 1999, the Bank completed the acquisition of two local
branches owned by a regional bank with deposits of $12 million
and $1.8 million in loans The Company's major sources of income
are dividends from the Bank and interest on its deposits in the
Bank. The Bank's main office and its two branch offices are
located in Natchez, Mississippi, providing commercial and
consumer banking and trust services in Adams County,
Mississippi, and in adjoining counties and parishes of
Mississippi and Louisiana. These services include personal and
commercial checking, savings and time deposits, money market
deposit accounts, money transfer, safe deposit facilities,
access to automated teller machines, short-term and long-term
credit facilities, and residential and commercial mortgages to
individuals and businesses. The Bank also sells local internet
access and provides online banking services over the Internet.
In December 1998, the Company acquired a 35% interest in Sumx
Inc., a company formed to develop and market internet-based
electronic banking to financial institution.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion is intended to supplement the consolidated
financial statements, to explain material changes in financial
condition and to compare the operating results of Britton &
Koontz Capital Corporation for the year ended December 31, 1998,
to the same period in 1997.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable,
such forward-looking statements are based on numerous
assumptions (some of which may prove to be incorrect) and are
subject to risks and uncertainties which could cause the actual
results to differ materially from the Company's expectations.
Forward-looking statements have been and will be made in written
documents and oral presentations of the Company. Such
statements are based on management's beliefs as well as
assumptions made by and information currently available to
management. When used in the Company's documents or oral
presentations, the words "anticipate," "estimate," "expect,"
"objective," "projection," "forecast," "goal" and similar
expressions are intended to identify forward-looking statements.
In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements,
factors that could cause the Company's actual results to differ
materially from those contemplated in any forward-looking
statements include, among others, increased competition,
regulatory factors, economic conditions, changing interest
rates, changing market conditions, availability or cost of
capital, employee workforce factors, cost and other effects of
legal and administrative proceedings, and changes in federal,
state or local legislature requirements. The Company undertakes
no obligation to update or revise any forward-looking
statements, whether as a result of changes in actual results,
changes in assumptions or other factors affecting such
statements.
<PAGE>
Financial Condition
Total Assets. Total assets increased 7.1% to $173.6 million at
December 31, 1998, from $162.1 million at year end 1997. Loans,
net of unearned interest and allowance for loan losses,
increased 11.4% to $118.3 million at December 31, 1998, compared
to $106.2 million at December 31, 1997. Loan growth was funded
primarily by a $9.7 million increase in deposits along with $2.0
million from current operations. A further analysis of the
Bank's loan portfolio is shown in Note D to the financial statements.
Nonperforming Loans. Nonperforming loans at December 31, 1998,
increased to $670 thousand from $272 thousand at December 31,
1997. Nonperforming loans consisted of nonaccrual loans of $222
thousand and loans past due ninety days or more of $448 thousand
compared to $29 thousand and $243 thousand, respectively, for
the year ended December 31, 1997. Nonperforming loans as a
percent of loans, net of unearned income, and loans held for
sale increased to .63% at December 31, 1998, from .28% at
December 31, 1997. The table below presents additional
information on nonperforming assets as of December 31, 1998 and
1997.
1998 1997
------- -------
(dollars in thousands)
Nonaccrual loans by type
Real estate $ 97 $ 23
Installment 30 6
Commercial and all other loan 95 0
----- -----
Total nonaccrual loans 222 29
Loans past due 90 days or more 448 243
----- -----
Total nonperforming loans 670 272
Other real estate 96 74
----- -----
Total nonperforming assets $ 766 $ 346
===== =====
Nonperforming loans as a
percent of loans, net of
unearned interest and loans
held for sale 0.56% 0.25%
===== =====
Allowance for Loan Losses. The allowance for loan losses was
$747 thousand at December 31, 1998, compared to $677 thousand at
December 31, 1997. The ratio of the allowance for loan losses
to loans, net of unearned income and loans held for sale
remained stable at .63% at December 31, 1998. Approximately
half of the loan portfolio is invested in 1-4 family residential
mortgage loans. A smaller portion of the allowance is allocated
to these loans due to their generally higher credit quality.
Management regularly reviews the level of the allowance for loan
losses to ensure the level is adequate to absorb loan losses
inherent in the loan portfolio. Activity in the allowance for
loan losses for the period ended December 31, 1998 and 1997 is
presented in Note E to the financial statements.
<PAGE>
The allocation of the allowance for loan losses between 1-4
family residential first mortgage loans and other loans, net of
unearned interest and loans held for sale, as of December 31,
1998 and 1997 is presented below.
1998 1997
------------ ------------
1-4 Family Residential 1st Mortgage Loans
Volume $ 58,029,874 $ 52,594,153
Allocated reserve 165,493 144,461
Reserves as a percent of volume 0.29% 0.27%
Other Loans
Volume $ 61,002,092 $ 54,238,829
Allocated reserve 581,245 532,284
Reserves as a percent of volume 0.95% 0.98%
Total Loans
Volume $119,031,966 $106,832,982
Allocated reserve 746,738 676,745
Reserves as a percent of volume 0.63% 0.63%
Other Real Estate. Other real estate increased to $96 thousand
at December 31, 1998, compared to $74 thousand at December 31, 1997.
Premises and Equipment. Premises and equipment increased $607
thousand in 1998 pursuant to a capital expenditure plan to
upgrade and replace existing communications, data and check
processing systems. Major components of the capital plan
include replacement of the Bank's core accounting hardware and
software, acquisition of a new check processing system with
imaging capabilities, and upgrades or replacement of ancillary
systems. Implementation of these systems was completed in 1998.
Investment Securities. Management determines the
classification of its investment securities at the time of
acquisition. Securities that are deemed to be held-to-maturity
are accounted for by the amortized cost method while securities
that are purchased as available-for-sale are accounted for at
fair value. Securities held-to-maturity decreased $8.0 million
to $30.7 million at December 31, 1998, compared to $38.7 million
at December 31, 1997. However, the bank's available-for-sale
securities portfolio increased by $6.9 million to $10.9 million
at December 31, 1998. Net unrealized gains, after tax-effecting
the available-for-sale securities, amounted to $17 thousand.
Equity securities increased $990 thousand reflecting the
Company's 35% investment in Sumx Inc.
The Company's cash and cash equivalents ended the year at $4.8
million, a decrease of $1.1 million from December 31, 1997. Due
to the $12.3 million increase in loans, investing activities
used $12.7 million. The increase in investing activities was
provided for by $9.6 million in financing activities, most of
which came from an increase in demand deposits along with
operating activities providing $2.0 million.
<PAGE>
Funding Sources. Deposits are the Company's primary source of
funding for earning assets. Average deposits, used to finance
additional loan growth, increased $15.5 million to $144.6
million at December 31, 1998. Average borrowings, which include
federal funds purchased, securities sold under repurchase
agreements, and advances from the Federal Home Loan Bank of
Dallas remained relatively constant. A further analysis of the
Company's funding uses and sources is reflected in the table
below.
Average Balances Percent of Total
---------------------------------------
1998 1997 1998 1997
---------------------------------------
(dollars in thousands)
Funding Uses
Loans, less unearned income $114,082 $101,249 66.4% 64.6%
Investments 43,287 44,274 25.2% 28.2%
Federal funds sold 2,140 920 1.2% 0.6%
Other 12,294 10,290 7.2% 6.6%
-------- -------- ----- -----
Total $171,803 $156,733 100.0% 100.0%
======== ======== ===== =====
Funding Sources
Non-interest bearing deposi $ 19,277 $ 16,726 11.2% 10.7%
Interest bearing deposits 125,349 112,444 73.0% 71.7%
Short-term borrowings 4,147 4,247 2.4% 2.7%
Other 4,136 5,774 2.4% 3.7%
Equity 18,894 17,542 11.0% 11.2%
-------- -------- ----- -----
Total $171,803 $156,733 100.0% 100.0%
======== ======== ===== =====
Liquidity. Principal sources of liquidity for the Company are
asset cash flows and the ability to borrow against investment
securities and loans. Principal and interest cash flows from
investment securities exceeded $14 million, or 8% of average
assets, in 1998. The portfolio primarily includes investments
in obligations of the U.S. Treasury, government agency
obligations and mortgage-backed securities.
Asset liquidity is provided by scheduled maturities within the
loan portfolio, although the probability of conversion is not as
certain as with investment securities. At the end of 1998, over
$22.2 million, or 19.1% of the loan portfolio, was scheduled to
mature within one year.
Liability liquidity is provided by sizable core deposits and
other sources of funds generated from the normal customer base.
Substantially all the funds utilized by the Company are
generated from the normal customer base. Brokered deposits are
not solicited; however, national market deposits have been
utilized from time to time to meet funding needs.
<PAGE>
In addition to the liquidity provided by the balance sheet, the
Company maintains a capacity to borrow additional funds when the
need arises through federal funds purchased lines with
correspondent banks and broker repurchase agreements.
Additional borrowing capacity is available on 1-4 family
residential first mortgage loans through the Federal Home Loan Bank.
Interest Rate Sensitivity. The primary assets of banks are
portfolios of investment securities and loans, while liabilities
are primarily composed of interest bearing deposits and borrowed
funds. Assets and liabilities have varying maturities, and the
associated rates may be fixed or variable. Asset/liability
management techniques are used to maintain what are believed to
be appropriate levels and relationships between rate-sensitive
assets and liabilities. They represent the efforts to maximize
overall returns and to minimize the risk of loss associated with
significant, often unforeseen, shifts in interest rates.
A liability sensitive company will generally benefit from a
falling interest rate environment as the cost of interest
bearing liabilities falls faster than the yields on interest
earning assets, thus creating a widening of the net interest
margin. Conversely, an asset sensitive company will generally
benefit from a rising interest rate environment as the yields on
interest earning assets rise faster than the costs on interest
bearing liabilities.
Management utilizes computerized interest rate simulation
analysis as its primary measure of interest rate sensitivity.
Management's analyses indicate that initial exposure to rising
rates dampens the net interest margin in a short term horizon of
12 to 18 months. Beyond the short term period, the balance
sheet reflects a reversal from liability to asset sensitivity.
A traditional measure of interest rate sensitivity is the
difference between the balances of assets and liabilities in the
Company's current portfolio that are subject to repricing at
various time horizons. These differences are known as interest
sensitivity gaps: immediate to 3 months, 4 to 12 months, 1 to 3
years, 3 to 5 years, over 5 years and on a cumulative basis.
The Company's interest sensitivity analysis as of December 31,
1998, is shown in the table below.
(dollars in thousands)
immediate
to 3 4-12 1 to 3 3 to 5 Over 5
Months Months Years Years Years Totals
-------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C>
Interest Sensitive Assets $36,426 $42,269 $37,248 $21,298 $25,083 $162,324
Interest Sensitive Liabilit 41,692 44,390 10,089 7,604 47,953 $151,728
-------- ------- ------- ------- -------- --------
Interest Sensitivity Gaps ($5,266) ($2,121) $27,159 $13,694 ($22,870) $ 10,596
======== ======= ======= ======= ======== ========
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities 0.87 0.91 1.21 1.32 1.07
======== ======= ======= ======= ========
<PAGE>
Changes in the mix of earning assets or supporting liabilities
can either increase or decrease the net interest margin without
affecting interest rate sensitivity. In addition, the interest
rate spread between an asset and its supporting liability can
vary significantly while the timing of repricing for both the
asset and the liability remains the same, thus impacting net
interest income. Varying interest rate environments can create
unexpected changes in prepayment levels of assets and
liabilities which are not reflected in the above interest
sensitivity analysis report. These prepayments may have
significant effects on the Company's net interest margin.
Because of these factors, the interest sensitivity analysis
contained in the above table does not provide a complete
assessment of the Company's exposure to changes in interest rates.
Management also evaluates the condition of the economy, the
pattern of market interest rates and other economic data in an
attempt to determine the appropriate mix and repricing
characteristics of assets and liabilities required to produce an
optimal net interest margin and thus maximize income.
In addition to the ongoing monitoring of its interest-sensitive
assets and liabilities, the Company from time to time utilizes
interest rate swaps or caps to augment the management of its
interest rate sensitivity. The interest rate risk factor in
these contracts is considered in the overall interest income and
interest rate risk management strategies. The income or expense
associated with these hedging techniques are reflected as
adjustments to interest income or expense. At December 31,
1998, the Company had purchased a two year, $10 million, 6%
interest rate cap. There were no swap contracts outstanding.
Capital and Dividends. Stockholders' equity increased by 7.0%
to $19.2 million at December 31, 1998, compared to $18.0 million
at the end of 1997. The ratio of stockholders' equity to assets
remained stable at 11.09% at December 31, 1998. The Company
paid dividends of $.59 per share in 1998 compared to $.56 in
1997.
The Company's wholly-owned subsidiary, Britton and Koontz First
National Bank, maintained a Tier 1 capital to risk weighted
assets ratio at December 31, 1998, of 15.16%, a total capital to
risk weighted assets ratio of 15.81% and a leverage ratio of
10.15%. These levels substantially exceed the minimum
requirements of the regulatory agencies of 4.00%, 8.00% and
3.00%, respectively, and place the Company in the
"well-capitalized" category under applicable regulatory
guidelines.
<PAGE>
Results of Operations
Analysis of Net Income. The Company earned $2.3 million, or
$1.32 per share in 1998 compared to $2.4 million or $1.36 per
share in 1997. Returns on average assets and average equity for
1998 were 1.36% and 12.34%, respectively, compared to 1.53% and
13.67% in 1997. A one-time gain recorded in 1997 of $107
thousand is the primary reason for the decrease in earnings for
1998 compared to 1997. Other significant increases, for the
year ended December 31, 1998, in noninterest expense include
approximately $100 thousand related to the Company's $1.0
million investment in Sumx Inc., a 35% owned subsidiary
established to market internet-based banking software to the
banking industry; data processing and equipment expenses
related to improvements in computer systems along with the
upgrade of the bank's core accounting system to assure Year 2000
compliance.
Analysis of Net Interest Income. Net interest income increased
$369 thousand or 5.4% to $7.3 million in 1998. Interest income
increased $944 thousand or 7.8% primarily due to a 12.7%
increase in average loan volumes offset with a slight decrease
in overall interest rates and yields. As indicated in the
table, Summary of Changes in Net Interest Income, the change in
volumes increased net interest income $682 thousand in 1998
compared to 1997. A $1.2 million increase in interest income
due to the growth in loans was partially offset by a $471
thousand increase in interest expense due to growth in
interest bearing liabilities. The change in interest rates
caused a decline in net interest income of $313 thousand.
Interest income on loans declined $148 thousand due to changes
in yields caused by the bank's competitive lending environment
along with the natural decrease in rates. Interest expense
increased primarily due to market rates paid on the bank's
public funds portfolio.
The following Average Balance Yield Analysis presents average
balances, interest earned or paid, and average rates earned or
paid. Yields and costs are derived by dividing income or expense
by the average balance of assets or liabilities, respectively.
Average balances are derived from average monthly balances.
<PAGE>
Average Balance Yield Analysis
(dollars in thousands)
Twelve Months Ended December 31,
--------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
-------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1)(2) $114,082 $ 9,966 8.74% $101,249 $ 8,991 8.88%
Investment securities:
U.S. Government & other 42,216 2,821 6.68% 43,411 2,955 6.81%
State & municipal 1,071 56 5.22% 863 47 5.46%
-------- ------- -------- ------
Total investment securities 43,287 2,877 6.65% 44,274 3,002 6.78%
Interest bearing bank balances 1,475 77 5.25% 825 42 5.09%
Federal funds sold 2,140 110 5.12% 920 48 5.16%
Other (Cash Value Life Insurance) 707 36 5.04% 660 39 5.87%
-------- ------- -------- ------
Total earning assets 161,691 13,066 8.08% 147,928 12,122 8.19%
-------- ------- -------- ------
Allowance for loan losses (738) (653)
Cash & due from banks, non-interest
bearing 4,989 4,214
Bank premises & equipment 4,009 3,751
Other assets 1,852 1,493
-------- --------
TOTAL ASSETS $171,803 $156,733
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings $ 11,085 $ 276 2.49% $ 10,708 $ 268 2.50%
Interest bearing checking 25,305 734 2.90% 19,858 498 2.51%
Money rate savings 10,828 354 3.27% 7,947 216 2.72%
Certificates of deposit and other
time deposits 78,131 4,229 5.41% 73,931 4,030 5.45%
-------- ------- -------- -------
Total interest bearing deposits 125,349 5,593 4.46% 112,444 5,012 4.46%
Short term borrowed funds 4,147 216 5.22% 4,247 222 5.23%
-------- ------- -------- -------
Total interest bearing liabilities 129,496 5,809 4.49% 116,691 5,234 4.49%
-------- ------- -------- -------
Non-interest bearing deposits 19,277 16,726
Other liabilities 4,136 5,774
Shareholders' equity 18,894 17,542
-------- ------- -------- -------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $171,803 $ 5,809 $156,733 $ 5,234
======== ======= ======== =======
Interest income and rate earned $13,066 8.08% $12,122 8.19%
Interest expense and rate paid 5,809 4.49% 5,234 4.49%
------- ---- ------- ----
Interest rate spread 3.59% 3.70%
==== ====
NET INTEREST INCOME & NET YIELD
ON AVERAGE EARNING ASSETS $7,257 4.49% $6,888 4.66%
======= ==== ======= ====
(1) Nonaccrual loans are included in average balances for yield computations.
(2) Includes loan fees and late charges in both interest income and yield computations.
<PAGE>
Summary of Changes in Net Interest Income
1998 compared to 1997
--------------------------------------
Increase (Decrease) Due to Change In
Total Volume Rates
---------- -------- -------
<C> <C> <C>
INTEREST EARNED ON:
Loans $ 975 $ 1,123 ($ 148)
Investment securities:
U.S. Government & other (134) (80) (54)
State & municipal 9 11 (2)
Interest bearing bank balances 35 34 1
Federal funds sold 62 62 0
Other (Cash Surrender Value Life Insurance) (3) 3 (6)
-------- ------- -------
Total earning assets 944 1,153 (209)
INTEREST PAID ON:
Savings 8 9 (1)
Interest bearing checking 236 150 86
Money rate savings 138 89 49
Certificates of deposit and other
time deposits 199 228 (29)
Short-term borrowed funds (6) (5) (1)
-------- ------- -------
Total interest bearing liabilities 575 471 104
-------- ------- -------
NET INTEREST INCOME $ 369 $ 682 ($ 313)
======== ======= =======
Provision for Loan Losses. The provision for loan losses
remained stable at $162 thousand in 1998. To determine the
provision amount, management considers factors such as
historical trends of charge-offs and recoveries, past due loans
and economic conditions along with additional analysis of
individual loans and pools of loans for exposure. After
allocating the existing reserves to estimated exposures,
management then adds to the reserve through a loan loss
provision to cover potential losses in the portfolio.
Management is of the opinion that the reserve at December 31,
1998, is adequate to cover estimated exposures.
Non-Interest Income. Non-interest income grew 3.5% to $1.5
million for the year ended December 31, 1998, compared to the
same period in 1997. Income from operations continues to
reflect strong core income. The growth in 1998 offset a
one-time gain reflected in 1997 and a continuing decline in the
Company's amortization of the negative goodwill credit from the
1993 acquisition of Natchez First Federal Savings Bank.
<PAGE>
Non-Interest Expense. Non-interest expense increased $537
thousand to $5.1 million in 1998, as compared to $4.6 million in
1997. The major categories contributing to the increase were
staff costs, up $238 thousand; and equipment costs, up $100
thousand. Staff cost, which represent 47% of noninterest
expense, rose as a result of an increase in time spent training
for and converting to a new core accounting system. Also, the
Company absorbed additional personnel expenses associated with
the marketing of an internet-based electronic banking product.
In December, 1998, the marketing was transferred to Sumx Inc.,
in which the Company holds a 35% interest The increase in
equipment expense is primarily the result in the Company's
extensive update of the bank's core accounting system and
related computer systems necessary to assure the banks
compliance to Year 2000 issues.
The combination of all the above factors produced a pretax
income of $3.5 million in 1998, as compared to $3.6 million in 1997.
Income Taxes. Income taxes for 1998 decreased $54 thousand to
$1.2 million. The change in income taxes is detailed in Note M
to the financial statements.
Year 2000. The Year 2000 issue results from the fact that many
computer programs store and process data using two digits rather
than four to define the applicable year. This issue affects not
only Brittion & Koontz First National Bank but virtually all
companies and organizations that use computer information
systems.
The Company has adopted a formal five-step methodology to move
toward assuring that the systems it uses to process financial
institution records will be Year 2000 compliant. That process
includes the following phases: Awareness, Assessment, Renovation,
Testing and Implementation.
The Program is addressing: hardware and software purchased from
outside vendors, custom software developed in-house,
telecommunications equipment, facilities (i.e. elevators, HVAC,
etc.) and the information processing systems of our business
partners. The Company is aware that 2000 is a leap year and is
taking this fact into consideration in both its renovation and testing.
As part of the process, the institution has developed a plan
and provided sufficient human and financial resources for the
successful execution of that plan. Our plan calls for the
testing phase to be completed by March 31, 1999, and the
implementation phase to be completed by June 30, 1999. The last
six months of 1999 is intended to be a cushion period to protect
against missed deadlines and unexpected surprises. In addition,
the company is in the process of creating contingency plans for
unexpected system failures. At this point, the Company is on
target with its plan. While our program continues to track our
plan, there is no guarantee that target dates will be met as a
result of factors beyond the Company's control, such as external
resource constraints and the failure of third parties to become
Year 2000 compliant.
The Company has already incurred and expensed charges related
to Year 2000 compliance and will continue to charge related
items to noninterest expense. Management does not expect the
cost of compliance with the Year 2000 to have a material effect
on the financial statements of the Company.
</TABLE>
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CORPORATE INFORMATION
Annual Meeting/Principal Office:
3:30 p.m., Thursday, April 08, 1999
Britton & Koontz First National Bank
500 Main Street
Natchez, Mississippi 39120
Transfer Agent and Registrar:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
718-921-8200
Independent Auditors:
May & Company
110 Monument Place
P. O. Box 821568
Vicksburg, Mississippi 39182
For Additional Information Contact:
Bazile R. Lanneau, Jr.
Chief Financial Officer
601-445-5576
e-mail: [email protected]
web site: www2.bkbank.com
For copies of the Annual Report on Form 10-K or Quarterly Reports on Form
10-Q filed with the Securities and Exchange Commission, Contact:
Bazile R. Lanneau, Jr.
Chief Financial Officer
500 Main Street
P. O. Box 1407
Natchez, Mississippi 39121
601-445-5576
e-mail: [email protected]
Questions regarding stock holdings, certificates, replacement, dividends, and
address changes should be addressed to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
718-921-8200
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
DIRECTORS AND EXECUTIVE OFFICERS
W. W. Allen, Jr.
President
Allen Petroleum Services, Inc.
Craig A. Bradford, D.M.D.
Pediatric Dentist
James J. Cole
Executive Vice-President
Britton & Koontz First National Bank
Wilton R. Dale
Petroleum Geologist
Co-Owner, Dale Exploration Company
W. J. Feltus III
President
Feltus Brothers, Ltd.
Chairman
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
A. J. Ferguson
Consulting Geologist
Owner, Mini-Storage Rentals
C. H. Kaiser, Jr.
Partner
Jordan, Kaiser & Sessions, Engineering
Vice-Chairman
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
<PAGE>
Donald E. Killelea, M.D.
Pediatrician - retired
Bazile R. Lanneau, Sr.
Life Insurance
Bazile R. Lanneau, Jr.
President & Chief Executive Officer
Sumx Inc.
Vice-President, Assistant Secretary,
Treasurer & Chief Financial Officer
Britton & Koontz Capital Corporation and
Executive Vice-President
Britton & Koontz First National Bank
Albert W. Metcalfe
President
Jordan Auto Company, Inc.
Secretary
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
W. Page Ogden
President & Chief Executive Officer
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
Bethany L. Overton
President
Lambdin-Bisland Realty, Co.
Robert R. Punches
Partner
Gwin, Lewis & Punches, Attorneys
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
OFFICERS
ADMINISTRATION
W. Page Ogden
President & Chief Executive Officer
Bazile R. Lanneau, Jr.
Executive Vice President,
Chief Financial Officer
James J. Cole
Executive Vice President
LENDING
Michael B. Ellard
Senior Vice President
Senior Lending Officer
Patricia J. Bonds
Vice President
Glynn A. Laird
Vice President
G. Mike Malone
Vice President
Barry L. Maxwell
Vice President
MORTGAGE LOANS
Frances B. Cothren
Vice President
Eddie A. Hobson
Assistant Vice President
Janet W. Bruce
Loan Officer
Mitzi Burkley
Loan Officer
BRANCH ADMINISTRATION, HUMAN RESOURCES, MARKETING, & OPERATIONS
Rosemary I. Hall
Senior Vice President
Walter L. Reed
Senior Vice President
Curtis L. Moroney
Systems Administrator
<PAGE>
Martha J. Seibert
Marketing Director
Dunbar B. Peale
Assistant Vice President
Barbara R. Rodriguez
Assistant Vice President,
Branch Manager
Dorothy A. Weadock
Assistant Vice President
Kimberly A. Arnold
Assistant Vice President
Branch Manager
Holly B. Sandifer
Branch Manager
R. Talmadge Anderson
Operations Officer
CONTROLLER
William M. Salters
Vice President
LOAN REVIEW AND ADMINISTRATION
Jarrett E. Nicholson
Assistant Vice President
Loan Review Officer
Sandra J. Boyte
Loan Operations Officer
Janice B. Delaney
Loan Operations Officer
COMPLIANCE
Cliffie S. Anderson
Assistant Vice President
Compliance Officer
TRUST
Rene P. Maher
Trust Officer
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of the Company at December 31,
1998 and all are included in the Company's consolidated financial statements:
Jurisdiction
of Percentage of Voting
Subsidiaries Incorporation Securities Owned
- --------------- -------------- --------------------
Britton & Koontz First National Bank Federal Law 100%
Sumx Inc. Federal Law 35%
NOTES
Both Subsidiaries are included in the consolidated financial statements.
Both Subsidiaries conduct business under their own name.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-KSB) of Britton & Koontz Capital Corporation and Subsidiary
of our report dated January 20, 1999, included in the 1998 Annual Report
to Shareholders of Britton & Koontz Capital Corporation and Subsidiary.
\s\ May & Company
Vicksburg, Mississippi
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000707604
<NAME> BRITTON & KOONTZ FIRST NATIONAL BANK
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,810,627
<INT-BEARING-DEPOSITS> 121,505,227
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,923,837
<INVESTMENTS-CARRYING> 30,724,063
<INVESTMENTS-MARKET> 31,334,217
<LOANS> 118,285,228
<ALLOWANCE> 746,738
<TOTAL-ASSETS> 173,573,443
<DEPOSITS> 143,186,397
<SHORT-TERM> 7,766,043
<LIABILITIES-OTHER> 3,371,820
<LONG-TERM> 0
0
0
<COMMON> 4,417,660
<OTHER-SE> 14,831,523
<TOTAL-LIABILITIES-AND-EQUITY> 173,573,443
<INTEREST-LOAN> 9,967,320
<INTEREST-INVEST> 3,099,138
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,066,458
<INTEREST-DEPOSIT> 5,592,734
<INTEREST-EXPENSE> 5,809,157
<INTEREST-INCOME-NET> 7,257,301
<LOAN-LOSSES> 162,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,105,455
<INCOME-PRETAX> 3,487,735
<INCOME-PRE-EXTRAORDINARY> 2,331,518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,331,518
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 8.08
<LOANS-NON> 222,675
<LOANS-PAST> 448,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 676,745
<CHARGE-OFFS> 117,000
<RECOVERIES> 25,000
<ALLOWANCE-CLOSE> 746,738
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 10.03
EMPLOYMENT AGREEMENT FOR JAMES J. COLE
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated effective as this 31st day of December, 1998, between
BRITTON & KOONTZ FIRST NATIONAL BANK (hereinafter referred to as "B&K",
BRITTON & KOONTZ CAPITAL CORPORATION (hereinafter referred to as "B&K
Capital Corp."), and JAMES J. COLE (hereinafter referred to as "Employee").
I. EMPLOYMENT
B&K agrees to employ the Employee and the Employee agrees to work as a
full-time employee of B&K, upon the terms and conditions of this agreement.
II. TERM
This agreement shall terminate on December 31, 2000. However, it shall
automatically renew for two successive one-year terms unless 90 days prior
notice is given by the respective parties.
III. COMPENSATION
For all services rendered by the Employee, as outlined hereinafter, the
Employee shall be paid an annual salary of Eighty Thousand and No/100
($80,000.00) Dollars, which shall be payable in accordance with B&K's
ordinary payroll procedures.
IV. ADDITIONAL EMPLOYEE BENEFITS
A)In addition to the compensation recited hereinabove, Employee shall
be entitled to participate to the fullest extent allowable in all additional
benefits normally made available to employee.
B)B&K agrees to provide Employee with an automobile and to reimburse
Employee for all maintenance, repairs, insurance, gasoline, and other costs
incidental to the automobile. Employee agrees to reimburse B&K for such
automobile costs or expenses necessary to comply with the current or future
tax laws and regulations promulgated thereunder.
C)B&K agrees to pay the country club, professional and civic organization
dues for Employee and his wife.
V. DUTIES
Employee is hired by B&K as an Executive Vice President of the bank.
Employee will report directly to the President of the bank with responsibility
for (a) Oversight of the mortgage loan function, including origination, loan
closing, servicing, and secondary marketing of both commercial and residential
mortgage loans; (b) Supervision of bank branch personnel and "retail"
activities (sale of bank deposit products) in the bank branches; (c) Service
as Trust Officer, administering the bank's trust activities; (d) Service as
member of the Directors' and Officers' Loan Committees; (e) Supervision of
the bank's loan collection efforts, including mortgage, consumer, and
commercial loans; (f) Maintenance of appropriate policies, procedures,
and internal controls in areas assigned; and (g) Other duties as requested
by the Board and President.
<PAGE>
Employee will serve on the Board of Directors of B&K and B&K Capital Corp.
in accordance with federal banking regulations. Employee is expected to
spend a reasonable amount of his time in civic and professional activities,
and it is agreed that the time spent by Employee in these activities, along
with other reasonable amounts of time for personal or outside business, shall
not constitute a breach of this agreement by Employee, provided that such
activities do not materially interfere with the services required to be
rendered by Employee to B&K.
VI. TERMINATION OF EMPLOYMENT
It is agreed that B&K may terminate Employee's employment at any time,
with or without cause, but any termination other than for cause shall not
affect Employee's right to compensation or other benefits. Termination for
cause shall include termination because of personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), and/or
flagrant abuse and violation of the bank policies adopted by the B&K Board
of Directors. If employee is terminated without cause B&K shall pay Employee
a lump sum termination payment equal to the greater of Forty Thousand and
No/100 ($40,000.00) Dollars or six months of Employee's then current annual
salary. As a condition precedent to employee receiving this lump sum
termination payment, employee must sign an agreement not to sue B&K or B&K
Capital based on any violation of labor laws, including age discrimination.
VII. ASSIGNMENT
Employee acknowledges that the services to be rendered by him are unique
and personal. Accordingly, the Employee may not assign any of his rights or
delegate any of his authorities or obligations under this agreement.
VIII. ENTIRE AGREEMENT
This agreement contains the entire understanding of the parties, may not be
changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IX. GOVERNING LAW
This agreement shall be construed and enforced in accordance with the laws
of the State of Mississippi.
X. SEVERABILITY AND MODIFICATION
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of other provisions.
XI. COUNTERPARTS
This instrument is executed in duplicate counterparts, each of which shall
be deemed an original, but both of which shall constitute one and the same
instrument. Employee shall have one fully executed copy and B&K shall have
one fully executed copy.
<PAGE>
XII. BINDING EFFECTS OF THIS AGREEMENT
This agreement shall be binding upon the heirs, legal representative,
successors and assigns of the parties hereto.
IN WITNESS WHEREOF this agreement is executed as of the date first
hereinabove recited.
BRITTON & KOONTZ FIRST NATIONAL BANK
By: /s/ W.Page Ogden
___________________________________
Its: President & Chief Executive Officer
BRITTON & KOONTZ CAPITAL CORPORATION
By: /s/ W. Page Ogden
___________________________________
Its: President & Chief Executive Officer
/s/ James J Cole
____________________________________
James J Cole
EXHIBIT 10.09
STOCK PURCHASE AGREEMENT
<PAGE>
SUMX INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
December 3, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 Authorization of Shares
1.2 Sale and Purchase
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 Closing
2.2 Delivery
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
3.1 Organization, Good Standing and Qualification
3.2 Capitalization; Voting Rights
3.3 Authorization; Binding Obligations
3.4 Financial Statements
3.5 Liabilities
3.6 Changes
3.7 Agreements; Actions
3.8 Obligations to Related Parties
3.9 Title to Properties and Assets
3.10 Patents and Trademarks
3.11 Compliance with Other Instruments
3.12 Litigation
3.13 Tax Returns and Payments
3.14 Employees
3.15 Registration Rights
3.16 Compliance with Laws; Permits
3.17 Environmental Laws
3.18 Offering Valid
3.19 Insurance
3.20 Full Disclosure
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
4.1 Requisite Power and Authority
4.2 Consents
4.3 Investment Representations
4.4 Transfer Restrictions
SECTION 5. CONDITIONS TO CLOSING
5.1 Conditions to Purchasers' Obligations at the Closing
5.2 Conditions to Obligations of the Company
<PAGE>
SECTION 6. MISCELLANEOUS
6.1 Governing Law
6.2 Survival
6.3 Successors and Assigns
6.4 Entire Agreement
6.5 Separability
6.6 Knowledge
6.7 Amendment and Waiver
6.8 Delays or Omissions
6.9 Notices
6.10 Titles and Subtitles
6.11 Counterparts
<PAGE>
SUMX INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT
(the "Agreement") is entered into as of December 3, 1998, by and among
Sumx Inc., a Mississippi corporation (the "Company"), and Britton &
Koontz Capital Corporation ("Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of One Million (1,000,000) shares of its Series A Preferred Stock
(the "Shares") pursuant to this Agreement; and
WHEREAS, Purchaser desires to purchase the Shares on the terms
and conditions set forth herein, and the Company desires to issue and sell the
Shares to Purchaser on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises hereinafter set forth, the parties to agree as follows:
SECTION 1.AGREEMENT TO SELL AND PURCHASE.
1.1 Authorization of Shares. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Articles of
Incorporation of the Company, in the form attached hereto as Exhibit A (the
"Articles").
1.2 Sale and Purchase. Subject to the terms and conditions
hereof, the Company hereby agrees to issue and sell to Purchaser at the
Closing, and Purchaser agrees to purchase from the Company, severally and
not jointly, one million (1,000,000) shares of Series A Preferred Stock at a
purchase price of one dollar ($1.00) per Share.
SECTION 2.CLOSING, DELIVERY AND PAYMENT.
2.1 Closing. The Closing of the sale of the Shares under this
Agreement (the "Closing") shall take place on the date hereof, at the offices
of Harwell Howard Hyne Gabbert & Manner, P.C., or at such other time or
place as the Company and Purchaser may mutually agree (such date is
hereinafter referred to as the "Closing Date").
2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser certificates representing the
number of Shares to be purchased by each Purchaser in exchange for payment
of the purchase price in immediately available funds.
<PAGE>
SECTION 3.REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit B and delivered as of the Closing Date, the Company hereby
represents, warrants and covenants to each Purchaser as follows:
3.1 Organization, Good Standing and Qualification.
(a)The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Mississippi. The
Company has all requisite corporate power and authority to own and operate
its properties and assets, to execute and deliver this Agreement and the
Investor Rights Agreement in the form attached as Exhibit C (the "Investor
Rights Agreement"). The Company has the authority and has taken all actions
necessary to issue and sell the Shares and the common stock issuable upon
conversion of the Shares (the "Conversion Shares") and to carry out the
provisions of this Agreement, the Investor Rights Agreement, and the
Articles.
(b)The Company is qualified and authorized to do
business and is in good standing in all other jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the business of the Company.
(c)The Company owns no equity securities of any other
corporation, limited partnership or similar entity.
3.2 Capitalization; Voting Rights. The authorized capital stock
of the Company, immediately prior to the Closing, consists of Three Million
Nine Hundred Thousand (3,900,000) shares of common stock, 1,857,143
shares of which are issued and outstanding, and 1,000,000 shares of Preferred
Stock, all of which are designated Series A Preferred Stock and none of which
are issued and outstanding. All issued and outstanding shares of the
Company's capital stock (i) have been duly authorized and validly issued, and
(ii) are fully paid and nonassessable. The rights, preferences, privileges and
restrictions of the Shares are as stated in the Articles. The Conversion Shares
have been duly and validly reserved for issuance. Other than as listed on the
Schedules of Exceptions, or as otherwise provided herein in the Investor
Rights Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), voting
or stockholder agreements, or agreements of any kind to which the Company
is a party or, to its knowledge, by which it is bound for the purchase or
acquisition from the Company of any of its securities, whether or not the
Company is a party. Except as may be set forth in the Articles, the Company
has no obligation to repurchase any of its capital stock. As of the Closing,
the stockholders and optionholders of the Company are as listed on the Schedule
of Exceptions.
3.3 Authorization; Binding Obligations. All corporate action on
the part of the Company necessary for the authorization of this Agreement
and the Investor Rights Agreement, and for the performance of all obligations
of the Company hereunder and thereunder at the Closing has been taken or
will be taken prior to the Closing. The Agreement and the Related
Agreements, when executed and delivered, will be valid and binding
obligations of the Company enforceable in accordance with their respective
terms except: (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (b) general principles of equity that
restrict the availability of equitable remedies; and (c) to the extent that the
enforceability of the indemnification provisions of the Investor Rights
Agreement may be limited by applicable laws. When issued in compliance with
the provisions of this Agreement and the Articles, the Shares and the
Conversion Shares will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that the Shares and
the Conversion Shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
<PAGE>
3.4 Financial Statements. The Company has delivered to each
Purchaser its audited balance sheets and statements of income as of December
31, 1996 and December 31, 1997 (the "Audited Financial Statements"), and
its unaudited balance sheet and statements of income as of September 30,
1998 (collectively, the "Interim Financial Statements"), copies of which are
attached hereto as Exhibit F (the Audited Financial Statements and Interim
Financial Statements are hereinafter referred to as the "Financial Statements").
The Financial Statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting
principles, except as disclosed therein, and present fairly the financial
condition and position of the Company, subject to normal recurring year-end
audit adjustments, and do not contain all footnotes required under generally
accepted accounting principles.
3.5 Liabilities. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities not disclosed
in the Financial Statements, except for current liabilities incurred in the
ordinary course of business.
3.6 Changes. Except as set forth on the Schedule of Exceptions,
since September 30, 1998, there has not been:
(a)any material change in the assets, liabilities, financial
condition or operations of the Company other than changes in the ordinary
course of business, which has had or is expected to have a material adverse
effect on such assets, liabilities, financial condition, or operations of the
Company;
(b)any material adverse change, except in the ordinary
course of business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(c)any material damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the properties,
business or prospects, or financial condition of the Company;
(d)any waiver by the Company of a valuable right or of a
material debt owed to it;
<PAGE>
(e)any direct or indirect loans made by the Company to
any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(f)any declaration or payment of any dividend or other
distribution of the assets of the Company;
(g)any debt, obligation or liability incurred, assumed, or
guaranteed by the Company, except those for immaterial amounts and except
for current liabilities incurred in the ordinary course of business;
(h)any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets by the
Company; or
(i)any material change in any other agreement to which
the Company is a party or by which it is bound that has materially and
adversely affected the business, assets, liabilities, financial condition, or
operations or prospects of the Company.
3.7 Agreements; Actions.
(a)Except for agreements explicitly contemplated hereby
or by the Related Agreements, there are no agreements between the Company
and any of its officers, directors, affiliates or any affiliate thereof.
(b)Set forth on the Schedule of Exceptions is a list of all
agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or to its
knowledge by which it is bound which may involve (i) obligations (contingent
or otherwise) of, or payments to, the Company in excess of One Hundred
Thousand Dollars ($100,000) (the "Dollar Threshold) (other than obligations
of, or payments to, the Company arising from purchase agreements entered
into in the ordinary course of business), or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products). The agreements or other documents referenced in this
Section 3.7(b) are referred to herein as the "Company Contracts."
(c)The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to indebtedness and
other obligations incurred in the ordinary course of business individually not
in excess of the Dollar Threshold), (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged, or otherwise disposed of any of its assets or rights, other than the
sale of its products or inventory in the ordinary course of business.
<PAGE>
(d)The Company has not entered into any letters of intents
or binding agreements: (i) with any representative of any corporation or
corporations, partnership, limited liability company, association or other
business entity or any individual (each an "Acquisition Party") regarding the
consolidation or merger of the Company, or any proposed subsidiary or
affiliate of the Company with, or into, any such Acquisition Party or for the
consolidation or merger of such Acquisition Party, (ii) with any Acquisition
Party regarding the sale, conveyance or disposition a significant portion of the
assets of the Company or any Acquisition Party, or a transaction or series of
related transactions in which more than fifty percent (50%) of the voting
power of the Company or any Acquisition Party is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company or any Acquisition Party.
(e)The Schedule of Exceptions sets forth a list of all
claims (other than invoices received in the ordinary course of business),
threatened against the Company under each Company Contract to the extent
such claims have had, or would reasonably be expected to have, a material
adverse effect on the Company.
3.8 Obligations to Related Parties. There are no obligations of
the Company to officers, directors, stockholders, or employees of the
Company other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of the Company
(iii) for other standard employee benefits (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors
of the Company) and (iv) the agreements described on the Schedule of
Exceptions pursuant to Section 3.14. None of the officers, directors or
stockholders of the Company, or any members of their immediate families, are
indebted to the Company. No officer, director or stockholder is a party to any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).
The Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm, or corporation.
3.9 Title to Properties and Assets. The Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, if any, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) those resulting from taxes which have
not yet become delinquent, (ii) liens and encumbrances that do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (iii) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in
reasonably good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used. The Company's assets,
both owned and leased, are sufficient to enable it to conduct its business as
presently conducted and as proposed to be conducted.
<PAGE>
3.10 Patents and Trademarks. Except as described on the
Schedule of Exceptions, the Company owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes necessary for
its business as now conducted. Except as may be set forth in the Schedule of
Exceptions, there are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by, or a party to,
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.
Except as set forth on the Schedule of Exceptions, the Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative agency, that
would materially interfere with their duties to the Company or that would
materially conflict with the Company's business as proposed to be conducted.
3.11 Compliance with Other Instruments. The Company is not
in violation or default that would likely result in a material adverse affect
on the business, operations, or prospects of the Company of: (i) any term of
its Articles or Bylaws or other charter documents; (ii) any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound; (iii) any judgment, decree, order, writ; or
(iv) to its knowledge, any statute, rule or regulation applicable to the
Company. The execution, delivery, and performance of and compliance with this
Agreement and the Investor Rights Agreement, and the issuance and sale of
the Shares pursuant hereto and of the Conversion Shares pursuant to the
Articles, will not result in any such material violation, or be in conflict
with or constitute a default under any such term, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations, or any of its assets or
properties or conflict with or violate any law, statute, rule, regulation,
judgment, order, writ, injunction, decree or arbitration award applicable to
the Company or any of its material assets except where such violation,
conflict or default would not have a material adverse effect on the Company.
There is no such violation or default or event that, with the passage of time
or giving of notice or both, would constitute a violation or default which
could materially and adversely affect the business of the Company or any of
its properties or assets.
3.12 Litigation. There is no action, suit, proceeding, audit, or
investigation pending, or, to the knowledge of the Company, currently
threatened against the Company (a) that questions the validity of this
Agreement, the Investor Rights Agreement, or any Company Contract or the
right of the Company to enter into any of such agreements, or to consummate
the transactions contemplated hereby or thereby, or (b) that could reasonably
be expected to result, either individually or in the aggregate, in any material
adverse change in the assets, financial condition, or operations of the
Company, financially or otherwise. The Company is not a party or, to its
knowledge, subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality and has not
entered into any settlement with any third party of any claim. The Company
is not a party to any other action, suit, proceeding or investigation except as
listed on the Schedule of Exceptions.
<PAGE>
3.13 Tax Returns and Payments. Except as set forth on the
Schedule of Exceptions, the Company has prepared and timely filed all federal
and state tax returns, or extensions for such, required to be filed by such
entity. All taxes shown to be due and payable on such returns, any
assessments imposed, and, to the Company's knowledge, all other taxes due
and payable by the Company on or before the Closing have been paid. The
Company has not been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes.
3.14 Employees. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the knowledge of the Company, threatened with
respect to the Company. The Schedule of Exceptions sets forth a list of all
employees who have a written or oral agreement with the Company regarding
his or her employment. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group
of key employees.
3.15 Registration Rights. Except as required pursuant to the
Investor Rights Agreement, the Company is not presently under any
obligation, and has not granted any rights, to register (as defined in Section
1.1 of the Investor Rights Agreement) any of its presently outstanding
securities or any of its securities that may hereafter be issued.
3.16 Compliance with Laws; Permits. The Company is not in
violation of any statute, rule, regulation, order, restriction, decree,
arbitration award, or any agreement with, or any license or permit from, any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of the Company's business or the ownership of its
properties which violation has or reasonably be expected to could materially
and adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained, and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement or any Related Agreement or the
Articles or the issuance of the Shares or the Conversion Shares, the lack of
which could materially and adversely affect the business, properties, prospects
or financial condition of the Company, except such as has been duly and
validly obtained or filed, or with respect to any filings that must be made
after the Closing, as will be filed in a timely manner. The Company has all
material franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it.
3.17 Environmental Laws. To its knowledge, the Company is not
in violation of any applicable statute, law or regulation relating to the
environment, and, to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.18 Offering Valid. Assuming the accuracy of the representations
and warranties of the Purchaser contained herein, the offer, sale and issuance
of the Shares and the subsequent conversion of the Conversion Shares will be
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws. Neither
the Company, nor any agent on its behalf, has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Shares to any person or persons so as to bring the sale of such Shares by
the Company within the registration provisions of the Securities Act.
<PAGE>
3.19 Insurance. The Company has, or will obtain promptly
following the Closing, fire and casualty insurance policies with coverage
customary for companies similarly situated to the Company. The Schedule of
Exceptions sets forth with respect to each insurance policy and reinsurance
agreement maintained by or at the expense of the Company (a) the name of
the insurance carrier, (b) a description of the coverage and the material terms
and provisions of such policy, (c) the annual premium and the cash value (if
any), and (d) a description of any past claims or claims pending. The insurance
carried by the Company with respect to its properties, assets and businesses
(including, without limitation, professional liability insurance) is in amount
sufficient for the reasonably prudent protection of the businesses of the
Company. Except as set forth on the Schedule of Exceptions, each of such
insurance policies is currently in full force and effect.
3.20 Full Disclosure. This Agreement, the Exhibits hereto, and the
Investor Rights Agreement and all other documents delivered by the Company
to Purchaser, or its attorneys or agents, in connection herewith or therewith
or with the transactions contemplated hereby or thereby, do not contain any
untrue statement of a material fact. To the knowledge of the Company, there
are no facts which (individually or in the aggregate) materially adversely
affect the business, assets, liabilities, financial condition, prospects or
operations of the Company, that have not been set forth in the Agreement,
the Exhibits hereto, the Investor Rights Agreement or in other documents
delivered to Purchaser, or its attorneys or agents in connection herewith.
SECTION 4.REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
Purchaser hereby represents, warrants, and covenants, severally and
jointly, to the Company as follows:
4.1 Requisite Power and Authority. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Investor Rights Agreement and to carry out
their provisions. All action by Purchaser required for the lawful execution and
delivery of this Agreement and the Investor Rights Agreement have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Investor Rights Agreement will be valid and
binding obligations of Purchaser, enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, (ii) general principles of equity that restrict the
availability of equitable remedies, and (iii) to the extent that the
enforceability of the indemnification provisions of the Investor Rights
Agreement may be limited by applicable laws.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of such Purchaser required in
connection with the consummation of the transactions contemplated in the
Agreement or the Investor Rights Agreement have been or shall have been
obtained prior to, and be effective as of, the Closing, including consent from
the Federal Reserve to the investment.
<PAGE>
4.3 Investment Representations. Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon Purchaser's representations contained
herein. Purchaser hereby represents and warrants as follows:
(a)Purchaser Bears Economic Risk. Purchaser has the
sophistication and expertise necessary to evaluate and invest in a private
placement of securities, is capable of evaluating the merits and risks of its
investment in the Company, and has the capacity to protect its own interests.
Purchaser must bear the economic risk of this investment indefinitely unless
the Shares (or the Conversion Shares) are registered pursuant to the Securities
Act, or an exemption from registration is available. Purchaser understands that
the Company has no present intention of registering the Shares, the
Conversion Shares, or any other shares of its Common Stock. Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow such Purchaser to transfer all or any portion of the
Shares or the Conversion Shares under the circumstances, in the amounts, or
at the times Purchaser might propose.
(b)Acquisition for Own Account. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for
investment only and not with a view towards their distribution.
(c)Purchaser Can Protect Its Interest. Purchaser
represents that by reason of its, or of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor Rights Agreement. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in the
Agreement.
(d)Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
(e)Company Information. Purchaser has had an
opportunity to discuss the Company's business, management and financial
affairs with directors, officers and management of the Company and has had
the opportunity to review the Company's operations and facilities. Purchaser
has also had the opportunity to ask questions of, and receive answers from,
the Company and its management regarding the terms and conditions of this
investment. Purchaser has received all of the information it has requested
from the Company.
<PAGE>
(f)Rule 144. Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which currently
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: (i) the
availability of certain current public information about the Company, (ii) the
resale in accordance with the minimum holding period set forth in the
provisions of Rule 144 after a party has purchased and paid for the security
to be sold, (iii) the sale being through an unsolicited "broker's transaction"
or in transactions directly with a market maker (as said term is defined under
the Securities Exchange Act of 1934) and (iv) the number of shares being sold
during any three-month period not exceeding specified limitations. Purchaser
understands that as of the date hereof neither the Shares nor the Conversion
Shares are eligible for resale pursuant to Rule 144 and that the Company has
no present intention to take any action to render such Shares eligible.
4.4 Transfer Restrictions. Purchaser acknowledges and agrees
that the Shares and the Conversion Shares are subject to restrictions on
transfer as set forth in the Investor Rights Agreement and Voting Agreement.
SECTION 5.CONDITIONS TO CLOSING.
5.1 Conditions to Purchasers' Obligations at the Closing.
Purchaser's obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a)Legal Investment. On the date of the Closing, the sale
and issuance of the Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(b)Consents, Permits, and Waivers. The Company shall
have obtained any and all consents, permits and waivers necessary or
appropriate for consummation of the transactions contemplated by the
Agreement and the Investor Rights Agreement (except for such as may be
properly obtained subsequent to a Closing).
(c)Filing of Articles. The Amended and Restated Articles
of Incorporation shall have been filed with the Secretary of State of the State
of Mississippi at Closing.
(d)Investor Rights Agreement. The Investor Rights
Agreement shall have been executed and delivered by the parties thereto prior
to the Closing. The stock certificates representing the shares subject to the
Investor Rights Agreement shall have been delivered to the Secretary of the
Company and shall have had appropriate legends placed upon them to reflect
the restrictions on transfer set forth in the Investor Rights Agreement.
(e) Board of Directors. Upon the Closing, the Board shall
consist of Richard J. Reppert, Bazile R. Lanneau, Jr., and W. Page Ogden.
(f)Employment Agreements. At or prior to the Closing,
each officer and each other key employee of the Company designated by the
Purchaser shall have entered into an Employment Agreement, the agreement
containing substantially the terms set forth in the form attached hereto as
Exhibit D.
(g)Voting Agreement. At or prior to the Closing, each of
the stockholders of the Company shall have entered into a Voting Agreement,
the agreement containing substantially the terms set forth in the form attached
hereto as Exhibit G.
<PAGE>
(h)Key Person Insurance. The Company shall have put
in place, or shall make arrangements promptly after closing for, life insurance
policies for each of Bazile R. Lanneau, Jr. and Richard J. Reppert in the
amount of $500,000 for each, payable to the Company.
(i)Payment for Management Services. The Company
shall have entered into an agreement to pay to Purchaser $90,000 per year, for
two years, for the management services of Bazile R. Lanneau, Jr.
(j)Legal Opinion. The Purchaser shall have received from
Harwell Howard Hyne Gabbert & Manner, P.C., counsel to the Company, an
opinion addressed to Purchaser, dated as of the Closing, in substantially the
form attached hereto as Exhibit E.
(k)Ownership Rights. The Company's original
shareholders and developers of the Company's intellectual property shall have
provided evidence of ownership of intellectual property rights of the
Company.
(l)Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Purchaser and its
special counsel, and the Purchasers and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents
as they may reasonably request.
5.2 Conditions to Obligations of the Company. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
satisfaction, on or prior to the Closing, of the following conditions:
(a)Performance of Obligations. Purchaser shall have
performed and complied with all agreements and conditions herein required
to be performed or complied with by Purchaser on or before the Closing.
(b)Legal Investment. On the date of the Closing, the sale
and issuance of the Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(c)Filing of Articles. The Amended Articles of
Incorporation shall have been filed with the Secretary of State of the State of
Mississippi at Closing.
(d)Investor Rights Agreement. The Investor Rights
Agreement shall have been executed and delivered by the parties thereto prior
to the Closing.
(e) Board of Directors. Upon the Closing, the Board shall
consist of Richard J. Reppert, Bazile R. Lanneau, Jr., and W. Page Ogden.
<PAGE>
(f)Voting Agreement. At or prior to the Closing, each of
the stockholders of the Company shall have entered into a Voting Agreement,
the agreement containing substantially the terms set forth in the form attached
hereto as Exhibit G.
(g)Minimum Purchase. A minimum of 1,000,000 shares
of Series A Preferred Stock shall be purchased by the Purchaser at the Closing
for a minimum aggregate purchase price of $1,000,000.
(h)Legal Opinion. The Company shall have received from
counsel to the Purchaser an opinion addressed to them dated as of the
Closing, in substantially the form attached hereto as Exhibit E.
(i)Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Company and its
special counsel, and the Company and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents
as they may reasonably request.
SECTION 6.MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Mississippi as such laws are applied to
agreements between Mississippi residents entered into and performed entirely
in Mississippi.
6.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing and shall expire upon the
first anniversary of such Closing. All statements as to factual matters
contained in any Articles or other instrument delivered by or on behalf of the
Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such Articles or instrument.
6.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 Entire Agreement. This Agreement, the Exhibits hereto, the
Investor Rights Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
6.5 Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
<PAGE>
6.6 Knowledge. All references to the Company's "knowledge", or
the like, shall mean to the actual knowledge of Company's officers. All
references to the "best of Company's knowledge", or the like, shall mean to
the knowledge of Company's officers following due inquiry.
6.7 Amendment and Waiver. This Agreement may be amended
or modified only upon the written consent of the Company and holders of at
least a majority of the Shares. The obligations of the Company and the rights
of the holders of the Shares and the Conversion Shares under the Agreement
may be waived only with the written consent of the holders of at least a
majority of the Shares.
6.8 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement, the
Investor Rights Agreement or the Amended and Restated Articles, shall
impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on any Purchaser's part of any breach, default or
noncompliance under this Agreement, the Investor Rights Agreement or under
the Articles or any waiver on such party's part of any provisions or conditions
of the Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Investor Rights Agreement, the Articles, Bylaws, or otherwise
afforded to any party, shall be cumulative and not alternative.
6.9 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt by the person designated for notice
hereinafter. All communications shall be sent to the Company at:
Sumx Inc.
500 Main Street
Natchez, Mississippi 39121
with a copy to:Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Attn: Mark Manner
and to Purchaser at:Britton & Koontz Capital Corporation
Post Office Box 1407
Natchez, Mississippi 39121
with a copy to:Gwin Lewis Punches
P.O. Box 1344
Natchez, Mississippi 39121
Attn: Robert R. Punches
<PAGE>
6.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
SERIES A PREFERRED STOCK PURCHASE AGREEMENT as of the
date written above.
COMPANY: PURCHASER:
SUMX INC. BRITTON & KOONTZ CAPITAL CORPORATION
By: /s/ Bazile R. Lanneau, Jr. By: /s/ W. Page Ogden
__________________________ _________________________
Its: President & CEO Its: President & CEO
SIGNATURE PAGE TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
EXHIBIT 10.10
INVESTOR RIGHTS AGREEMENT
<PAGE>
INVESTOR RIGHTS AGREEMENT
SUMX INC.
December 3, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1. GENERAL
1.1 Definitions
SECTION 2. RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer
2.2 Demand Registration
2.3 Piggyback Registrations
2.4 Form S-3 Registration
2.5 Expenses of Registration
2.6 Obligations of the Company
2.7 Termination of Registration Rights
2.8 Delay of Registration; Furnishing Information
2.9 Indemnification
2.10 Assignment of Registration Rights
2.11 Amendment of Registration Rights
2.12 Limitation on Subsequent Registration Rights
2.13 "Market Stand-Off" Agreement
2.14 Rule 144 Reporting
SECTION 3. COVENANTS OF THE COMPANY
3.1 Basis Financial Information and Reporting
3.2 Inspection Rights
3.3 Confidentiality of Records
3.4 Reservation of Common Stock
3.5 [Reserved]
3.6 Key Man Insurance
3.7 Proprietary Information and Inventions Agreement
3.8 Interested Transactions
3.9 Directors' Liability and Indemnification
3.10 Termination of Covenants
SECTION 4. ADDITIONAL RIGHTS
4.1 Preemptive Rights
4.2 Termination of Rights
4.3 Transfer of Rights
4.4 Excluded Securities
SECTION 5. MISCELLANEOUS
5.1 Governing Law
5.2 Survival
5.3 Successors and Assigns
5.4 Severability
5.5 Amendment and Waiver
5.6 Delays or Omissions
5.7 Notices
5.8 Titles and Subtitles
5.9 Counterparts
<PAGE>
SUMX INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is
entered into as of the 3rd day of December 1998, by and among SUMX
INC., a Mississippi corporation (the "Company"), the purchasers of the Series
A Preferred Stock ("Series A Stock") of the Company set forth on Exhibit A
of the Series A Preferred Stock Purchase Agreement of even date herewith
(the "Purchase Agreement")(the purchasers of the Series A Stock shall be
referred to hereinafter as the "Investors" and each, individually, as an
"Investor"), and the stockholders of the Company (the stockholders together
with the Investors are hereinafter referred to as the "Stockholders").
RECITALS
WHEREAS, the Company is selling One Million (1,000,000) shares
of its Series A Stock to the Investors pursuant to the Purchase Agreement;
WHEREAS, as a condition of entering into the Purchase Agreement,
the Investors have requested that the Company extend to them registration
rights, information rights and other rights as set forth below; and
WHEREAS, the stockholders of the Company have requested certain
registration and other rights in connection with the rights being given to the
Investors.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as
follows:
SECTION 1.GENERAL.
1.1 Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Holder" means any person owning of record Shares or
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 2.9 hereof.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of the Company's common stock (the "Common
Stock") registered under the Securities Act.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
<PAGE>
"Registrable Securities" means (i) the Common Stock of the
Company or the Common Stock issued or issuable upon conversion of the
Shares; and (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such above-described securities. Notwithstanding the
foregoing, Registrable Securities shall not include any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction in which the transferor's rights under Section 2
of this Agreement are not assigned.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, reasonable fees and disbursements
of a single special counsel for the Holders not to exceed $20,000, blue sky
fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"Shares" shall mean the Company's Series A Stock issued
pursuant to the Purchase Agreement or otherwise acquired by a Holder.
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"SEC" or "Commission" means the Securities and Exchange
Commission.
SECTION 2.RESTRICTIONS ON TRANSFER.
2.1 Restrictions on Transfer.
(a)Each Holder agrees not to make any disposition of all
or any portion of the Shares or Registrable Securities unless and until there is
then in effect a registration statement under the Securities Act covering such
proposed disposition and such disposition is made in accordance with such
registration statement or, if there is not in effect such a registration
statement, unless:
<PAGE>
(i)the Holder has first offered the Company and
the other Holders the Shares or Registrable Securities in accordance with the
provisions of subsection 2.1(e) of this Agreement; and
(ii)(A) The transferee has agreed in writing to be
bound by the terms of this Agreement, (B) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the proposed
disposition, and (C) if reasonably requested by the Company, such Holder
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Securities Act. It is agreed that the Company will
not require opinions of counsel for transactions made pursuant to Rule 144
except as may be reasonably requested by counsel to the Company in light of
the circumstances.
(b)Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under (i)
applicable state securities laws (ii) the Voting Agreement and the Agreement
Concerning Sale of Stock between the Company and certain stockholders, dated
as of the date hereof, (iii) the Company's Bylaws, or (iv) as provided
elsewhere in this Agreement):
THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
(THE "ACT') AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT
OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY
AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c)The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d)Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order
of the appropriate blue sky authority authorizing such removal.
(e)Prior to any sale of Shares or Registrable Securities, a
Holder must give prior written notice ("Notice") to the Company offering to
sell those same Shares or Registrable Securities to the Company upon
substantially similar terms that the Holder will propose selling the Shares or
Registrable Securities in the event the Company declines to purchase such
securities from Holder. The Company shall have the right, exercisable upon
written notice to Shareholder within fifteen (15) days after the notice, to
purchase all of the offered securities on substantially similar terms set forth.
If the Company elects not to purchase any portion of the offered shares, the
Holder must then offer the remaining shares to the other Holders upon
substantially similar terms. The other holders shall have the right,
exercisable upon written notice to the Holder within fifteen (15) days, to
purchase the offered securities upon the offered terms. If the Company and
other Holders do not elect to purchase the offered securities, the Shareholder
may enter into an agreement providing for the sale of the offered securities
to a third party or parties on terms and conditions substantially similar to
those described in the notice.
<PAGE>
2.2 Demand Registration.
(a)Subject to the conditions of this Section 2.2, if after
twelve (12) months following the date of the Company's Initial Offering, the
Company shall receive a written request from the Holders of more than forty-
five percent (45%) of the Registrable Securities then outstanding (the
"Initiating Holders") that the Company file a registration statement on Form
S-3 under the Securities Act covering the registration of either (i) at least
twenty percent (20%) of the then outstanding Registrable Securities or (ii)
Registrable Securities having an aggregate offering price to the public in
excess of $5,000,000 (a "Qualified Public Offering"), then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and subject to the limitations of this Section 2.2, use
its best efforts to effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered.
(b)If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a minority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may
be included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c)The Company shall not be required to effect a
registration pursuant to this Section 2.2:
(i)after the Company has effected two (2)
registrations pursuant to this Section 2.2, and such registrations have been
declared or ordered effective;
(ii)during the period starting with the date of filing
of, and ending on the date, one hundred eighty (180) days following the
effective date of the registration statement pertaining to the Initial Offering;
provided that the Company makes reasonable good faith efforts to cause such
registration statement to become effective;
<PAGE>
(iii)if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
within ninety (90) days; or
(iv)if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental
to the Company and its stockholders for such registration statement to be
effected at such time, in which event the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; provided that such right to delay a request
shall be exercised by the Company not more than once in any twelve (12)
month period.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations, acquisitions or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part of
such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after the above-described
notice from the Company, so notify the Company in writing. Such notice
shall state the intended method of disposition of the Registrable Securities by
such Holder. If a Holder decides not to include all of its Registrable
Securities in any registration statement thereafter filed by the Company, such
Holder shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein.
(a)Underwriting.
(i)If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant
to this Section 2.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
<PAGE>
(ii)Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
stockholder of the Company (other than a Holder) on a pro rata basis. Except
as may be required pursuant to the remainder of this subsection (ii), no such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting. In no event shall
the amount of securities of the selling Holders included in the registration be
reduced below thirty percent (30%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in which
event any or all of the Registrable Securities of the Holders may be excluded
in accordance with the first sentence of this subsection (ii). In no event will
shares of any other selling stockholder be included in such registration which
would reduce the number of shares which may be included by Holders without
the written consent of Holders of not less than a majority of the Registrable
Securities proposed to be sold in the offering.
(b)Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 (or any successor
to Form S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a)promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(b)as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to this
Section 2.4:
(i)if Form S-3 (or any successor or similar form)
is not available for such offering by the Holders;
(ii)if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $1,000,000;
<PAGE>
(iii)if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 2.4;
provided, that such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period; or
(iv)in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c)Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
2.5 Expenses of Registration. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be
borne by the holders of the securities (including Registrable Securities) so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any
registration proceeding begun pursuant to Section 2.2 or 2.4, the request of
which has been subsequently withdrawn by the Initiating Holders unless (a)
the withdrawal is based upon material adverse information concerning the
Company of which the Initiating Holders were not aware at the time of such
request or (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to one requested registration pursuant to Section 2.2 or
Section 2.4, as applicable (in which event such right shall be forfeited by all
Holders). If the Holders are required to pay the Registration Expenses, such
expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a) above,
then the Holders shall not forfeit their rights pursuant to Section 2.2 or
Section 2.4 to a demand registration.
2.6 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a)Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days or, if earlier, until the Holder or Holders have completed
the distribution related thereto.
(b)Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
<PAGE>
(c)Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d)Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e)In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f)Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g)Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 Termination of Registration Rights. All registration rights
granted to a Holder under this Section 2 shall terminate and be of no further
force if (i) the Company has completed its Initial Offering and is subject to
the provisions of the Exchange Act, (ii) such Holder (together with its
affiliates, partners and former partners, members and former members) holds
less than 1% of the Company's outstanding Common Stock (treating all shares of
convertible Preferred Stock on an as converted basis), (iii) all Registrable
Securities held by and issuable to such Holder (and its affiliates, partners and
former partners, members and former members) may be sold under Rule 144
during any ninety (90) day period, and (iv) the Company's Common Stock is
traded on a national exchange or the Nasdaq National Market.
<PAGE>
2.8 Delay of Registration; Furnishing Information.
(a)No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b)It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(c)The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 2.2 or Section
2.4, whichever is applicable.
2.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a)To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers,
directors and legal counsel of each Holder, and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act
or the Exchange Act, against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, member, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained
in this Section 2.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be unreasonably
withheld, nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, partner, member, officer, director, underwriter
or controlling person of such Holder.
<PAGE>
(b)To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within
the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling person,
underwriter or other such Holder, or partner, director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder under an instrument duly executed by
such Holder and stated to be specifically for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, or partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9(b) exceed the net proceeds from the offering
received by such Holder.
(c)Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
<PAGE>
(d)If the indemnification provided for in this Section 2.9
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission; provided, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
(e)The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
2.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
transferred or assigned by a Holder to a transferee or assignee of Registrable
Securities which (i) is, with respect to a Holder, a stockholder, subsidiary,
parent, general partner, limited partner, retired partner, member or former
member or a liquidating trust for the benefit of any such entity, (ii) is a
Holder's family member or trust for the benefit of an individual Holder, or
(iii) acquires at least five hundred thousand (500,000) Shares (as adjusted for
stock splits, combinations and similar events); provided, however, that (A) the
transferor shall, upon such transfer, furnish to the Company written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.
2.11 Amendment of Registration Rights. Subject to the terms of
the Voting Agreement, any provision of this Section 2 may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of more than two thirds of the
Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder and
the Company. By acceptance of any benefits under this Article II, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the
date of this Agreement, the Company shall not, without the prior written
consent of the Holders of more than two thirds of the Registrable Securities
then outstanding, enter into any agreement with any holder or prospective
holder of any securities of the Company that would grant such holder
registration rights senior to those granted to the Holders hereunder.
2.13 "Market Stand-Off" Agreement. If requested by the
Company or the representative of the underwriters of Common Stock (or
other securities) of the Company, each Holder shall not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the
Company held by such Holder (other than those included in the registration)
for a period specified by the representative of the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
<PAGE>
(a)such agreement shall apply only to the Company's
Initial Offering; and
(b)all officers and directors of the Company and all
employees of the Company who are holders of at least one percent (1%) of
the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period. The Company shall use its best efforts to obtain agreements
not to sell from all future holders of in excess of one percent (1%) of the
Company's voting securities which are not less favorable to the Company that
the foregoing.
2.14 Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts after the Initial
Offering to:
(a)Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or
analogous rule promulgated under the Securities Act, at all times after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b)File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act;
(c)So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule
144 of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and
documents as a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
SECTION 3.COVENANTS OF THE COMPANY.
3.1 Basis Financial Information and Reporting.
(a)The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered
in accordance with generally accepted accounting principles consistently
applied, and will set aside on its books all such proper accruals and reserves
as shall be required under generally accepted accounting principles
consistently applied.
<PAGE>
(b)So long as any Shares remain outstanding, the
Company will furnish each Investor:
(i)as soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows
of the Company, for such year, all prepared in accordance with generally
accepted accounting principles consistently applied, all in reasonable detail.
Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants selected by the Company's Board
of Directors.
(ii)as soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal year of the
Company, and in any event within forty-five (45) days thereafter, a
consolidated balance sheet of the Company as of the end of each such
quarterly period, and a consolidated statement of income of the Company for
such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles, with the exception that no
notes need be attached to such statements and year-end audit adjustments may
not have been made.
(iii)(A) prior to the beginning of each fiscal year an
annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto), and (B) as soon as practicable
after the end of each quarter, and in any event within forty five (45) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such quarter, and a consolidated statement of income of the Company for
such quarter and for the current fiscal year to date, including a comparison to
plan figures for such period, prepared in accordance with generally accepted
accounting principles consistently applied, with the exception that no notes
need be attached to such statements and year-end audit adjustments may not
have been made.
(c)The right to receive Company information pursuant to
this Section 3.1 may be transferred or assigned by an Investor to a transferee
or assignee of Shares which (i) is a stockholder, subsidiary, parent, general
partner, limited partner, retired partner, member or retired member of an
Investor, (ii) is an Investor's family member or trust for the benefit of an
individual Investor, or (iii) holds at least five hundred thousand (500,000)
Shares (as adjusted for stock splits and combinations) immediately following
such transfer or assignment.
3.2 Inspection Rights. Each Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries,
and to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect
to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
<PAGE>
3.3 Confidentiality of Records. Each Investor agrees to use, and
to use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information and to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary, member or parent of such Investor for the purpose of evaluating
its investment in the Company as long as such partner, subsidiary, member or
parent is advised of and agrees to be bound by the confidentiality provisions
of this Section 3.3.
3.4 Reservation of Common Stock. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Shares, such number of shares of Common Stock as the
Board of Directors shall in good faith determine will be issuable upon such
conversion.
3.5 [Reserved].
3.6 Key Man Insurance. The Company will use its best efforts
to obtain and maintain in full force and effect term life insurance in the
amount of Five Hundred Thousand ($500,000) Dollars for Bazile R. Lanneau, Jr.
and Richard J. Reppert, naming the Company as beneficiary.
3.7 Proprietary Information and Inventions Agreement. The
Company shall require all key employees and consultants to execute and
deliver a Proprietary Information and Inventions
Agreement substantially in the form attached to the Purchase Agreement.
3.8 Interested Transactions. The Company shall not, without the
approval of a majority of the Board of Directors, with all disinterested
Directors (so long as there is at least one such disinterested Director) voting
and the approval of at least one of the Directors designated by the Investors,
authorize or enter into any transactions with any director, stockholder or
management employee, or such director's, stockholder's or employee's
immediate family.
3.9 Directors' Liability and Indemnification. The Company's
Amended and Restated Articles of Incorporation and Bylaws shall provide (i)
for elimination of the liability of director to the maximum extent permitted by
law and (ii) for indemnification of directors and officers for acts on behalf of
the Company to the maximum extent permitted by law.
3.10 Termination of Covenants. All covenants of the Company
contained in Section 3 of this Agreement shall expire and terminate as to each
Investor on the effective date of the registration statement pertaining to the
Initial Offering.
<PAGE>
SECTION 4. ADDITIONAL RIGHTS.
4.1 Preemptive Rights. If the Company proposes to issue any
Equity Securities (as defined below), it shall give each Holder written notice
of its intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Holder
shall have fifteen (15) days from the giving of such notice to agree to purchase
its pro rata share of the Equity Securities upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale unless the
Company can be adequately protected and indemnified from the result of such
offer or sale to the Holder. If not all of the Holders elect to purchase their
pro rata share of the Equity Securities, then the Company shall promptly notify
in writing the Holders who do so elect and shall offer such Holders the right to
acquire such unsubscribed shares. The Holders shall have fifteen (15)
additional days after receipt of such notice to notify the Company of their
election to purchase all or a portion thereof of the unsubscribed shares. If the
Holders fail to exercise in full these rights, the Company shall have ninety
(90) days thereafter to sell the Equity Securities in respect of which the
Holder's rights were not exercised, at a price and upon general terms and
conditions not materially more favorable to the purchasers thereof than
specified in the Company's notice to the Holders pursuant to Section 4.1 hereof.
If the Company has not sold such Equity Securities within ninety (90) days of
the notice provided pursuant to Section 4.1, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities to
the Holders in the manner provided above. Each Holder's pro rata share is equal
to the ratio of (A) the number of shares of the Company's Common Stock
(treating all Preferred Stock as if it were converted to Common Stock) which
such Holder is deemed to hold (without including shares subject to a
repurchase option) immediately prior to the issuance of such Equity Securities
to (B) the total number of shares of the Company's outstanding Common
Stock immediately prior to the issuance of the Equity Securities. The term
"Equity Securities" shall mean (i) any Common Stock, preferred stock or
other security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, preferred stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any
Common Stock, preferred stock or other security or (iv) any such warrant or
right.
4.2 Termination of Rights. The rights established by this Section
4 shall not apply to, and shall terminate upon the effective date of the
registration statement pertaining to, the Company's Initial Offering.
4.3 Transfer of Rights. The rights of each Holder under this
Section 4 may be transferred or assigned by a Holder to a transferee or
assignee of Shares which (i) is a stockholder, subsidiary, parent corporation,
general partner, limited partner, retired partner, member or former member of
a Holder, (ii) is a Holder's family member or trust for the benefit of an
individual Holder, or (iii) holds at least five hundred thousand (500,000)
Shares (as adjusted for stock splits and combinations) immediately following
such transfer or assignment.
4.4 Excluded Securities. The preemptive rights and rights of first
refusal established by this Section 4 shall have no application to any of the
following Equity Securities:
<PAGE>
(a)Up to 242,857 shares of Common Stock (and/or
options, warrants or other Common Stock purchase rights issued pursuant to
such options, warrants or other rights) issued or to be issued to employees,
officers or directors of, or consultants or advisors to the Company or any
subsidiary, pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board of Directors, including at least
one member of the Board designated by the Investors;
(b)any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board, including at least one member of the
Board designated by the Investors;
(c)shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(d)shares of Common Stock issued or issuable upon
conversion of any shares of Series A Stock issued pursuant to the Purchase
Agreement.
SECTION 5. MISCELLANEOUS.
5.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Mississippi as applied to agreements
among Mississippi residents entered into and to be performed entirely within
Mississippi.
5.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
5.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the full
name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment of dividends
or any redemption price.
5.4 Severability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
<PAGE>
5.5 Amendment and Waiver.
(a)Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than two thirds of the Registrable
Securities.
(b)Except as otherwise expressly provided, the obligations
of the Company and the rights of the Holders under this Agreement may be
waived only with the written consent of the holders of eighty-five percent
(85%) of the Registrable Securities.
(c)Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.
5.6 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under the Agreement or any waiver on such Holder's part of
any provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; or (ii) three (3) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
5.8 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
INVESTOR RIGHTS AGREEMENT as of the date first above written.
COMPANY: INVESTOR:
SUMX INC. BRITTON & KOONTZ CAPITAL CORPORATION
By: /s/ Bazile R. Lanneau, Jr. By: /s/ W. Page Ogden
__________________________ ________________________
Its: President & CEO Its: President & CEO
HOLDERS:
SUMMIT RESEARCH, INC.
By: /s/ Richard J. Reppert
________________________
Its: President
/s/ Bazile R. Lanneau, Jr.
_____________________________
Bazile R. Lanneau, Jr.
EXHIBIT 10.11
VOTING AGREEMENT
<PAGE>
SUMX INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and
entered into this 3rd day of December, 1998, by the undersigned holders (the
"Key Stockholders") of the common stock of Sumx Inc. (the "Company") and
Britton & Koontz Capital Corporation (the "Investor"), the purchaser of One
Million (1,000,000) Shares of Series A Preferred stock as of this same date.
WITNESSETH:
WHEREAS, the Key Stockholders are the beneficial owners of an
aggregate of one hundred percent (100%) of the Common Stock of the
Company; and
WHEREAS, the Company proposes to sell shares of its Series A
Preferred Stock (the "Series A Preferred Stock") to the Investor, pursuant to
the Series A Preferred Stock Purchase Agreement (the "Purchase
Agreement") of even date herewith (the "Financing");
WHEREAS, in connection with the consummation of the Financing,
the Key Stockholders and the Investor have agreed to provide for the future
voting of their shares of the Company's capital stock as set forth below;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. VOTING
1.1 Common Shares; Investor Shares.
(a)The Key Stockholders each agree to hold all shares of
voting capital stock of the Company registered in their respective names or
beneficially owned by them as of the date hereof, and any and all other
securities of the Company legally or beneficially acquired by each of the Key
Stockholders after the date hereof (hereinafter collectively referred to as the
"Common Shares"), subject to, and to vote the Common Shares in accordance
with, the provisions of this Agreement.
(b)The Investor agrees to hold all shares of voting capital
stock of the Company now owned or hereinafter acquired (including but not
limited to all shares of Common Stock issued upon conversion of the
Company's Series A Preferred Stock) registered in their respective names or
beneficially owned by them as of the date hereof (and any and all other
securities of the Company legally or beneficially acquired by each of the
Investors after the date hereof) (hereinafter collectively referred to as the
"Investor Shares") subject to, and to vote the Investor Shares in accordance
with, the provisions of this Agreement.
<PAGE>
1.2 Voting.
(a)At any annual or special meeting called, or any other
action taken, for the purpose of electing to, or removing directors from, the
Company's Board of Directors, the Key Stockholders and the Investor agree
to vote all of their Common Shares and Investor Shares, respectively, during
the term of this Agreement so as always to cause the Board of Directors to
consist solely of the following three (3) designated nominees: Richard J.
Reppert; Bazile R. Lanneau, Jr.; and W. Page Ogden (or such successor as
Investor may designate to replace W. Page Ogden, or such successor that
Summit Research, Inc. may designate to replace Richard J. Reppert, or, in the
event of the death or incapacity of Bazile R. Lanneau, Jr., such representative
that the majority of holders of common shares previously owned by Lanneau
may designate to replace Lanneau).
(b)The Key Stockholders and Investor hereby agree that
none of the following actions may be taken without approval of more than
two thirds of the outstanding shares of the Company, with the holders of
Common Shares and Investor Shares voting together as a single class, or the
unanimous approval of the Board of Directors of the Company:
(i)the adoption of an amendment, restatement, or
modification of the Amended and Restated Certificate of Incorporation or By-
laws;
(ii)a sale of substantially all of the assets or
business of the Company or the merger or consolidation of the Company with
another Company if the merger or consolidation will result in the existing
stockholders of the Company holding less than 50% of the combined voting
power of the then existing securities of the surviving corporation;
(iii)any liquidation, dissolution, or winding up of
the Company;
(iv)any increase or decrease in the authorized
number of shares of common stock or preferred stock or any redemptions of
common stock or preferred stock; and
(v)any change in the number of directors
designated to the Board of Directors of the Company.
1.3 Legend.
(a)Concurrently with the execution of this Agreement,
there shall be imprinted or otherwise placed, on certificates representing the
Common Shares and the Investor Shares the following restrictive legend (the
"Legend"):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A VOTING AGREEMENT WHICH PLACES
CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED
HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL
BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH VOTING AGREEMENT
WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE,
WITHOUT CHARGE, UPON WRITTEN REQUEST TO SUMX INC .
<PAGE>
(b)The Company agrees that, during the term of this
Agreement, it will not remove, and will not permit to be removed (upon
registration of transfer, reissuance or otherwise), the Legend from any such
certificate and will place or cause to be placed the Legend on any new
certificate issued to represent Common Shares or Investor Shares theretofore
represented by a certificate carrying the Legend.
1.4 Successors. The provisions of this Agreement shall be binding
upon the successors in interest to any of the Common Shares or Investor
Shares. The Company shall not permit the transfer of any of the Common
Shares or Investor Shares on its books or issue a new certificate representing
any of the Common Shares or Investor Shares unless and until the person to
whom such security is to be transferred shall have executed a written
Agreement, substantially in the form of this Agreement, pursuant to which
such person becomes a party to this Agreement and agrees to be bound by all
the provisions hereof as if such person were a Key Stockholder or Investor,
as applicable.
1.5 Other Rights. Except as provided by this Agreement, the
Investor Rights Agreement and the Series A Preferred Stock Purchase
Agreement, each Key Stockholder and Investor shall exercise the full rights
of a shareholder with respect to the Common Shares and the Investor Shares,
respectively.
SECTION 2. TERMINATION
2.1 This Agreement shall continue in full force and effect from the
date hereof through the earliest of the following dates, on which it shall
terminate in its entirety:
(a)the date of the closing of a firmly underwritten public
offering of the Company's Common Stock pursuant to a registration statement
filed with, and declared effective under the Securities Act of 1933, as
amended; or
(b)ten (10) years from the date of this Agreement; or
(c)the date as of which the parties hereto terminate this
Agreement by written consent of holders of ninety percent (90%) of the
Investor Shares and holders of ninety percent (90%) of the Common Shares.
SECTION 3. MISCELLANEOUS
3.1 Ownership. Each Key Stockholder represents and warrants
to the Investor, and the Investor represents and warrants to the Key
Stockholders, that (a) the stockholder now owns the Common Shares, free
and clear of liens or encumbrances, and has not, prior to or on the date of this
Agreement, executed or delivered any proxy or entered into any other voting
agreement or similar arrangement other than one which has expired or
terminated prior to the date hereof; and (b) such Key Stockholder has full
power and capacity to execute, deliver and perform this Agreement, which has
been duly executed and delivered by, and evidences the valid and binding
obligation of, such Key Stockholder enforceable in accordance with its terms.
<PAGE>
3.2 Further Action. If and whenever the Common Shares are
sold, the Key Stockholders and Investor or the personal representative of the
Key Stockholders and Investor shall do all things and execute and deliver all
documents and make all transfers, and cause any transferee of the Common
Shares to do all things and execute and deliver all documents, as may be
necessary to consummate such sale consistent with this Agreement
3.3 Specific Performance. The parties hereto hereby declare that
it is impossible to measure in money the damages which will accrue to a party
hereto or to their heirs, personal representatives, or assigns by reason of a
failure to perform any of the obligations under this Agreement and agree that
the terms of this Agreement shall be specifically enforceable. If any party
hereto or his heirs, personal representatives, or assigns institutes any action
or proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or
defense therein that such party or such personal representative has an
adequate remedy at law, and such person shall not offer in any such action or
proceeding the claim or defense that such remedy at law exists.
3.4 Governing Law. This Agreement, and the rights of the parties
hereto, shall be governed by and construed in accordance with the laws of the
State of Mississippi as such laws apply to agreements among Mississippi
residents made and to be performed entirely within the State of Mississippi.
3.5 Amendment. The Key Stockholders and Investor hereby
agree that this Agreement may be amended only with the approval of the
holders of more than ninety percent (90%) of the holders of the outstanding
shares of the Company common stock (of those holders who are parties to
this Agreement or who are bound by this Agreement as a successor in interest
to a party to this Agreement), with all holders voting together as a class,.
3.6 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
3.7 Successors. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, successors,
assigns, administrators, executors and other legal representatives.
3.8 Additional Shares. In the event that subsequent to the date
of this Agreement any shares or other securities (other than any shares or
securities of another corporation issued to the Company's stockholders
pursuant to a plan of merger) are issued on, or in exchange for, any of the
Common Shares or Investor Shares by reason of any stock dividend, stock
split, consolidation of shares, reclassification or consolidation involving the
Company, such shares or securities shall be deemed to be Common Shares or
Investor Shares, as the case may be, for purposes of this Agreement.
3.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original but all of which
together shall constitute one and the same agreement.
<PAGE>
3.10 Waiver. No waivers of any breach of this Agreement extended
by any party hereto to any other party shall be construed as a waiver of any
rights or remedies of any other party hereto or with respect to any subsequent
breach.
3.11 Attorney's Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party
shall be entitled to all costs and expenses of maintaining such suit or action,
including reasonable attorneys' fees.
3.12 Entire Agreement. This Agreement and the Exhibits hereto,
along with the Purchase Agreement and each of the Exhibits thereto,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and no party shall be liable or
bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
VOTING AGREEMENT as of the date first above written.
KEY STOCKHOLDERS: INVESTOR:
BRITTON & KOONTZ CAPITAL CORPORATION
/s/ Bazile R. Lanneau, Jr. By: /s/ W. Page Ogden
______________________ ______________________
Bazile R. Lanneau, Jr. Its: President & CEO
SUMMIT RESEARCH, INC.
By: /s/ Richard J. Reppert
______________________
Its: President
EXHIBIT 10.12
MANAGEMENT SERVICES AGREEMENT
<PAGE>
Management Services Agreement
This Management Services Agreement ("Agreement") is made this
3rd day of December, 1998, by, between and among Sumx Inc., a
Mississippi Corporation ("Sumx"), Britton & Koontz Capital
Corporation, a Mississippi Corporation ("B&K") and Bazile R.
Lanneau, Jr., an individual ("Lanneau").
Background
WHEREAS, Sumx and B&K entered into a Series A Preferred Stock
Purchase Agreement ("SPA") effective December 3, 1998; and
WHEREAS, Sumx desires to obtain the management services of
Lanneau and B&K desires to retain the services of Lanneau as an
employee director and executive officer of B&K;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, the parties hereto agree as
follows:
1. For a term of up to two years Sumx will pay B&K $90,000 per
year for the management services of Lanneau on a consulting
basis while Lanneau provides management services to Sumx and
remains an employee, director and executive officer of B&K. B&K
will be responsible for Lanneau's compensation, health,
retirement and other benefits and will continue established
compensation plans during the term of this Agreement.
2. Lanneau will not disclose to Sumx, or use on behalf of Sumx,
any confidential or proprietary information of B&K and will not
disclose to B&K, or use on behalf of B&K any confidential or
proprietary information of Sumx, unless authorized to do so.
3. Without additional consideration Lanneau shall promptly and
fully disclose and assign to Sumx and Lanneau hereby assigns all
worldwide inventions, discoveries and improvements and invention
notebooks (a) arising out of, or in any way connected with, suggested
by, or pertaining to Lanneau's relationship with or the business of
Sumx; and (b) made or conceived by Lanneau, solely or jointly
with others, during engagement with Sumx or within a period of
one year after the termination of such engagement. All
inventions, discoveries and improvements covered by this
Agreement shall be and remain Sumx's property, whether or not
disclosed, assigned or patented.
4. Both during and after his engagement with Sumx, Lanneau shall
assist Sumx in every proper way, without additional compensation
other than reimbursement of reasonably incurred expenses, to
obtain patents in any and all countries selected by Sumx on any
inventions, discoveries or improvements covered by this
Agreement.
<PAGE>
5. a) Lanneau recognizes that over time and at great expense,
Sumx has developed a large body of confidential or proprietary
information and will continue to develop such information in the
future. Lanneau agrees that all of the information Lanneau
obtains during and as a result of his engagement with Sumx
concerning (but not limited to) research and development
efforts, features or methods of manufacture, processes, sales
data, operating, profit, marketing and research plans, formulas,
costs, training materials, treatment techniques, designs,
computer software or hardware, customer proposals, customer and
competitive information and financial and other projections
relating to any business or field of endeavor or investigation
by Sumx and which Sumx has not otherwise made public, whether or
not developed by Lanneau, is the property of Sumx and is
considered by Sumx to be confidential or proprietary to it
whether or not same are marked "Confidential."
b) Lanneau acknowledges that all of the information of the
type referred to in paragraph 5(a) shall be received or
developed and maintained by Lanneau in confidence and shall be
used by Lanneau only so long as Lanneau provides services to
Sumx and solely on behalf of Sumx.
c) Lanneau shall not copy or cause to be made any copies,
facsimiles, recordings, reproductions, samples, abstracts or
summaries of the types of information referred to in paragraph
5(a) or remove same from the premises of Sumx except as may be
necessary for the proper performance of Lanneau's services.
Upon termination of this management services agreement for any
reason whatsoever, Lanneau shall immediately and without further
request deliver all originals and copies, summaries, facsimiles,
abstracts, recordings and reproductions of such information
obtained during and as a result of his engagement whether or not
confidential or proprietary to Sumx and Lanneau shall not use
such information for Lanneau's own benefit or for the benefit of
any other person or entity or disclose any such information to
any person or entity without the prior written consent of Sumx.
6. a) As a result of his engagement with Sumx, Lanneau will
obtain knowledge of the types of information referred to in
paragraph 5(a) and of Sumx's customers, including without
limitation, customer buying contacts, methods of operations, and
product needs, and will develop goodwill and rapport with
customers and prospective customers of Sumx. In many instances
the individuals at Sumx's customers and prospective customers
responsible for the purchase of the products, services and
equipment sold by Sumx are also responsible for the purchase of
products, service and equipment sold by Sumx's affiliated and
subsidiary companies. Such information, goodwill and rapport,
whether developed by Lanneau or by others in the Sumx
organization are valuable assets of Sumx.
<PAGE>
b) In order for Sumx to protect such information and
relationships, if Lanneau is engaged by Sumx in a sales or sales
management capacity, then for the eighteen (18) consecutive
calendar months immediately following termination of engagement
(irrespective of the reason for such termination), Lanneau shall
not directly or indirectly, for Lanneau's benefit or the benefit
of any other person or entity, call upon, communicate or attempt
to communicate with any customer or prospective customer or any
representative of any customer or prospective customer of Sumx
with whom Lanneau had any contact, communication or for which
Lanneau had supervisory responsibility during the eighteen (18)
consecutive calendar months preceding termination of Sumx
employment if such contact or communication is with a view to or
for the purpose of selling, offering for sale, influencing the
purchase of, or otherwise providing any product, service or
equipment competitive with any product, service, or equipment
sold, offered for sale, provided, or under development by Sumx
or any of its subsidiary or affiliated companies. As it relates
to a Sumx subsidiary or affiliated company, the foregoing
proscription shall only apply where a customer or prospective
customer representative responsible for the purchase of the
products, services, or equipment of Sumx is also responsible for
the purchase of the products, services, or equipment of a Sumx
subsidiary or affiliated company. The eighteen month period
referred to herein, shall be extended by one month for each
month or portion of each month during which Lanneau is in
violation of this paragraph 6(b). For purposes of this
paragraph 6, the phrase "prospective customer of Sumx" shall
include only those prospective customers to whom Sumx has made a
written proposal during the twelve (12) consecutive calendar
months preceding Lanneau's disengagement with Sumx, or has made
at least two sales visits.
7. If engaged by Sumx in other than a sales or sales management
capacity, then for the twelve (12) consecutive calendar months
immediately following termination from Sumx, Lanneau shall not
accept or continue employment with or, as a self-employed
person, act as a competitor of Sumx, if any part of the duties
of such employment are such that Lanneau could reasonably be
expected to reveal, base judgments upon or otherwise use any of
Sumx's proprietary and confidential information or trade secrets.
8. For the eighteen (18) consecutive calendar months immediately
following termination of Lanneau's Sumx engagement, Lanneau
shall not induce or encourage, or solicit, either directly or
indirectly, any employee of Sumx or any affiliated or subsidiary
company to terminate their employment with Sumx or such company.
9. This Agreement, and the rights of the parties hereto, shall
be governed by and construed in accordance with the laws of the
State of Mississippi as such laws apply to agreements among
Mississippi residents made and to be performed entirely within
the State of Mississippi.
10. Each party has the right to terminate this agreement on 30
days written notice to the other parties. However, no
termination shall invalidate the provisions of this Agreement
which by their terms are to be performed or continue after
termination, including without limitation, Sections 2 through 9
and Sections 11 through 14.
11. If any provision of this Agreement is held to be invalid or
unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
12. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors,
assigns, administrators, executors and other legal
representatives.
<PAGE>
13. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original but all of which
together shall constitute one and the same agreement.
14. This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subjects
hereof and thereof and no party shall be liable or bound to any
other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein
and therein.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date first above written.
Britton & Koontz Capital Corporation
By: /s/ W. Page Ogden
___________________
President & CEO
Sumx Inc.
By: /s/ Richard J. Reppert
______________________
Vice President
Bazile R. Lanneau, Jr.
By: /s/ Bazile R. Lanneau, Jr.
__________________________
Individually
