<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1996
Registration No. 333-02609
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1177661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
_______________________
36 THOMAS DRIVE
WESTBROOK, MAINE 04092
(207) 774-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
_______________________
GREGORY T. CASWELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST COASTAL CORPORATION
36 THOMAS DRIVE
WESTBROOK, MAINE 04092
(207) 774-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
______________________
COPIES TO:
HOWARD I. FLACK, ESQ. DEAN F. HANLEY, ESQ.
JAMES G. MCMILLAN, ESQ. FOLEY, HOAG & ELIOT
HOGAN & HARTSON L.L.P. ONE POST OFFICE SQUARE
555 THIRTEENTH STREET, N.W. BOSTON, MASSACHUSETTS 02109
WASHINGTON, D.C. 20004 (617) 832-1000
(202) 637-5600
______________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
____________________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
____________________
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. /X/
____________________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
___________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH OFFICIALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRST COASTAL CORPORATION
----------------------------------
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-2 ITEM CAPTION OR LOCATION IN PROSPECTUS
------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus. . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges. . . . . . . . . . . . . . . . . . Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . . . . Summary; Determination of Subscription Price
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
7. Selling Security Holders. . . . . . . . . . . . . . . . . . . . . *
8. Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . Cover Page; Summary; The Offering; Standby Purchase
Agreements; Plan of Distribution
9. Description of Securities to be Registered. . . . . . . . . . . . Summary; Market for Common Stock and Dividends;
Description of Capital Stock
10. Interests of Named Experts and Counsel. . . . . . . . . . . . . . *
11. Information with Respect to the Registrant. . . . . . . . . . . . Summary; Market for Common Stock and Dividends; First
Coastal Corporation Amendment No. 2 to Annual Report on
Form 10-K/A for the Year Ended December 31, 1995; First
Coastal Corporation Amendment No. 1 to Quarterly Report
on Form 10-Q/A for the Quarter Ended March 31, 1996
12. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . . . . . . . . *
</TABLE>
- ---------------
* Item is omitted because answer is negative or item is not applicable.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATE JUNE 4, 1996
FIRST COASTAL CORPORATION
(THE HOLDING COMPANY FOR COASTAL SAVINGS BANK)
750,000 SHARES OF COMMON STOCK
First Coastal Corporation (the "Company") is offering (the "Rights
Offering") for sale up to ___________ shares of its Common Stock, par value
$1.00 per share (the "Common Stock"), to holders of record of Common Stock at
the close of business on June __, 1996 (the "Record Date"), pursuant to
nontransferable rights (the "Rights") to purchase shares of Common Stock at a
price of $____ per share (the "Subscription Price"). The Rights Offering is
made as part of an offering (the "Offering") of 750,000 shares (the "Shares"),
which also will include purchases by Standby Purchasers and a Community Offering
of any Shares not otherwise subscribed for in the Rights Offering or purchased
by Standby Purchasers as described below.
Each stockholder of the Company at the close of business on the Record Date
(the "Record Date Holder") is receiving one Right for each ________ shares of
Common Stock held on such date. Each Right will entitle the Record Date Holder
to subscribe for one share of Common Stock (the "Stockholder Subscription
Privilege"). In lieu of fractional Rights, the aggregate number of Rights
issued by the Company to a stockholder will be rounded up to the next whole
number. The Company . . . CONTINUES ON NEXT PAGE
______________________
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 18.
______________________
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Price Estimated Fees
to Public and Expenses (1) Proceeds to the Company (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (3)....... $_______ $_______ $_______
- --------------------------------------------------------------------------------------------------
Total............... $_______ $_______ $_______
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of estimated fees and expenses of the Company to be paid to
First Albany Corporation ("First Albany" or the "Placement Agent") as
compensation in connection with its efforts to advise and assist the
Company with respect to the Offering. Such fees are equal to 5.0% of
the aggregate gross proceeds raised in the Offering, less a portion of
certain fees previously paid to First Albany for its financial advisory
services. To the extent that Shares are sold in the Community Offering
by broker-dealers engaged by the Company pursuant to certain broker
assistance agreements entered into with the Company, such broker-dealers
will receive commissions equal to 3.0% of the aggregate dollar amount of
such sales, and First Albany's compensation will be reduced so that the
total compensation paid for such Shares will equal 6.5% of the gross
proceeds from the sale of such Shares. The Company has agreed to
reimburse the Placement Agent for certain legal and other expenses not
to exceed $40,000 and to indemnify the Placement Agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting other expenses payable by the Company estimated at an
aggregate of $_______.
(3) In recent years prior to the Offering, there has been no established
public market for the Common Stock. The Subscription Price of $______
per share was determined by the Board of Directors of the Company with
the assistance of First Albany. See "Determination of Subscription
Price."
FIRST ALBANY CORPORATION
__________, 1996
<PAGE>
is concurrently offering Shares not subscribed for in the Rights Offering to
members of the general public to whom a copy of this Prospectus is delivered
(the "Community Offering"), subject to the prior rights of Record Date Holders
in the Rights Offering and the prior rights of Standby Purchasers with respect
to the Minimum Standby Purchase Commitment as described below. See "The
Offering -- Rights Offering," "The Offering -- Community Offering" and "Standby
Purchase Agreements."
The Company has entered into standby purchase agreements (the "Standby
Purchase Agreements"), pursuant to which, subject to certain conditions, standby
purchasers (the "Standby Purchasers") have severally agreed to acquire from the
Company, at the Subscription Price, up to ________ Shares, if available, after
the Rights Offering and the Community Offering. Pursuant to such agreements,
the Company has agreed to sell, and the Standby Purchasers have agreed to
purchase, a minimum of _______ Shares (the "Minimum Standby Purchase
Commitment") at the Subscription Price. See "Standby Purchase Agreements."
ANY SUBSCRIPTION PURSUANT TO THE RIGHTS OFFERING OR THE COMMUNITY OFFERING
WILL BE IRREVOCABLE. Subscriptions for Shares should be sent to Chemical Mellon
Shareholder Services, L.L.C., as subscription agent (the "Subscription Agent"),
and payments received in connection therewith will be deposited by the
Subscription Agent in a noninterest bearing escrow account maintained with
Mellon Bank, N.A., as escrow agent (the "Escrow Agent"). THE COMPANY RESERVES
THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN WHOLE OR IN PART AT THE SOLE
DISCRETION OF THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY
AUTHORITIES. IN THIS CONNECTION AND EXCEPT UNDER CERTAIN CIRCUMSTANCES WITH
RESPECT TO EXISTING STOCKHOLDERS BENEFICIALLY OWNING FIVE PERCENT OR MORE OF
THE COMPANY'S ISSUED AND OUTSTANDING COMMON STOCK, THE COMPANY DOES NOT
ANTICIPATE ACCEPTING ANY PURCHASES OF COMMON STOCK IN THE OFFERING THAT, WHEN
AGGREGATED WITH ANY OTHER SHARES BENEFICIALLY OWNED BY SUCH PURCHASER, WOULD
EQUAL OR EXCEED FIVE PERCENT OF THE COMPANY'S ISSUED AND OUTSTANDING COMMON
STOCK UPON COMPLETION OF THE OFFERING, BUT RESERVES THE RIGHT TO DO SO.
PURCHASES OF SHARES OF THE COMPANY, INCLUDING PURCHASES PURSUANT TO THIS
OFFERING, ARE SUBJECT TO CERTAIN LIMITATIONS. SEE "THE OFFERING --
LIMITATIONS ON PURCHASE OF STOCK" AND "DESCRIPTION OF CAPITAL STOCK."
THE RIGHTS OFFERING AND THE COMMUNITY OFFERING ARE MADE ON A "BEST EFFORTS"
BASIS AND ARE CONDITIONED UPON ALL OF THE SHARES BEING SOLD AND TO THE
CONSUMMATION OF THE OTHER TRANSACTIONS PURSUANT TO THE RECAPITALIZATION OF THE
COMPANY AS DESCRIBED IN THIS PROSPECTUS. The Company intends to use the
proceeds from the Offering, together with funds derived from the payment of a
dividend by the Bank to the Company and from a loan from certain financial
institutions to the Company, to satisfy in full the obligations of the Company
to the FDIC in connection with the promissory note in the principal amount of
$9.0 million issued by the Company to the FDIC on January 31, 1995 in settlement
of the FDIC's cross guaranty claim against the Bank. See "Use of Proceeds" and
"The Recapitalization."
THE OFFERING WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JULY __, 1996,
SUBJECT TO THE EXTENSION BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO
TIME THROUGH AUGUST __, 1996 (THE "EXPIRATION DATE"). AFTER THE EXPIRATION
DATE, THE RIGHTS WILL NO LONGER BE EXERCISABLE. IF THE OFFERING HAS NOT BEEN
CONSUMMATED WITHIN 30 DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE
TERMINATED BY THE COMPANY AND ALL AMOUNTS SUBMITTED BY RECORD DATE HOLDERS AND
PARTICIPANTS IN THE COMMUNITY OFFERING (THE "COMMUNITY OFFERING PARTICIPANTS")
WILL BE RETURNED WITHOUT INTEREST.
In recent years prior to this Offering, there has been no established
public market for the Common Stock, and there can be no assurance an established
public market for such stock will develop. Application has been made for the
listing of the Common Stock on The Nasdaq SmallCap Market under the symbol
"FCME", and First Albany and Livada Securities, Inc. have indicated that they
intend to make a market in the Common Stock following the Offering. Upon
completion of the Offering, the Company is expected to have approximately
1,357,861 shares of Common Stock outstanding (based on 600,361 shares of Common
Stock outstanding as of May 31, 1996 and 7,500 shares of restricted stock to be
issued to certain executive officers of the Company in connection with the
Offering).
-2-
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION IN THIS PROSPECTUS HAS BEEN
ADJUSTED TO REFLECT THE ONE FOR TEN REVERSE STOCK SPLIT WITH RESPECT TO THE
COMPANY'S OUTSTANDING COMMON STOCK EFFECTIVE MAY 31, 1995. EACH PROSPECTIVE
INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY, INCLUDING "RISK
FACTORS" BEGINNING ON PAGE 18, AMENDMENT NO. 2 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1995 (THE "1995 FORM 10-K")
BEGINNING ON PAGE A-1 AND AMENDMENT NO. 1 TO THE COMPANY'S QUARTERLY REPORT ON
FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 1996 (THE "MARCH 1996 FORM 10-Q")
BEGINNING ON PAGE B-1.
THE COMPANY
First Coastal Corporation, a Delaware corporation (the "Company"), is a
bank holding company whose sole operating subsidiary is Coastal Savings Bank, a
Maine chartered stock savings bank (the "Bank"). The Company has no separate
operations, and its business consists of the business of the Bank. The Bank was
formed in 1981 through the consolidation of Brunswick Savings Institution and
York County Savings Bank, which were organized in 1858 and 1860, respectively.
The Bank offers a broad range of financial services to consumer and
commercial customers in its market area. Its business consists of attracting
deposits from the general public and the application of those funds to the
origination of a variety of residential and commercial mortgage loans, home
equity and installment loans, and business loans. The Bank operates seven full-
service branch offices, located principally in coastal communities in southern
Maine, ranging from Brunswick in the north to Kennebunk in the south. Of the
Bank's $126.7 million in deposits at March 31, 1996, $75.4 million or
approximately 60% were attributable to the Bank's four northern branches,
located in downtown Brunswick, Cook's Corner (Brunswick), Topsham Fair Mall
(Topsham) and downtown Freeport. In addition, the Bank has two York County
branches located south of Portland in Saco and Kennebunk, and a branch based at
its corporate headquarters in Westbrook, a suburb of Portland. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
the limits provided by law.
After sustaining losses from 1987 to 1992, in recent years the Company has
concentrated its efforts on improving asset quality, increasing the Bank's
leverage capital ratio and reducing other operating expenses, with the overall
goal of improving core operating income. The Company returned to core operating
profitability (net income excluding FDIC settlement expenses as described below)
in 1993 and has been profitable on a core operating basis since such time. The
following table sets forth the Company's net income (loss) for each of the five
years in the period ended December 31, 1995 and for the three months ended
March 31, 1995 and 1996, adjusted to reflect the exclusion of expenses related
to the settlement of the cross guaranty claim with the FDIC and the issuance of
the FDIC Note as described under "The Recapitalization."
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------------------------------- -------------------
(IN THOUSANDS) 1991 1992 1993 1994 1995 1995 1996
- ----------------------------- ---------- ------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss). . . . . . . $(10,595) $(529) $748(a) $ (8,902) $ 1,660(a) $225 $337
Expenses related to
FDIC settlement . . . . . . -- -- -- 812 310 -- --
FDIC Note and
related interest. . . . . . -- -- -- 9,000 419 73 141
--------- ------ ---- ------- ------- --- ----
Adjusted net income
(loss). . . . . . . . . . . $(10,595) $(529) $748(a) $ 910 $ 2,389(a) $298 $478
--------- ------ ---- ------- ------- ---- ----
--------- ------ ---- ------- ------- ---- ----
</TABLE>
(a) Net of provision reversal of $425,000 and $675,000 in 1993 and 1995,
respectively.
Since December 31, 1991, the Company has experienced a substantial
improvement in its asset quality. The Company's nonperforming assets declined
from a level of $27.3 million at
-3-
<PAGE>
December 31, 1991 to $3.6 million at March 31, 1996. The Bank's Tier 1 capital
to total assets ratio has increased from 4.42% at December 31, 1991 to 9.45% at
March 31, 1996. At December 31, 1995, the Company had net operating loss
carryforwards for federal tax purposes of approximately $6.8 million and
approximately $15.8 million on a pro forma basis assuming the consummation of
the Recapitalization as described below.
BUSINESS STRATEGY
The Company believes that there is a strong demand for a progressive,
competitive, service oriented community bank within the markets served by the
Bank, particularly as an alternative to the larger statewide and superregional
banks currently serving key portions of these markets. In this regard, the
Company's management has taken various steps to implement initiatives that it
believes will position the Bank as a strong, competitive community bank. These
initiatives include a significant expansion of the Bank's residential lending
capabilities through the addition of new programs and improved staffing, the
enhancement of the Bank's ability to be a competitive source of financing for
small businesses, the development and implementation of a comprehensive new
deposit program, and the retention and development of a highly motivated
management team and staff, including a strong customer service oriented team of
branch managers.
Although several of these initiatives are in their preliminary stage, the
Bank has experienced positive results from its efforts to date. For the three
month periods ended June 30, 1995, September 30, 1995, December 31, 1995 and
March 31, 1996, residential loan originations were $1.4 million, $2.1 million,
$2.6 million and $4.0 million, respectively. As the Bank's level of
nonperforming assets has continued to decline, the Bank's loan staff has
increasingly been able to direct its resources to the generation of new loans.
In April 1996, the Bank implemented a new deposit program, entailing increased
expenditures in marketing and a new mix of deposit products, which the Bank
believes will facilitate its efforts to increase its market share and its non-
interest income and to decrease its cost of funds. In addition, as part of its
efforts to provide enhanced customer service and improve branch profitability,
the Bank invested over $400,000 during 1995 in capital improvements, a bank
identity program and new signage. Further initiatives include the conversion of
the Bank's existing computer system to a new system during the third quarter of
1996 at an estimated cost of $538,000. The Company expects that the conversion
of its existing computer system will improve the Bank's product and service
capabilities, while providing savings to the Bank estimated at $150,000
annually.
The Bank's senior management team is led by Gregory T. Caswell, President
and Chief Executive Officer, and Dennis D. Byrd, Executive Vice President, Chief
Financial Officer and Treasurer, each of whom has been actively involved with
the Bank's turnaround since the early 1990's. Mr. Caswell, who has 18 years of
banking experience in northern New England, joined the Bank in 1991 as senior
lending officer and has managed the Bank's efforts to improve asset quality,
including the significant reduction in nonperforming assets. Since Mr.
Caswell's appointment as President and Chief Executive Officer in March 1995,
the Company has made a number of staffing changes that have further enhanced the
Bank's overall capabilities in several key areas. In this connection, the
Company expanded its management team in early 1995 by hiring two experienced
senior bank managers, Roger H. Hunter and Robert S. Blackwood, Jr. Mr. Hunter,
formerly of Casco Northern Bank, N.A. ("Casco"), is employed as Senior Vice
President and Retail Services Manager. Mr. Blackwood, formerly of Casco and
First NH Bank, is employed as Senior Vice President and Senior Commercial Loan
Officer. Several other key management personnel have been hired, including new
branch managers at five of the Bank's seven branches.
THE RECAPITALIZATION
On January 31, 1995, the Company and the Bank consummated a settlement with
the FDIC, pursuant to which the FDIC waived and released its cross guaranty
claim against the Bank in accordance with the terms and conditions of the
Amended and Restated Settlement Agreement, dated as of November 23, 1994 (the
"Amended and Restated Settlement Agreement"). The cross guaranty claim was the
result of the September 1991 failure of Suffield Bank, Suffield, Connecticut,
-4-
<PAGE>
which prior to its receivership was a subsidiary of the Company. Under federal
law, commonly-controlled depository institutions, such as the Bank and Suffield
Bank, are liable for any actual or reasonably anticipated loss in connection
with the default of one or more of the commonly-controlled institutions. As
part of the settlement, the Company issued to the FDIC a non-recourse promissory
note in the principal amount of $9.0 million (the "Note" or the "FDIC Note"),
secured by the Company's pledge of the outstanding stock of the Bank. Principal
and interest under the FDIC Note are deferred until its maturity date, which is
January 31, 1997, subject to extension under certain circumstances. See Note A
of "Item 8. Financial Statements and Supplementary Data" of the Company's 1995
Form 10-K attached to this Prospectus as Appendix A and the Company's March 1996
Form 10-Q attached to this Prospectus as Appendix B.
In order to satisfy in full the obligations of the Company under the FDIC
Note, the Company intends to consummate the following transactions
(collectively, the "Recapitalization"), each of which is conditioned upon the
consummation of the others and all of which are expected to close
simultaneously:
(i) the Company will sell the 750,000 shares of Common Stock offered
hereby at the Subscription Price equal to $____ per share, with estimated net
proceeds of approximately $________;
(ii) the Bank will pay a dividend in the amount of $3.2 million to the
Company (the "Bank Dividend");
(iii) the Company will borrow $4.0 million (the "Recapitalization
Loan") pursuant to a Loan Agreement (the "Recapitalization Loan Agreement") to
be entered into by the Company with Androscoggin Savings Bank, Lewiston, Maine,
Bangor Savings Bank, Bangor, Maine, Machias Savings Bank, Machias, Maine, and
Norway Savings Bank, Norway, Maine (collectively, the "Lenders") in connection
with the consummation of the Recapitalization, and the Company will pledge 100%
of the outstanding common stock of the Bank in order to secure such loan; and
(iv) the Company will pay the FDIC $9.0 million in principal and
approximately $700,000 in accrued interest, satisfying in full the Company's
obligations to the FDIC under the Note.
On April 26, 1996, the Bank and Maine Bank & Trust Company ("MB&TC")
consummated a purchase and assumption agreement, dated as of February 22, 1996,
pursuant to which the Bank sold substantially all of the assets of its Kezar
Falls, Maine branch office to MB&TC, and MB&TC assumed certain liabilities of
the Bank with respect to the branch (the "Kezar Falls Branch Sale"). In
connection with the consummation of the Kezar Falls Branch Sale, the Bank
transferred cash of $9,369,000 and loans and fixed assets valued at their book
value of $97,000 to MB&TC, and MB&TC assumed deposit liabilities of $9,869,000.
The Bank was paid a premium on the deposits in the amount of $403,000, offset by
$37,000 in expenses associated with the transaction. Such deposit premium will
be booked as income to the Bank during the second quarter of 1996.
The address of the Company's principal executive offices is 36 Thomas
Drive, Westbrook, Maine 04092, and its telephone number is (207) 774-5000.
-5-
<PAGE>
COASTAL SAVINGS BANK LOCATIONS
DESCRIPTION OF GRAPHIC MATERIAL
A map of the State of Maine is included as part of the Prospectus. A
portion of the southern coast of Maine is represented in the inset; each
community location of Coastal Savings Bank is represented on the inset by a
star.
-6-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain selected consolidated financial and
other data of the Company as of and for each of the five years in the period
ended December 31, 1995 and for the three months ended March 31, 1996 and 1995.
Such selected consolidated financial and other data is derived from the
Company's historical consolidated financial statements and should be read in
conjunction with, and is qualified in its entirety by, the more detailed
information, including the consolidated financial statements and notes, included
elsewhere herein. See the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
<TABLE>
<CAPTION>
Three Months Ended
(DOLLARS IN THOUSANDS, March 31, Year Ended December 31,
------------------- -----------------------------------------------------------
EXCEPT PER SHARE DATA) 1996 1995 1995 1994 1993 1992 1991
- ------------------------------------------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . . $ 3,003 $ 2,917 $ 11,707 $ 11,780 $ 12,748 $ 16,319 $ 21,032
Interest expense (a) . . . . . . . . . . . . 1,492 1,399 5,850 5,726 7,254 9,986 14,639
------- ------- -------- -------- -------- -------- --------
Net interest income. . . . . . . . . . . . . 1,511 1,518 5,857 6,054 5,494 6,333 6,393
Provision for loan losses (b). . . . . . . . -- 100 (425) 107 (30) 1,136 5,967
------- ------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses. . . . . . . . . . . . . . . . 1,511 1,418 6,282 5,947 5,524 5,197 426
Investment securities gains (losses) . . . . 7 -- (4) 38 99 (19) 360
Other income . . . . . . . . . . . . . . . . 124 168 576 391 1,323 1,126 980
Other expenses (c) . . . . . . . . . . . . . 1,305 1,361 5,194 6,278 6,158 7,049 12,853
Income tax benefit . . . . . . . . . . . . . -- -- -- - (4) (198) (114)
------- ------- -------- -------- -------- -------- --------
Income (loss) before minority interest
and extraordinary item . . . . . . . . . . 337 225 1,660 98 792 (547) (10,973)
Minority interest in net income (loss) . . . -- -- -- -- 44 (18) (378)
------- ------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary item. . . 337 225 1,660 98 748 (529) (10,595)
Extraordinary item (d) . . . . . . . . . . . -- -- -- 9,000 -- -- --
------- ------- -------- -------- -------- -------- ---------
Net income (loss). . . . . . . . . . . . . . $ 337 $ 225 $ 1,660 $ (8,902) $ 748 $ (529) $ (10,595)
------- ------- -------- -------- -------- -------- ---------
------- ------- -------- -------- -------- -------- ---------
PER SHARE DATA (e):
Weighted average shares outstanding. . . . . 600,361 600,361 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary item. . . $ .56 $ .37 $ 2.77 $ .16 $ 1.25 $ (.88) $ (17.65)
Net income (loss). . . . . . . . . . . . . . .56 .37 2.77 (14.83) 1.25 (.88) (17.65)
Period end book value per share. . . . . . . 7.11 4.02 6.66 3.35 16.45 15.21 16.09
Period end tangible book value per share . . 7.11 4.02 6.66 3.35 16.45 15.21 16.09
</TABLE>
- ------------------------
(a) For the year ended December 31, 1995, interest expense includes $419,000 in
interest expense associated with the $9.0 million Note to the FDIC.
(b) Net of provision reversal of $675,000 and $425,000 for the years ended
December 31, 1995 and December 31, 1993, respectively.
(c) For the years ended December 31, 1995 and December 31, 1994, the Company
incurred approximately $302,000 and $812,000, respectively, in legal and
other professional fees in connection with the settlement of the cross
guaranty claim with the FDIC. For the year ended December 31, 1991, the
Company incurred a $3.2 million charge to earnings as a result of the
deconsolidation of Suffield Bank.
(d) For the year ended December 31, 1994, the Company incurred a $9.0 million
extraordinary charge to earnings as a result of the issuance by the Company
of the FDIC Note in consideration of the waiver and release of the cross
guaranty claim against the Bank.
(e) As adjusted to reflect the one for ten reverse stock split with respect to
the Company's outstanding Common Stock effective May 31, 1995.
-7-
<PAGE>
<TABLE>
<CAPTION>
At or For
Three Months
Ended
(DOLLARS IN THOUSANDS, March 31, At or For the Year Ended December 31,
------------- -----------------------------------------------------------
EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992 1991
- --------------------------------------------- ------------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
END OF PERIOD BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . $147,009 $145,453 $154,212 $170,819 $188,838 $214,422
Investment securities . . . . . . . . . . 24,565 19,712 16,746 1,036 4,061 1,487
Assets held for sale. . . . . . . . . . . 1,781 281 185 3,421 6,882 3,661
Loans, net of fees. . . . . . . . . . . . 96,009 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses . . . . . . . . 2,646 2,659 4,042 3,642 4,280 6,098
Nonperforming assets. . . . . . . . . . . 3,614 7,517 9,006 11,627 24,382 27,303
Deposits. . . . . . . . . . . . . . . . . 126,746 125,665 130,037 140,587 156,318 170,383
FHLB advances . . . . . . . . . . . . . . 6,000 6,000 12,612 18,108 21,249 31,595
FDIC Note . . . . . . . . . . . . . . . . 9,000 9,000 9,000 -- -- --
Stockholders' equity. . . . . . . . . . . 4,271 3,997 2,014 9,878 9,130 9,659
AVERAGE BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . $145,407 $146,146 $162,587 $181,705 $199,393 $229,157
Loans, net of fees. . . . . . . . . . . . 97,871 105,742 115,940 131,795 165,053 193,292
Deposits. . . . . . . . . . . . . . . . . 125,650 121,503 129,841 141,243 153,993 171,228
Stockholders' equity. . . . . . . . . . . 3,893 2,852 10,625 9,807 9,733 12,890
FINANCIAL RATIOS:
Return on average assets before
extraordinary item . . . . . . . . . . . .93% 1.14% .06% .41% (.27)% (4.62)%
Return on average assets. . . . . . . . . .93 1.14 (5.48) .41 (.27) (4.62)
Return on average equity before
extraordinary item. . . . . . . . . . . . 34.63 .92 58.20 7.63 (5.44) (82.20)
Return on average equity. . . . . . . . . 34.63 58.20 (83.78) 7.63 (5.44) (82.20)
Net interest margin (f) . . . . . . . . . 4.16 4.19 3.97 3.31 3.40 2.93
Net interest rate spread (g). . . . . . . 4.29 4.13 3.79 3.26 3.26 2.47
Non-interest income to average
assets . . . . . . . . . . . . . . . . . .36 .39 .26 .78 .56 .58
Efficiency ratio (h). . . . . . . . . . . 79.48 80.79 96.84 89.04 94.74 166.21
Nonperforming assets to total
assets . . . . . . . . . . . . . . . . . 2.46 5.17 5.84 6.81 12.91 12.73
Allowance for loan losses to
nonperforming assets. . . . . . . . . . . 73.22 35.37 44.88 31.32 17.55 22.33
Net charge-offs to average loans. . . . . .05 .91 (.25) .46 1.76 2.39
Average loans to average deposits . . . . 77.89 87.03 89.29 93.31 107.18 112.89
Equity to assets. . . . . . . . . . . . . 2.91 2.75 1.31 5.78 4.83 4.50
Tier 1 capital to total assets (i). . . . 2.90 2.74 1.41 5.63 4.81 4.50
Tier 1 capital to risk-weighted
assets (i) . . . . . . . . . . . . . . . 4.68 4.27 2.14 8.42 6.74 6.18
Qualifying total capital to
risk-weighted assets (i) . . . . . . . . 5.95 5.54 3.46 9.69 8.02 7.72
</TABLE>
- ---------------
(f) Net interest income divided by average earning assets.
(g) Return on interest earning assets less cost of interest bearing
liabilities.
(h) Operating expenses divided by net interest income plus non-interest income.
(i) Applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets and qualifying total
capital to risk-weighted assets were 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital -- Coastal" and
"-- Company" of the Company's March 1996 Form 10-Q attached to this
Prospectus as Appendix B.
-8-
<PAGE>
SELECTED CONSOLIDATED QUARTERLY FINANCIAL AND OTHER DATA
The following table sets forth certain selected consolidated financial and
other data of the Company as of and for each of the periods indicated. The data
has not been audited but, in the opinion of management, reflects all adjustments
(consisting only of normal recurring accruals) which are necessary to present
fairly the data at the dates and for the periods indicated. The selected
consolidated quarterly financial and other data set forth below should be read
in conjunction with, and is qualified in its entirety by, the more detailed
information, including the consolidated financial statements and notes, included
elsewhere herein. See the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
EXCEPT PER SHARE DATA) 1996 1995 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Interest income. . . . . . . . . . $3,003 $2,913 $2,942 $2,935 $2,917 $3,005 $2,911
Interest expense . . . . . . . . . 1,492 1,501 1,492 1,458 1,399 1,352 1,433
------- ------- ------- ------- -------- --------- --------
Net interest income. . . . . . . . 1,511 1,412 1,450 1,477 1,518 1,653 1,478
Provision for loan losses. . . . . -- (675) 75 75 100 -- 40
------- ------- ------- ------- -------- --------- -------
Net interest income after
provision for loan losses. . . . 1,511 2,087 1,375 1,402 1,418 1,653 1,438
Investment securities gains
(losses). . . . . . . . . . . . . 7 7 1 (12) -- 6 --
Other income . . . . . . . . . . . 124 130 127 151 168 14 133
Other expenses . . . . . . . . . . 1,305 1,296 1,210 1,327 1,361 1,434 1,594
Income tax . . . . . . . . . . . . -- -- -- -- -- -- --
------- ------- ------- ------- -------- --------- -------
Income (loss) before extraordinary
item . . . . . . . . . . . . . . 337 928 293 214 225 239 (23)
Extraordinary item . . . . . . . . -- -- -- -- -- 9,000 --
------- ------- ------- ------- -------- --------- --------
Net income (loss). . . . . . . . . $ 337 $ 928 $ 293 $ 214 $ 225 $ (8,761) $ (23)
------- ------- ------- ------- -------- --------- --------
------- ------- ------- ------- -------- --------- --------
PER SHARE DATA:
Weighted average shares outstanding 600,361 600,361 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary
item . . . . . . . . . . . . . . $ 0.56 $ 1.55 $ .49 $ .36 $ .37 $ .40 $ (.04)
Net income (loss). . . . . . . . . 0.56 1.55 .49 .36 .37 (14.59) (.04)
Period end book value per share. . 7.11 6.66 5.07 4.59 4.02 3.35 18.13
Period end tangible book value
per share. . . . . . . . . . . . 7.11 6.66 5.07 4.59 4.02 3.35 18.13
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
--------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
EXCEPT PER SHARE DATA) 1996 1995 1995 1995 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD BALANCE
SHEET DATA:
Total assets . . . . . . . . . . . $ 147,009 $ 145,453 $ 145,102 $ 144,095 $ 146,605 $ 154,212 $ 156,537
Investment securities. . . . . . . 24,565 19,712 16,904 11,894 16,898 16,746 14,894
Assets held for sale . . . . . . . 1,781 281 373 409 238 185 389
Loans, net of fees . . . . . . . . 96,009 100,528 100,080 106,353 107,609 109,625 112,343
Allowance for loan losses. . . . . 2,646 2,659 3,721 3,715 3,620 4,042 3,594
Nonperforming assets . . . . . . . 3,614 7,517 7,978 8,453 8,116 9,006 8,941
Deposits . . . . . . . . . . . . . 126,746 125,665 126,330 125,619 127,027 130,037 131,992
FHLB advances. . . . . . . . . . . 6,000 6,000 6,000 6,150 7,667 12,612 13,018
FDIC Note. . . . . . . . . . . . . 9,000 9,000 9,000 9,000 9,000 9,000 --
Stockholders' equity . . . . . . . 4,271 3,997 3,044 2,753 2,411 2,014 10,883
AVERAGE BALANCE SHEET DATA:
Total assets . . . . . . . . . . . $ 145,407 $ 144,686 $ 144,838 $ 145,774 $ 149,354 $ 155,179 $ 161,252
Loans, net of fees . . . . . . . . 97,871 101,632 102,969 107,325 109,320 110,671 113,821
Deposits . . . . . . . . . . . . . 125,650 125,576 126,123 127,006 127,337 130,927 135,270
Stockholders' equity . . . . . . . 3,893 3,353 3,024 2,682 2,339 10,936 11,245
FINANCIAL RATIOS (a):
Return on average assets before
extraordinary item . . . . . . . .93% 2.57% .81% .59% .60% .62% (.06)%
Return on average assets . . . . . .93 2.57 .81 .59 .60 (22.58) (.06)
Return on average equity before
extraordinary item . . . . . . . 34.63 110.71 38.76 31.92 38.48 8.74 (.83)
Return on average equity . . . . . 34.63 110.71 38.76 31.92 38.48 (320.45) (.83)
Net interest margin (b). . . . . . 4.16 3.90 4.00 4.05 4.07 4.26 3.67
Net interest rate spread (c) . . . 4.29 4.01 4.16 4.25 4.20 4.29 3.71
Non-interest income to
average assets . . . . . . . . . .36 .38 .35 .38 .45 .05 .33
Efficiency ratio (d) . . . . . . . 79.48 83.67 76.68 82.12 80.72 85.71 98.94
Nonperforming assets to total
assets . . . . . . . . . . . . . 2.46 5.17 5.50 5.87 5.54 5.84 5.71
Allowance for loan losses to
nonperforming assets . . . . . . 73.22 35.37 46.64 43.95 44.60 44.88 40.20
Net charge-offs to average loans . .05 1.52 .27 (.07) 1.91 (1.62) (.01)
Average loans to average deposits. 77.89 80.93 81.64 84.50 85.85 84.53 84.14
Equity to assets . . . . . . . . . 2.91 2.75 2.10 1.91 1.65 1.31 6.95
Tier 1 capital to total
assets (e) . . . . . . . . . . . 2.90 2.74 2.09 1.88 1.66 1.41 6.75
Tier 1 capital to risk-weighted
assets (e) . . . . . . . . . . . 4.68 4.27 3.29 2.87 2.52 2.14 10.52
Qualifying total capital to
risk-weighted assets (e) . . . . 5.95 5.54 4.58 4.16 3.80 3.46 11.80
</TABLE>
- ----------------------
(a) Ratios derived from operating data have been presented on an annualized
basis.
(b) Net interest income divided by average earning assets.
(c) Return on interest earning assets less cost of interest bearing
liabilities.
(d) Operating expenses divided by net interest income plus non-interest income.
(e) Applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets and qualifying total
capital to risk-weighted assets were 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital -- Coastal" and
"-- Company" of the Company's March 1996 Form 10-Q attached to this
Prospectus as Appendix B.
-10-
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial information and
accompanying notes reflect the effects to the financial statements of the
Company of the consummation of the Kezar Falls Branch Sale and the
Recapitalization. The pro forma consolidated financial information includes the
pro forma consolidated balance sheet at March 31, 1996 and certain additional
pro forma consolidated financial information for the year ended December 31,
1995 and the three month period ended March 31, 1996. The pro forma
consolidated balance sheet assumes the Kezar Falls Branch Sale and the
Recapitalization were consummated on March 31, 1996. The additional pro forma
consolidated financial information assumes the Kezar Falls Branch Sale and the
Recapitalization were consummated on January 1, 1995.
The pro forma consolidated financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Kezar Falls Branch
Sale and/or the Recapitalization had been consummated nor is it necessarily
indicative of future operating results or financial position. The pro forma
consolidated financial information should be read in conjunction with the
consolidated financial statements and related notes of the Company included
elsewhere herein. See the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Recapitalization
and Kezar Falls
Kezar Falls Branch Sale Branch Sale
--------------------------- -----------------
Historical Pro Forma Recapitalization Pro Forma
----------- --------- ---------------- -----------------
March 31, Pro Forma March 31, Pro Forma March 31,
(IN THOUSANDS) 1996 Adjustments 1996 Adjustments 1996
----------- ----------- ---------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . $ 18,403 $ (9,406) (a) $ 8,997 $ 3,185 (b) $ 6,518
3,895 (c)
(9,559) (d)
Investment securities. . . . . . . 25,880 -- 25,880 -- 25,880
Assets held for sale . . . . . . . 1,781 -- 1,781 -- 1,781
Loans net of allowance for loan
losses . . . . . . . . . . . . . 93,363 (3) (a) 93,360 -- 93,360
Fixed assets . . . . . . . . . . . 3,159 (95) (a) 3,064 -- 3,064
Real estate owned and
repossessions . . . . . . . . . . 2,164 -- 2,164 -- 2,164
Other assets . . . . . . . . . . . 2,259 1 (a) 2,260 105 (c) 2,365
---------- ---------- --------- ---------- ---------
TOTAL ASSETS . . . . . . . . . . . $ 147,009 $ (9,503) $ 137,506 $ (2,374) $ 135,132
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
LIABILITIES:
Deposits . . . . . . . . . . . . . $ 126,746 $ (9,869) (a) $ 116,877 -- $ 116,877
FHLB advances. . . . . . . . . . . 6,000 -- 6,000 -- 6,000
FDIC Note. . . . . . . . . . . . . 9,000 -- 9,000 $ (9,000) (d) 0
Recapitalization Loan. . . . . . . 4,000 (c) 4,000
Other liabilities. . . . . . . . . 992 -- 992 (559) (d) 433
---------- ---------- --------- ---------- ---------
TOTAL LIABILITIES. . . . . . . . . 142,738 (9,869) 132,869 (5,559) 127,310
STOCKHOLDERS' EQUITY:
Common stock ($1.00 par value) . . 600 -- 600 758 (b) 1,358
Paid-in capital. . . . . . . . . . 29,375 -- 29,375 2,465 (b) 31,840
Retained earnings prior year . . . (26,016) -- (26,016) (38) (b) (26,054)
Current year earnings. . . . . . . 337 366 (a) 703 -- 703
Unrealized loss on available for
sale securities. . . . . . . . . (25) -- (25) -- (25)
---------- ---------- --------- ---------- ---------
TOTAL STOCKHOLDERS' EQUITY . . . . 4,271 366 4,637 3,185 7,822
---------- ---------- --------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $147,009 $ (9,503) $ 137,506 $ (2,374) $ 135,132
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
</TABLE>
- ---------------
-11-
<PAGE>
(a) On April 26, 1996, the Bank and MB&TC consummated a purchase and assumption
agreement, dated as of February 22, 1996, pursuant to which the Bank sold
substantially all of the assets of its Kezar Falls, Maine branch office to
MB&TC, and MB&TC assumed certain liabilities of the Bank with respect to
the branch. Included in the sale were all the branch deposits (totaling
approximately $9.9 million at April 26, 1996), the real estate and certain
of the furniture, fixtures and equipment of the branch. The Bank was paid
a premium on the deposits equaling 4.02% of the average deposits for the 29
days between February 15, 1996 and March 15, 1996, which premium equaled
approximately $403,000 and was offset by $37,000 in expenses associated
with the transaction.
(b) The pro forma information relating to the issuance of 750,000 shares of
Common Stock in the Offering is based on estimates by management and is
presented for illustrative purposes only and is not necessarily indicative
of the actual gross proceeds or price per share of the Offering. The pro
forma price per share is assumed to be $5.00. Costs associated with the
Offering are estimated at $565,000. The charge to earnings of $38,000 is
attributable to the issuance of 7,500 restricted shares of Common Stock to
certain executive officers of the Company pursuant to the First Coastal
Corporation 1996 Stock Option and Equity Incentive Plan (the "Stock Option
and Equity Incentive Plan") in connection with the consummation of the
Offering.
(c) Pursuant to the Recapitalization Loan Agreement, the Company will borrow
$4.0 million and will pledge 100% of the outstanding common stock of the
Bank to secure its obligations under the Recapitalization Loan. The
Recapitalization Loan will bear interest at the rate of 10.85% per annum,
payable quarterly, in arrears, commencing on the last day of each calendar
quarter following the consummation of the Recapitalization. The
Recapitalization Loan matures December 31, 2001. Costs associated with the
Recapitalization Loan are expected to be $105,000 and will be amortized
over the life of the loan.
(d) Reflects the repayment of the FDIC Note, including accrued interest through
March 31, 1996.
OTHER PRO FORMA FINANCIAL INFORMATION
The Company's consolidated net income for the year ended December 31, 1995
and the three months ended March 31, 1996 was $1,660,000 and $337,000,
respectively. On a pro forma basis assuming the Kezar Falls Branch Sale and the
Recapitalization had occurred on January 1, 1995, the Company's consolidated net
income for the year ended December 31, 1995 and the three months ended March 31,
1996 would have been approximately $1,993,000 and $366,000, respectively. The
$333,000 increase to the Company's pro forma net income for the year ended
December 31, 1995 is attributable to: (i) a net gain of $366,000 as a result of
the Kezar Falls Branch Sale, (ii) a reduction of income of $16,000 as a result
of the Kezar Falls Branch Sale, (iii) a reduction of interest expense of $21,000
as a result of the payment in full of the FDIC Note and the concurrent borrowing
of funds pursuant to the Recapitalization Loan and (iv) a charge to earnings of
$38,000 as a result of the issuance of 7,500 shares of restricted stock pursuant
to the Company's Stock Option and Equity Incentive Plan in connection with the
consummation of the Offering, which shares of restricted stock will vest over a
three-year period (from May 2, 1996). The $29,000 increase to the Company's pro
forma net income for the three months ended March 31, 1996 is attributable to:
(a) a reduction of income of $4,000 as a result of the Kezar Falls Branch Sale
and (b) a reduction of interest expense of $33,000 as a result of the payment in
full of the FDIC Note and the concurrent borrowing of funds pursuant to the
Recapitalization Loan.
-12-
<PAGE>
THE OFFERING
THE RIGHTS OFFERING. . . . . . Each stockholder of the Company is receiving
one nontransferable right (the "Right") for
each ____ shares of Common Stock held of record
at the close of business on June __, 1996 (the
"Record Date Holder"). Each Right will entitle
the holder thereof to purchase from the Company
one share of Common Stock (the "Stockholder
Subscription Privilege") for a price of $____
per share (the "Subscription Price"). The
number of Rights issued by the Company to each
Record Date Holder will be rounded up to the
nearest whole number. Record Date Holders may
subscribe for fewer Shares in the rights
offering (the "Rights Offering") than they have
Rights to purchase. Record Date Holders may
also subscribe for additional shares in the
Community Offering as described below, subject
to certain limitations.
The Rights Offering is made as part of an
offering (the "Offering") of 750,000 shares
(the "Shares"), which also will include
purchases by Standby Purchasers and a Community
Offering of any Shares not otherwise subscribed
for in the Rights Offering or purchased by
Standby Purchasers as described below. See
"The Offering -- Rights Offering."
SUBSCRIPTION PRICE . . . . . . $____ per Share, payable in cash. See "The
Offering -- Subscription Price" and
"Determination of Subscription Price."
RECORD DATE. . . . . . . . . . June __, 1996 (the "Record Date").
EXPIRATION DATE. . . . . . . . The Offering will expire at 5:00 p.m., Eastern
time, on July __, 1996, subject to the
extension by the Company, in its sole
discretion, from time to time through
August __, 1996 (the "Expiration Date"). AFTER
THE EXPIRATION DATE, THE RIGHTS WILL NO LONGER
BE EXERCISABLE. IF THE OFFERING HAS NOT BEEN
CONSUMMATED WITHIN 30 DAYS FOLLOWING THE
EXPIRATION DATE, THE OFFERING WILL BE
TERMINATED BY THE COMPANY AND ALL AMOUNTS
SUBMITTED BY RECORD DATE HOLDERS AND
PARTICIPANTS IN THE COMMUNITY OFFERING (THE
"COMMUNITY OFFERING PARTICIPANTS") WILL BE
RETURNED WITHOUT INTEREST. SEE "THE OFFERING -
- EXPIRATION DATE."
SUBSCRIPTION PROCEDURE
FOR EXERCISING RIGHTS. . . . . The Stockholder Subscription Privilege may be
exercised by properly completing the Rights
Offering order form (the "Rights Offering Order
Form") and forwarding it (or following the
Guaranteed Delivery Procedures described under
"The Offering -- Subscription Procedure"), with
payment of the Subscription Price for each
Share subscribed for pursuant to the
Stockholder Subscription Privilege, to the
subscription agent (the "Subscription Agent"),
which must receive such Rights Offering Order
Form and payment at or prior to the Expiration
Date. ONCE A RECORD DATE HOLDER HAS EXERCISED
THE STOCKHOLDER SUBSCRIPTION PRIVILEGE, SUCH
EXERCISE MAY NOT BE REVOKED. RIGHTS OFFERING
ORDER FORMS SHOULD BE SENT WITH THE PAYMENT TO
THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS
OFFERING ORDER FORMS TO THE COMPANY. THE
COMPANY RESERVES THE RIGHT TO REJECT
SUBSCRIPTIONS
-13-
<PAGE>
RECEIVED IN WHOLE OR IN PART AT THE SOLE
DISCRETION OF THE COMPANY OR AT THE REQUEST OR
DIRECTION OF REGULATORY AUTHORITIES. See "The
Offering -- Subscription Procedure" and "The
Offering -- No Revocation."
Payments will be held in a segregated
noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent (the "Escrow
Agent"), pending the issuance of certificates
representing the Shares purchased or the return
of the payment which will be made without
interest.
THE SALE OF SHARES UPON THE EXERCISE OF RIGHTS
IS CONDITIONED UPON ALL OF THE SHARES BEING
SOLD AND TO THE CONSUMMATION OF THE OTHER
TRANSACTIONS PURSUANT TO THE RECAPITALIZATION.
SEE "THE RECAPITALIZATION."
PERSONS HOLDING COMMON
STOCK OR WISHING TO EXERCISE
RIGHTS THROUGH OTHERS. . . . . Persons holding shares of Common Stock
beneficially, and receiving the Rights with
respect thereto, through a broker, dealer,
commercial bank, trust company or other
nominee, should contact the appropriate
institution or nominee and request it to effect
such transactions for them. See "The Offering
-- Subscription Procedure."
COMMUNITY OFFERING . . . . . . The Company is concurrently offering Shares not
subscribed for in the Rights Offering to
members of the general public to whom a copy of
this Prospectus is delivered (the "Community
Offering"), subject to the prior rights of
Record Date Holders in the Rights Offering and
the prior rights of Standby Purchasers with
respect to the Minimum Standby Purchase
Commitment and the other purchase limitations
described herein. It is anticipated that
Shares offered in the Community Offering will
be offered through broker-dealers engaged by
the Company pursuant to certain broker
assistance agreements entered into with the
Company. If there is an insufficient number of
Shares available to satisfy all subscriptions
received in the Community Offering, the Company
reserves the right to allot such Shares among
the Community Offering Participants. There can
be no assurance that any Shares will be
available to satisfy in whole or in part a
Community Offering Participant's subscription.
See "The Offering -- Community Offering" and
"Plan of Distribution."
PROCEDURE FOR PURCHASING
SHARES IN THE
COMMUNITY OFFERING . . . . . . Persons who desire to participate in the
Community Offering must properly complete the
Community Offering order form (the "Community
Offering Order Form") which accompanies this
Prospectus and forward it (or follow the
Guaranteed Delivery Procedures described under
"The Offering -- Subscription Procedure"), with
payment of the aggregate Subscription Price to
the Subscription Agent, which must receive such
Community Offering Order Form and payment at or
prior to the Expiration Date. SUBSCRIPTIONS
FOR SHARES WHICH ARE RECEIVED BY THE
SUBSCRIPTION AGENT FROM COMMUNITY OFFERING
PARTICIPANTS MAY NOT BE REVOKED.
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COMMUNITY OFFERING ORDER FORMS SHOULD BE SENT
WITH THE PAYMENT TO THE SUBSCRIPTION AGENT. DO
NOT SEND COMMUNITY OFFERING ORDER FORMS TO THE
COMPANY. THE COMPANY RESERVES THE RIGHT TO
REJECT SUBSCRIPTIONS RECEIVED IN WHOLE OR IN
PART AT THE SOLE DISCRETION OF THE COMPANY OR
AT THE REQUEST OR DIRECTION OF REGULATORY
AUTHORITIES. See "The Offering -- Subscription
Procedure" and "The Offering -- No Revocation."
Payments will be held in a segregated
noninterest bearing account maintained with the
Escrow Agent pending the issuance of
certificates representing the Shares purchased
or the return of the payment which will be made
without interest.
THE SALE OF SHARES IN THE COMMUNITY OFFERING IS
CONDITIONED UPON ALL OF THE SHARES BEING SOLD
AND TO THE CONSUMMATION OF THE OTHER
TRANSACTIONS PURSUANT TO THE RECAPITALIZATION.
SEE "THE RECAPITALIZATION."
STANDBY PURCHASE
AGREEMENTS . . . . . . . . . . The Company has entered into standby purchase
agreements (the "Standby Purchase Agreements"),
pursuant to which, subject to certain
conditions, standby purchasers (the "Standby
Purchasers") have severally agreed to acquire
from the Company, at the Subscription Price, up
to _______ Shares, if available after the
Rights Offering and the Community Offering.
Pursuant to such agreements, the Company has
agreed to sell, and the Standby Purchasers have
agreed to purchase, a minimum of __________
Shares (the "Minimum Standby Purchase
Commitment") at the Subscription Price. See
"Standby Purchase Agreements."
STOCK PURCHASE LIMITATIONS . . THE COMPANY HAS SUBSTANTIAL NET OPERATING LOSS
CARRYFORWARDS FOR FEDERAL TAX PURPOSES. IN
ORDER TO REDUCE THE LIKELIHOOD THAT THERE WILL
BE A REDUCTION IN THE AMOUNT OF SUCH
CARRYFORWARDS BY REASON OF AN "OWNERSHIP
CHANGE" AS DEFINED IN SECTION 382 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE
COMPANY AMENDED ITS RESTATED CERTIFICATE OF
INCORPORATION ON JUNE __, 1996 (THE "EFFECTIVE
DATE") TO PROVIDE THAT UNLESS OTHERWISE
APPROVED BY THE COMPANY'S BOARD OF DIRECTORS,
NO PERSON SHALL BECOME OR MAKE AN OFFER TO
BECOME THE BENEFICIAL OWNER OF FIVE PERCENT OR
MORE OF THE COMPANY'S VOTING STOCK FOR THREE
YEARS FROM THE EFFECTIVE DATE. Such amendment
further provides that holders of five percent
or more of the Company's outstanding voting
stock on the Effective Date will not be deemed
in violation of the provision; provided,
however, that if after the Effective Date, any
such five percent or more holder shall become
or make an offer to become the beneficial owner
of any additional shares of voting stock, such
person will be deemed to be in violation of the
amendment. In connection with the approval of
the amendment, the Board of Directors of the
Company approved the acquisition of Shares in
the Offering by stockholders of the Company
holding five percent or more of the Company's
voting stock on the Effective Date up to such
number of Shares as would cause such
stockholder to
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maintain his or her pre-Offering percentage
ownership interest in the Company following the
Offering. Except under certain circumstances
with respect to existing stockholders
beneficially owning five percent or more of
the Company's issued and outstanding Common
Stock, the Company does not anticipate
accepting any purchases of Common Stock in
the Offering that, when aggregated with any
other shares beneficially owned by such
purchaser, would equal or exceed five percent
of the Company's issued and outstanding
Common Stock upon completion of the Offering,
but reserves the right to do so. The Company's
Restated Certificate of Incorporation includes
certain other restrictions and limitations with
respect to the acquisition of the Company's
securities. See "The Offering -- Limitations
on Purchase of Stock" and "Description of
Capital Stock."
ISSUANCE OF COMMON
STOCK CERTIFICATES . . . . . . Separate certificates representing Shares
purchased will be delivered as soon as
practicable after the Expiration Date. See
"The Offering -- Subscription Procedure."
SUBSCRIPTION AGENT . . . . . . Chemical Mellon Shareholder Services, L.L.C.
SHARES OUTSTANDING
AFTER THE OFFERING . . . . . . Upon completion of the Offering, the Company is
expected to have approximately 1,357,861 shares
of Common Stock outstanding (based on 600,361
shares of Common Stock outstanding as of
May 31, 1996 and 7,500 shares of restricted
stock to be issued to certain executive
officers of the Company in connection with the
Offering). See "The Offering" and "Standby
Purchase Agreements."
PLAN OF DISTRIBUTION . . . . . The Company and First Albany Corporation
("First Albany" or the "Placement Agent") have
entered into an agreement pursuant to which
First Albany has been engaged to act as the
Company's financial advisor and as the
Company's Placement Agent in connection with
the Offering. It is anticipated that Shares
offered in the Community Offering will be
offered through broker-dealers engaged by the
Company pursuant to certain broker assistance
agreements entered into with the Company. The
Company has agreed, in connection with the
Offering, to pay certain fees to the Placement
Agent, to reimburse the Placement Agent for
certain legal and other expenses and to
indemnify the Placement Agent against certain
liabilities, including liabilities under the
Securities Act of 1933, as amended (the
"Securities Act"). The Rights Offering and the
Community Offering are made on a "best efforts"
basis and neither First Albany nor any of the
broker-dealers engaged by the Company will have
any obligation to purchase or accept any Shares
of Common Stock in the Offering. See "Plan of
Distribution."
INDICATIONS OF INTEREST. . . . Directors and officers of the Company have
advised the Company that they intend to
purchase an aggregate of _______ Shares,
pursuant to the Rights Offering and the
Community Offering. These individuals are
under no binding obligation with regard to such
indications of interest.
RISK FACTORS . . . . . . . . . A PURCHASE OF THE SHARES INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS."
NASDAQ SMALLCAP MARKET
SYMBOL FOR COMMON STOCK. . . . "FCME" (proposed)
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DIVIDENDS. . . . . . . . . . . It is not anticipated that the Company will
distribute any dividends to stockholders in the
foreseeable future. The Company is subject to
certain restrictions on its ability to pay
dividends, including those arising from the
Recapitalization Loan Agreement. The Company's
principal source of cash is from dividends from
the Bank, and certain restrictions also exist
regarding the ability of the Bank to transfer
funds to the Company. See "Market for Common
Stock and Dividends" and "Item 5. Market for
Registrant's Common Equity and Related
Stockholder Matters" of the Company's 1995
Form 10-K attached to this Prospectus as
Appendix A.
INFORMATION REGARDING
THE OFFERING . . . . . . . . . Questions regarding the Offering should be
directed to Dennis D. Byrd, Treasurer, First
Coastal Corporation, at (207) 774-5000 or John
H. Howland, Vice President, First Albany
Corporation, at (617) 228-3076
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<PAGE>
RISK FACTORS
An investment in the Common Stock involves a significant degree of risk.
In determining whether to make an investment in the Common Stock, prospective
investors should consider carefully all of the information set forth in this
Prospectus, including the following factors.
POSSIBLE INABILITY TO SERVICE DEBT AND PAY OPERATING EXPENSES
Under the terms of the Recapitalization Loan Agreement, the Company will be
required to make quarterly interest payments, initially equal to $108,500.
Beginning June 30, 1998, the Company will be required to make semi-annual
principal payments of $200,000. In addition, the Company estimates that its
other operating expenses at the holding company level will be approximately
$125,000 on an annual basis for the foreseeable future, although unforeseen
events could cause such expenses to be higher. At March 31, 1996, the Company
had approximately $47,000 in cash at the holding company level. After giving
effect to the Offering and the other transactions pursuant to the
Recapitalization, the Company estimates that it will have approximately $600,000
in cash at the holding company level to pay its operating expenses and to
service debt. Since the Company has no sources of income other than dividends
from the Bank, the Company will be dependent upon the payment of dividends by
the Bank to make debt service payments and to pay future operating expenses.
The payment of dividends by the Bank to the Company is subject to the
approval of the FDIC and the Bureau of Banking of the State of Maine (the "Maine
Bureau of Banking"), as set forth in the Memorandum of Understanding among such
parties effective November 22, 1994, as well as to various restrictions set
forth in the Recapitalization Loan Agreement and arising under Maine corporate
law. Maine corporate law generally provides that dividends may only be paid out
of unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. At March 31, 1996, the Bank had a retained earnings deficit of
$6.2 million, and therefore any dividends to be paid by the Bank to the Company
for the foreseeable future will be paid from unreserved and unrestricted net
earnings of the Bank for the current fiscal year and the next preceding fiscal
year taken as a single period. Maine banking law also imposes certain
restrictions, including the requirement that the Bank establish and maintain
adequate levels of capital as set forth in rules adopted by the Maine Bureau of
Banking. While the Company currently anticipates that earnings from the Bank
will be sufficient to enable the Bank to pay dividends to the Company in an
amount that will enable the Company to satisfy the debt service requirements on
the Recapitalization Loan and its operating expenses, there can be no assurance
that the Bank's earnings will be sufficient to satisfy such requirements or that
the Bank will receive the necessary regulatory approvals to pay such dividends
to the Company. SINCE THE RECAPITALIZATION LOAN IS SECURED BY 100% OF THE
OUTSTANDING COMMON STOCK OF THE BANK, THE FAILURE BY THE COMPANY TO MAKE
PRINCIPAL AND INTEREST PAYMENTS AS REQUIRED UNDER THE RECAPITALIZATION LOAN
AGREEMENT WILL RESULT IN AN EVENT OF DEFAULT (AS DEFINED) UNDER THE
RECAPITALIZATION LOAN AGREEMENT AND COULD RESULT IN THE SALE OF THE BANK, WHICH
IS HELD AS COLLATERAL FOR THE RECAPITALIZATION LOAN, BY THE LENDERS. IN THAT
EVENT, THE COMPANY WOULD HAVE NO OPERATING BUSINESS AND NO SOURCE OF REVENUES
OTHER THAN ANY REMAINING PROCEEDS FROM THE DISPOSITION OF THE BANK.
ASSET QUALITY
The economic downturn and the sharp decline in real estate values which
accompanied the downturn during the late 1980s and early 1990s had a material
adverse effect on the quality of the Bank's loan portfolio and contributed to a
deterioration of the Bank's asset quality. As a result, the Bank's
nonperforming assets totaled $27.3 million, representing 12.7% of total assets,
at December 31, 1991. Since 1991, a primary focus has been the improvement of
the credit quality of the Bank's loan portfolio through the identification of
additional potential problem assets and the administration and workout of the
Bank's nonperforming and potential problem assets.
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<PAGE>
Nonperforming assets have declined to $3.6 million (or 2.46% of total assets)
at March 31, 1996, representing a decrease of 86.76% from the December 31, 1991
level.
For several years, the high levels of nonperforming assets required
increased provisions for loan losses, writedowns on real estate owned and loan
charge-offs, and had a significant adverse effect on the Bank's interest income
and operating expenses. While management expects the level of nonperforming
assets to continue to decline during 1996, such expectation is based on the
continued stabilization of the real estate market in the Bank's market areas and
the continuation in the trend of lower default rates on commercial real estate
loans, although there can be no assurance that such will be the case.
CONCENTRATION OF COMMERCIAL REAL ESTATE LOANS
At March 31, 1996, the Bank had approximately $49.3 million of commercial
real estate mortgage loans, representing 51.3% of total loans at such date,
comprised primarily of loans secured by apartment buildings, mixed use
commercial buildings, office buildings and other income-producing properties.
The Bank's concentration of commercial real estate assets (representing
commercial real estate loans and real estate owned) was 35.5% of total assets at
March 31, 1996. At March 31, 1996, the Bank also had approximately $2.3 million
of commercial business loans.
Banks with loans concentrated in commercial real estate are likely to be
adversely affected by problems in the real estate market or the economy in
general. Commercial real estate lending involves significant additional risks
as compared to one-to-four family residential mortgage lending, and typically
accounts for a disproportionate share of charge-offs, delinquent loans and real
estate owned through foreclosure or by deed in lieu of foreclosure. Such
lending generally involves larger loan balances (to a single borrower or groups
of related borrowers) than is involved with residential and other types of
lending, and repayment of the loan is likely to be more dependent on the
underlying business and financial condition of the borrower and the borrower's
tenants, and is more susceptible to adverse future developments. If the cash
flow from income producing property securing real estate loans is reduced (for
example, because leases are not obtained or renewed, or lease rates decline),
the borrower's ability to repay these loans may be materially impaired. These
risks can be significantly affected by considerations of supply and demand in
the market for multi-family, office, manufacturing and retail space and by
general economic conditions. Management does not expect either a significant
increase or decrease in the foreseeable future in the level of commercial real
estate assets as a percentage of total assets. The Bank's primary focus with
respect to loan portfolio growth is expected to come from various residential
lending programs.
DECLINE IN LOAN BALANCES
The Company's loan balances declined by $85.2 million between January 1,
1992 and March 31, 1996. This decline is largely the result of two factors:
(i) the Bank's financial difficulties during the period and (ii) the FDIC's
cross guaranty claim against the Bank. In addition, pursuant to the Order to
Cease and Desist issued by the FDIC and concurred with by the Maine Bureau of
Banking described below under "Federal and State Supervisory Matters," the Bank
was required to improve its ratio of Tier 1 capital to total assets to 6.0% by
December 31, 1993, from the December 31, 1991 level of 4.42%, with incremental
improvement required at six month intervals. To comply with the requirements of
the Order to Cease and Desist, management effected a strategy of selective
balance sheet shrinkage. Management also expended significant resources
addressing the cross guaranty claim and the settlement thereof and the Bank's
asset quality problems, which had an adverse impact on loan origination
activities.
Beginning in mid-1995, the Bank undertook to expand its residential and
consumer lending capabilities, and has subsequently experienced a significant
increase in new loan originations. If the Bank's efforts to increase loan
originations are not successful, and if the Bank experiences further declines in
its loan balances, or if as a result of competitive pressures or other factors,
the yield on
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<PAGE>
new loan originations is lower than anticipated, such declines in loan balances
or the yield on new loan originations could have an adverse impact on the Bank's
ability to generate income and on the ability of the Company to make debt
service payments under the Recapitalization Loan Agreement. See "-- Possible
Inability to Service Debt and Pay Operating Expenses."
FEDERAL AND STATE SUPERVISORY MATTERS
In order to address concerns arising from the FDIC's examination of the
Bank in 1991, the Bank consented effective January 23, 1992 to an Order to Cease
and Desist (the "Order") issued by the FDIC and concurred with by the Maine
Bureau of Banking, which Order was terminated effective December 8, 1994 and
replaced with a Memorandum of Understanding effective November 22, 1994 (the
"Memorandum of Understanding"). The Memorandum of Understanding provides, among
other things, that (i) the Bank continue to maintain its allowance for loan and
lease losses in accordance with applicable regulatory requirements, (ii) the
Board of Directors of the Bank continue to review the adequacy of the Bank's
loan and lease loss reserves and provide for adequate reserves, (iii) the Bank
continue to have Tier 1 capital at or in excess of 6% of the Bank's total
assets, (iv) the Bank continue to comply with the FDIC's Statement of Policy on
Risk-Based Capital, (v) the Bank provide monthly progress reports regarding
substandard or doubtful assets, (vi) the Bank agree not to extend or renew
credit to, or for the benefit of, any borrower who or which has a loan or other
extension of credit with the Bank that has been charged-off or classified in
whole or in part, loss, doubtful or substandard and is uncollected unless
certain conditions are met, (vii) the Bank not declare or pay any dividends
without the prior written consent of the FDIC and the Maine Bureau of Banking
and (viii) the Bank continue to furnish written progress reports detailing the
form and manner of any action taken to seek to secure compliance with the
Memorandum of Understanding.
The Board of Governors of the Federal Reserve System (the "Federal
Reserve") has adopted a leverage-based capital requirement for bank holding
companies with a composite rating of 1 under the bank holding company rating
system of a minimum level of tier 1 capital to total assets of 3.0%. All other
bank holding companies or bank subsidiaries of bank holding companies are
required to maintain a minimum ratio of tier 1 capital to total assets of 4.0%
to 5.0%. Under the Federal Reserve's risk-based capital guidelines, bank
holding companies or banks also are required to maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.0%. The guidelines apply
on a consolidated basis to bank holding companies with consolidated assets of
$150.0 million or more. For bank holding companies which have less than
$150.0 million in consolidated assets, as did the Company for each of the
quarters ended March 31, 1995, June 30, 1995, September 30, 1995, December 31,
1995 and March 31, 1996, the guidelines are applied on a bank-only basis (as
opposed to a consolidated basis) unless (i) the parent bank holding company is
engaged in nonbank activity involving significant leverage or (ii) the parent
company has a significant amount of debt that is held by the general public.
The Federal Reserve's capital adequacy guidelines provide that "debt held by the
general public" is debt held by parties other than financial institutions,
officers, directors, and controlling stockholders of the banking organization or
their related interests. Neither the FDIC Note nor the Recapitalization Loan is
considered to be "debt held by the general public" for purposes of such capital
guidelines. As a result, applied on a bank-only basis, the Company's ratios of
tier 1 capital to total assets, tier 1 capital to risk-weighted assets and
qualifying total capital to risk-weighted assets of 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996, were in compliance with such guidelines. If
the Company were required as of March 31, 1996 to calculate its ratios of tier 1
capital to total assets, tier 1 capital to risk-weighted assets and qualifying
total capital to risk-weighted assets on a consolidated basis, such ratios would
be 2.90%, 4.68% and 5.95%, respectively.
In light of the Company's financial performance, including the high level
of nonperforming assets and the impact of the FDIC cross guaranty claim during
the past several years, the Company and the Bank will likely continue to be
subject to heightened scrutiny by supervisory authorities and may continue to be
monitored and reviewed more frequently than institutions which may be considered
by regulatory authorities to be in better condition. The Company's most recent
examination by the Federal Reserve was completed October 1995 and the Bank's
most
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recent examinations by the FDIC and the Maine Bureau of Banking were completed
August 1995 and July 1995, respectively. See "Item 1. Business -- Regulation"
and Note A of "Item 8. Financial Statements and Supplementary Data" of the
Company's 1995 Form 10-K attached to this Prospectus as Appendix A and the
Company's March 1996 Form 10-Q attached to the Prospectus as Appendix B.
COMPETITIVE ENVIRONMENT
The Bank is a full service savings bank with seven banking offices in the
southern Maine communities of Brunswick, Freeport, Kennebunk, Saco, Topsham
and Westbrook. Competition among financial institutions in the Bank's
market area is intense and the Bank competes in obtaining funds and in
making loans with other state and national banks, savings and loan
associations, consumer financial companies, credit unions, and other
financial institutions which have far greater financial resources than
those available to the Bank. The Bank also faces competition for deposits
from money market funds and other securities funds offered by brokerage
firms and other similar financial institutions. As of June 30, 1995, a
total of approximately 45% of deposits in Maine are held by three large
financial institutions, two of which are wholly owned subsidiaries of
superregional bank holding companies with assets in excess of $50 billion
and one of which is a Maine-based savings bank with in-state assets in
excess of $2 billion. Competition among financial institutions is based
upon interest rates and other credit and service charges, the quality of
services rendered, the convenience of banking facilities and in the case of
loans to larger commercial borrowers, relative lending limits. For several
years, the Company has experienced a decline in deposit and loan balances.
While the Bank's deposit balances have stabilized in recent quarters, the
Bank's loan balances have continued to decline. If the Bank is unable to
compete in obtaining deposits and making loans effectively in its market
area, such inability would likely have an adverse effect on the Bank's
growth and profitability.
INTEREST RATE RISK
The Company's results of operations are derived almost entirely from the
operations of the Bank and are heavily dependent on its net interest income.
Net interest income is the difference between the interest income received on
interest-earning assets, including loans and securities, and the interest
expense incurred in connection with interest-bearing liabilities, including
deposits and borrowings. Net interest income can be significantly affected by
changes in market interest rates. The Company closely monitors its assets and
liabilities in an effort to reduce the effects of changes in interest rates
primarily by altering the mix and maturity of the Company's loans, investments
and funding sources. Although the Bank is positioned to benefit generally from
rising interest rate environments, a significant rate decrease could have an
adverse effect on the Company's net interest income by decreasing the spread
between the rates earned on assets and paid on liabilities.
Changes in interest rates also affect the volume of loans originated by the
Bank, as well as the value of its loans and other interest-earning assets,
including investment securities. In addition, changes in interest rates may
result in an increase in higher cost deposit products within the Bank's existing
portfolio, as well as a flow of funds away from bank accounts into direct
investments (such as U.S. Government and corporate securities, and other
investment instruments such as mutual funds) to the extent that the Bank does
not pay competitive rates of interest. The mix of the Bank's deposits has
varied from year to year, with higher cost time deposits increasing in 1995 as a
percentage of the Bank's total deposits. This trend is largely reflective of an
industry-wide trend, attributable to the continuing impact of deregulation on
the banking industry, as well as increased competition for funds from nonbank
competitors, including money market and stock mutual funds.
DEPENDENCE ON KEY PERSONNEL
The Bank's success is dependent to a large extent upon the continued
efforts and success of its Chief Executive Officer, its Chief Financial Officer,
and the other members of the Bank's senior management team who have primary
responsibility, among other things, for the successful
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implementation of the Company's strategic plan, the continued improvement of its
financial performance and the further improvement of the Bank's asset quality.
The loss of the services of any one of these officers could adversely affect the
operations of the Bank and the Company.
POSSIBLE LIMITATION OF TAX BENEFITS
At December 31, 1995, the Company had net operating loss carryforwards for
federal tax purposes of approximately $6.8 million, and approximately
$15.8 million on a pro forma basis assuming the consummation of the
Recapitalization. Section 382 of the Internal Revenue Code of 1986, as amended,
contains complex rules that place an annual limitation (the "section 382
limitation") on the amount of net operating losses that a corporation may
utilize after an "ownership change" (as defined). If an "ownership change"
occurs in connection with the Offering or in the future as a result of other
transactions, the section 382 limitation would be imposed on the amount of
taxable income against which net operating losses may be deducted by the
Company. The section 382 limitation is computed by multiplying the estimated
value of the Company immediately before the ownership change by the
then-applicable long-term tax exempt rate published by the Internal Revenue
Service ("IRS") for this purpose (the long-term tax exempt rate was 5.78% for
the month of June 1996, as set forth in the IRS tables). Thus, if the Company
and the Bank were to undergo an ownership change, the Company's section 382
limitation would be approximately $174,000, assuming the Common Stock has a fair
market value of $5.00 per share and using the IRS long-term tax exempt rate for
June 1996. In addition, assuming that the Company would have been able to use
its existing net operating loss carryforwards and the net operating loss
carryforward resulting from the payment of the $9.0 million FDIC Note, the
effect of the imposition of the section 382 limitation on the utilization of net
operating loss carryforwards after 1996 would be that approximately $9.9 million
of the Company's net operating loss carryforwards would expire unused,
decreasing future income after taxes by approximately $3.4 million. While the
Company has recently amended its Restated Certificate of Incorporation to limit
the acquisition of stock of the Company for a three year period in order to make
it more difficult for the Company to experience an ownership change, there can
be no assurance that such amendment will successfully protect the Company from
an ownership change. See "Description of Capital Stock" and Note M of "Item 8.
Financial Statements and Supplementary Data" of the Company's 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
PREVAILING ECONOMIC CONDITIONS
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
Excess real estate inventory, coupled with a general economic decline, adversely
affected the real estate markets in the Bank's market area in the late 1980s and
early 1990s and contributed to the deterioration in the Bank's asset quality
during such years. Poor economic conditions and depressed real estate markets
could adversely affect the financial condition and results of operations of the
Bank in the future. The economy of the Bank's market area is significantly
affected by certain large employers, and any significant reduction in the
operations of, or employment by, such employers could have an adverse impact on
the local economy and the Bank's financial condition.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND STATUTORY PROVISIONS
The Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws, as well as Delaware law, contain certain provisions that could
have the effect of making it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of the Company.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of the Company's Common Stock. Certain of such
provisions allow the
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Company to issue, without stockholder approval, preferred stock having rights
senior to those of the Common Stock. Other provisions impose various procedural
and other requirements that could make it more difficult for stockholders to
acquire the Company's Common Stock or to effect certain other corporate actions.
In addition, the Company's Board of Directors is divided into three classes,
each of which serves for a staggered three-year term, which may make it more
difficult for a third party to gain control of the Company's Board of Directors.
The Company has also recently amended its Restated Certificate of Incorporation
to prohibit, among other things, any person becoming or making an offer to
become the beneficial owner of five percent or more of the Company's voting
stock for three years from the Effective Date, unless otherwise approved by the
Board of Directors. See "Description of Capital Stock."
The Company and the Bank also are subject to regulation by several
government agencies, including the Federal Reserve, the FDIC and the Maine
Bureau of Banking, which implement and enforce statutory and regulatory
limitations on the acquisition of certain ownership interests in the Company and
the Bank. Such laws and the need to receive appropriate regulatory approvals in
connection with certain acquisitions could have the effect of discouraging
takeover attempts of the Company. See " Government Regulation" below and "Item
1. Business -- Regulation" of the Company's 1995 Form 10-K attached to this
Prospectus as Appendix A.
DIVIDEND LIMITATIONS
It is not anticipated that the Company will distribute any dividends to
stockholders in the foreseeable future. The Company is subject to certain
restrictions on its ability to pay dividends, including those arising from the
Recapitalization Loan Agreement and from Delaware law which provides that
dividends may be paid by a corporation out of its surplus or, in the event there
is no surplus, out of its net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year. At March 31, 1996, the Company
had a retained earnings deficit of $25.8 million. The Company's principal
source of cash is from dividends from the Bank, and certain regulatory
restrictions also exist regarding the ability of the Bank to transfer funds to
the Company. See "Market for Common Stock and Dividends" and Note J of "Item 8.
Financial Statements and Supplementary Data" of the Company's 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company's Board of Directors,
with the assistance of First Albany, as the Company's financial advisor. In
setting the price, various factors deemed relevant were analyzed and considered
by the Company and First Albany, including, without limitation, the terms of the
Offering and the Recapitalization, the Company's consolidated book value and
earnings in recent years, the stock prices of comparable bank holding companies
and commercial banks relative to their respective book values and earnings, the
Company's position in its industry and its future prospects, and general market
conditions for the sale of the Company's securities. To the extent there is a
market for the Common Stock after completion of the Offering, there can be no
assurance that the market price will equal or exceed the Subscription Price.
NO ESTABLISHED MARKET
The Common Stock is traded in the over-the-counter market in the "pink
sheets," although such trades are limited and sporadic and there is no
established public trading market for the Common Stock. There can be no
assurance that an established public market will develop for such securities
upon completion of the Offering or whether substantial trading activity will
occur in the future. While application has been made for the listing of the
Common Stock on The Nasdaq SmallCap Market and First Albany and Livada
Securities, Inc. have indicated that they intend to make a market in the Common
Stock following the Offering, there can be no
-23-
<PAGE>
assurance that the Common Stock will be listed on The Nasdaq SmallCap Market or
any securities exchange or that any organized public market for the securities
will develop or that there will be any private demand for the Common Stock. In
addition, even if the Company successfully lists the Common Stock on The Nasdaq
SmallCap Market, there can be no assurance that the Company will continue to
meet the requirements for continued inclusion, such as the requirement relating
to the minimum number of market makers and the requirement relating to the
minimum bid price of the Common Stock. The liquidity of the Common Stock
depends upon the presence in the marketplace of willing buyers and sellers, a
fact over which neither the Company nor any market maker has control, and may be
limited by other factors, including the beneficial ownership limitations imposed
on the Common Stock. In addition, the Common Stock may not be accepted as
collateral for loans, or if accepted, its value may be substantially discounted.
As a result, investors should purchase the Common Stock as a long-term
investment and should be prepared to bear the economic risk of their investment
for an indefinite period. Investors who may need or wish to dispose of all or a
part of their investment in the Common Stock may not be able to do so except by
private, direct negotiations with third parties.
GOVERNMENT REGULATION
The Company and the Bank operate in a highly regulated environment and are
subject to supervision by several governmental regulatory agencies, including
the Federal Reserve, the FDIC and the Maine Bureau of Banking. Changes in
governmental economic and monetary policy not only can affect the ability of the
Bank to attract deposits and make loans, but can also affect the demand for
business and personal lending and for real estate mortgages. Government
regulations affect virtually all areas of the operations of the Company and the
Bank, including their range of permissible activities, products and services,
the geographic locations in which such services can be offered, the amount of
capital required to be maintained to support operations, the right to pay
dividends and the amount which the Bank can pay to obtain deposits. See "Item
1. Business -- Regulation" of the Company's 1995 Form 10-K attached to this
Prospectus as Appendix A.
ENVIRONMENTAL LIABILITIES
In the course of its business, the Bank has acquired, and may in the future
acquire through foreclosure, properties securing loans it has originated or
purchased which are in default. With respect to the Bank's real estate owned,
there is a risk that hazardous substances or wastes, contaminants or pollutants
could be discovered on such properties after acquisition by the Bank. In such
event, the Bank might be required to remove such substances from the affected
properties at its sole cost and expense. There can be no assurance that the
cost of such removal would not substantially exceed the value of the affected
properties or the loans secured by the properties, that the Bank would have
adequate remedies against the prior owner or other responsible parties or that
the Bank would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
DILUTION TO CURRENT STOCKHOLDERS
Current stockholders of the Company will experience a dilution of their
proportionate voting rights upon the issuance of the Shares pursuant to the
Offering, even if such stockholder exercises his or her Stockholder Subscription
Privilege in full. Additionally, all current stockholders will experience a
dilution in the per share tangible book value of the shares of Common Stock
currently held by them as a result of the sale of Shares of Common Stock at less
than tangible book value per share in the Offering. The Subscription Price of
$_____ will be less than book value at the time of purchase. At March 31, 1996,
the Company's book value was $7.11 per share. On a pro forma basis, after
giving effect to the Offering at such date, the Company's book value was $5.76
per share.
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<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering to the Company are estimated to be
approximately $3.2 million after deducting estimated commissions and other fees
and expenses payable by the Company. The Company intends to use the proceeds
from the Offering, together with the funds derived from the Bank Dividend and
the Recapitalization Loan, to satisfy in full the obligations of the Company
under the FDIC Note. At June 30, 1996, the outstanding principal and accrued
interest under the FDIC Note will be approximately $9.7 million. See "The
Recapitalization," Note A of "Item 8. Financial Statements and Supplementary
Data" of the Company's 1995 Form 10-K attached to this Prospectus as Appendix A
and the Company's March 1996 Form 10-Q attached to this Prospectus as
Appendix B.
The following table sets forth the sources of funds in connection with the
repayment of the FDIC Note and the amount due to the FDIC under the Note.
SOURCES OF FUNDS (a):
Net Proceeds from the Offering. . . . . . . . $ 3,185,000
Bank Dividend . . . . . . . . . . . . . . . . 3,200,000
Net Proceeds from the Recapitalization Loan . 3,895,000
-----------
$10,280,000
-----------
-----------
USES OF FUNDS (a):
Principal Amount of FDIC Note (b) . . . . . . $ 9,000,000
Accrued Interest under FDIC Note. . . . . . . 714,000
Addition to Company Working Capital . . . . . 566,000
-----------
$10,280,000
------------
------------
- ------------------
(a) The table assumes that the Offering and the other transactions pursuant to
the Recapitalization will be consummated on June 30, 1996. The additional
funds necessary to pay interest accrued under the FDIC Note between June
30, 1996 through and including the date on which the Recapitalization is
actually consummated are expected to be derived from the Company's excess
working capital. See "Pro Forma Financial Data" and "The Offering."
(b) The FDIC Note bears interest (i) at a rate per annum equal to 5% from
January 31, 1995 through February 1, 1996 and (ii) at a rate per annum
equal to 6.5% thereafter (compounded quarterly) to and including the
earlier of (x) the date on which the FDIC receives payment of the unpaid
principal amount and accrued interest in full or (y) the day prior to the
"maturity date." The "maturity date" is January 31, 1997, subject to
extension up until July 31, 1997 under certain limited circumstances.
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<PAGE>
THE RECAPITALIZATION
On January 31, 1995, the Company, the Bank and the FDIC consummated the
Amended and Restated Settlement Agreement, pursuant to which the Company issued
to the FDIC the Note in the principal amount of $9.0 million in consideration of
the waiver and release of the cross guaranty claim. See Note A of "Item 8.
Financial Statements and Supplementary Data" of the Company's 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
In order to satisfy in full the obligations of the Company under the FDIC
Note (which at June 30, 1996 will be approximately $9.7 million, including
accrued interest), the Company intends to consummate the following transactions,
each of which is conditioned upon the consummation of the others and all of
which are expected to close simultaneously. See "Use of Proceeds."
THE OFFERING
As part of the Recapitalization, the Company intends to sell the 750,000
shares of Common Stock offered hereby at the Subscription Price equal to $_____
per share. The Offering consists of (i) a Rights Offering of up to _________
Shares to Record Date Holders in proportion to their respective ownership
interest in the Common Stock, (ii) a Community Offering to members of the
general public to whom a copy of this Prospectus is delivered, subject to the
prior rights of Record Date Holders in the Rights Offering and the prior rights
of Standby Purchasers with respect to the Minimum Standby Purchase Commitment,
and (iii) the sale of Shares to Standby Purchasers who have severally agreed to
acquire from the Company, at the Subscription Price, (a) up to _______ Shares,
if available after the exercise of the Stockholder Subscription Privilege and
the Community Offering and (b) a minimum of ________ Shares pursuant to the
Minimum Standby Purchase Commitment, which the Company has agreed to sell and
the Standby Purchasers have agreed to purchase. The Offering is conditioned
upon all of the Shares being sold and to the consummation of the other
transactions pursuant to the Recapitalization.
The net proceeds to the Company from the Offering are estimated to be
approximately $3.2 million after deducting estimated commissions and other fees
and expenses payable by the Company.
BANK DIVIDEND
In connection with the Recapitalization, the Bank will pay a dividend in
the amount of $3.2 million to the Company. Under the terms of the Memorandum of
Understanding effective November 22, 1994, the payment of the Bank Dividend is
subject to the approval of the FDIC and the Maine Bureau of Banking. The
Company has received written confirmation from the Maine Bureau of Banking that
it has approved, and from the FDIC that it will not object to, the payment of
the Bank Dividend, subject to the following conditions: (i) the Bank must have
a Tier 1 capital to total assets ratio of not less than 7.25% as of the last day
of the month preceding consummation of the Recapitalization and assuming the
Recapitalization had been consummated as of that date, and (ii) there have been
no significant adverse changes, as determined by the Maine Bureau of Banking and
the FDIC in their sole discretion, in the financial condition, management or
future prospects of the Company or the Bank since December 31, 1995. In
addition, the Company will be required to enter into an agreement with the Maine
Bureau of Banking providing that the Company will not, without the prior
approval of the Maine Bureau of Banking, pay cash dividends to its stockholders
as long as the Company's debt-to-equity ratio on a parent-only basis is above
25%. As of the date of this Prospectus, the Company has no reason to believe
that the foregoing conditions will not be satisfied in connection with the
consummation of the Recapitalization.
The Amended and Restated Settlement Agreement prohibits the payment of
dividends by the Bank, except as necessary to pay the operating expenses of the
Company as approved from time to time by the FDIC and the Maine Bureau of
Banking. The Amended and Restated Settlement
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<PAGE>
Agreement further provides that operating expenses of the Company shall not
include any amounts for accrued interest on the FDIC Note. The FDIC has further
advised the Company that it will waive the dividend restriction set forth in the
Amended and Restated Settlement Agreement, provided that all regulatory
approvals have been received and the full payment of the Company's obligations
under the FDIC Note are made contemporaneously with the payment of the Bank
Dividend.
RECAPITALIZATION LOAN
The Company will enter into the Recapitalization Loan Agreement in
connection with the consummation of the Recapitalization pursuant to which the
Company will borrow $4.0 million from the Lenders, and will pledge 100% of the
outstanding common stock of the Bank in order to secure such loan. The
Recapitalization Loan will bear interest at the rate of 10.85% per annum payable
quarterly, in arrears, commencing on the last day of each calendar quarter
following the consummation of the Recapitalization. Beginning June 30, 1998,
and semi-annually thereafter, principal payments in the amount of $200,000 each
are due, with the entire remaining principal balance and accrued and unpaid
interest thereon due at the maturity date of December 31, 2001. The
Recapitalization Loan Agreement does not provide for any forbearance with
respect to the payment of principal or interest, and the Recapitalization Loan
will be senior to all existing and future indebtedness of the Company. Under
the terms of the Recapitalization Loan Agreement, the Company will incur a
prepayment penalty during the first three years as follows: a five percent
prepayment penalty during the first year of the Recapitalization Loan; a four
percent prepayment penalty during the second year of the Recapitalization Loan;
and a three percent prepayment penalty during the third year of the
Recapitalization Loan.
The Recapitalization Loan Agreement contains certain covenants restricting
the amount of borrowings that may be incurred by the Company and the Bank,
restricting the conditions under which cash dividends may be paid by the
Company, including prohibiting the payment of cash dividends if the Company's
debt-to-equity ratio on a parent-only basis is greater than 30%, requiring the
maintenance of certain minimum capital ratios by the Company and the Bank and
providing for the repayment of the Recapitalization Loan in connection with
certain mergers, sales of assets or other similar extraordinary corporate
transactions. The Recapitalization Loan Agreement also contains certain
customary events of default, including non-payment when due, breach of
covenants, breach of other material agreements or instruments, material
undischarged judgments and bankruptcy or insolvency.
REPAYMENT OF FDIC NOTE AND RELEASE OF COLLATERAL
The Company will pay the FDIC all outstanding principal and accrued
interest under the FDIC Note, satisfying in full the Company's obligations
thereunder and under the Amended and Restated Settlement Agreement, which by its
terms will terminate effective upon such payment. Concurrently with such
payment, the FDIC Note will be surrendered to the Company together with the
certificates representing 100% of the outstanding common stock of the Bank which
had secured the Company's obligations under the FDIC Note. The Company will
pledge such shares of Bank common stock to the Lenders in order to secure the
Company's obligations under the Recapitalization Loan.
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<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
As of March 31, 1996, the Company had approximately 1,575 holders of record
and 600,361 outstanding shares of Common Stock. The Common Stock is traded in
the over-the counter market in the "pink sheets," although such trades are
limited and sporadic and there is no established public trading market for the
Common Stock.
For the periods reported below, the following table sets forth the range
of high and low closing bid prices for the Common Stock on the OTC Bulletin
Board as reported by NASDAQ Trading and Market Services. Such quotations
represent prices between dealers without adjustment for retail markups,
markdowns or commissions and may not necessarily represent actual
transactions. Information prior to May 31, 1995 has been adjusted to reflect
the one for ten reverse stock split with respect to the Company's outstanding
Common Stock effective as of such date.
1994 HIGH LOW
First Quarter . . . . . . . . . . . . . . . . $ 1.50 $ 1.50
Second Quarter. . . . . . . . . . . . . . . . 0.10 0.10
Third Quarter . . . . . . . . . . . . . . . . -- --
Fourth Quarter. . . . . . . . . . . . . . . . 5.00 1.20
1995
First Quarter . . . . . . . . . . . . . . . . $ 5.00 $ 1.25
Second Quarter . . . . . . . . . . . . . . . 2.00 1.50
Third Quarter . . . . . . . . . . . . . . . . 2.50 1.50
Fourth Quarter. . . . . . . . . . . . . . . . 3.50 1.50
1996
First Quarter . . . . . . . . . . . . . . . . $ 5.00 $ 2.00
Second Quarter (through May 30, 1996) . . . . 5.00 2.00
While application has been made for the listing of the Common Stock on The
Nasdaq SmallCap Market under the symbol "FCME", there can be no assurance that
the Common Stock will be listed on The Nasdaq SmallCap Market or any securities
exchange or that any established public market for the securities will develop
or that there will be any private demand for the Common Stock. First Albany and
Livada Securities, Inc. have advised the Company that they intend to make a
market in the Common Stock following the Offering.
It is not anticipated that the Company will distribute any dividends to
stockholders in the foreseeable future. Earnings of the Bank, if any, are
expected to be retained by the Bank to enhance its capital or to be distributed
to the Company for the payment of its operating expenses. The Company is
subject to certain restrictions on its ability to pay dividends, including those
arising from the Recapitalization Loan Agreement. See "The Recapitalization --
Recapitalization Loan." The Company's principal source of cash is from
dividends from the Bank, and certain restrictions also exist regarding the
ability of the Bank to transfer funds to the Company. The Memorandum of
Understanding, effective November 22, 1994, provides that the Bank may not
declare any dividends without the prior written consent of the FDIC and the
Maine Bureau of Banking. There are certain additional restrictions on the
ability of the Company to pay dividends and on the ability of the Bank to
transfer funds to the Company. On November 30, 1994, November 13, 1995 and May
3, 1996, following the receipt of appropriate regulatory approvals, the Bank
paid the Company cash dividends of $175,000, $200,000 and $200,000,
respectively, for certain current and anticipated operating
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<PAGE>
expenses of the Company. See Note J of "Item 8. Financial Statements and
Supplementary Data" of the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of March 31, 1996 and as adjusted to give effect to the Kezar
Falls Branch Sale and the Recapitalization. This table should be read in
conjunction with "Selected Consolidated Financial Information and Other Data,"
"Selected Quarterly Financial and Other Data," "Pro Forma Financial Data," "The
Recapitalization," "Use of Proceeds" and the Company's consolidated financial
statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
AS ADJUSTED FOR
THE KEZAR FALLS
BRANCH SALE AND
ACTUAL THE RECAPITALIZATION (a)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM BORROWINGS:
FDIC Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000 $ --
Advances from Federal Home Loan Bank. . . . . . . . . . . . . . . . . . . . 6,000 6,000
Recapitalization Note . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4,000
------- ------
Total long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 15,000 10,000
------- ------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value, 1,000,000 shares authorized;
none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock, $1.00 par value, 6,700,000 shares authorized
and 600,361 shares issued and outstanding prior to the
Recapitalization and 1,357,861 shares issued and outstanding
after the Recapitalization (b). . . . . . . . . . . . . . . . . . . . . . 600 1,358
Additional paid-in capital (a). . . . . . . . . . . . . . . . . . . . . . . 29,375 31,840
Retained earnings (deficit) (c) . . . . . . . . . . . . . . . . . . . . . . (25,679) (25,351)
Unrealized (loss) on available for sale securities. . . . . . . . . . . . . (25) (25)
------- ------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 4,271 7,822
------- ------
Total capitalization. . . . . . . . . . . . . . . . . . . . . . . $19,271 17,822
------- ------
</TABLE>
(a) Adjusted to reflect the deduction of $565,000 consisting of the estimated
commissions and other fees and expenses payable by the Company.
(b) Includes 7,500 shares of restricted stock to be issued to certain executive
officers of the Company pursuant to the Company's Stock Option and Equity
Incentive Plan in connection with the consummation of the Offering.
Excludes (i) 308 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1996, which the Company and the holder
of such options terminated as of May 30, 1996, and (ii) 46,500 shares of
Common Stock issuable upon exercise of stock options to be granted pursuant
to the Stock Option and Equity Incentive Plan in connection with the
consummation of the Offering. See "Description of Capital Stock." A total
of 130,000 shares of Common Stock have been reserved for issuance pursuant
to the exercise of stock options to be granted or in connection with stock
bonus awards to be made, under the Stock Option and Equity Incentive Plan.
(c) Retained earnings (deficit) is reduced by $366,000 resulting from the net
gain of the Kezar Falls Branch Sale on April 26, 1996 and is increased by
$38,000 resulting from the issuance of the 7,500 shares of restricted stock
pursuant to the Stock Option and Equity Incentive Plan in connection with
the consummation of the Offering.
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<PAGE>
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company's Board of Directors,
with the assistance of First Albany, as the Company's financial advisor. In
setting the Subscription Price, various factors deemed relevant were analyzed
and considered by the Company and First Albany, including, without limitation,
the terms of the Offering and the Recapitalization, the Company's consolidated
book value and earnings in recent years, the stock prices of comparable bank
holding companies and commercial banks relative to their respective book values
and earnings, the Company's position in its industry and its future prospects,
and general market conditions for the sale of the Company's securities. The
Subscription Price was determined in the absence of an established public
trading market for the Common Stock. To the extent there is a market for the
Common Stock after completion of the Offering, there can be no assurance that
the market price will equal or exceed the Subscription Price.
THE OFFERING
The Company is offering 750,000 shares of its Common Stock. Pursuant to
the Rights Offering, the Company is offering up to _______ shares of its Common
Stock to holders of record of Common Stock at the close of business on June __,
1996, pursuant to nontransferable rights to purchase shares of Common Stock at a
Subscription Price of $____ per share. Each Record Date Holder will receive one
Right for each ________ shares of Common Stock held of record on the Record
Date, and each Right will entitle the holder thereof to subscribe for one share
of Common Stock. The Company is concurrently offering Shares not subscribed for
in the Rights Offering or sold to Standby Purchasers as described below to
members of the general public to whom a copy of this Prospectus is delivered.
The Company has entered into Standby Purchase Agreements pursuant to which,
subject to certain conditions, Standby Purchasers have severally agreed to
acquire from the Company, at the Subscription Price, up to __________ Shares, if
available after the Rights Offering and the Community Offering. Pursuant to
such agreements, the Company has agreed to sell, and the Standby Purchasers have
agreed to purchase, a minimum of _______ Shares at the Subscription Price
pursuant to the Minimum Standby Purchase Commitment. ALL SUBSCRIPTIONS ARE
IRREVOCABLE. Payments received for Shares will be deposited by the Subscription
Agent in a noninterest bearing escrow account maintained with the Escrow Agent.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN THE OFFERING
IN WHOLE OR IN PART AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF THE
COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY AUTHORITIES.
THE RIGHTS OFFERING AND THE COMMUNITY OFFERING ARE MADE ON A "BEST EFFORTS"
BASIS AND ARE CONDITIONED UPON ALL OF THE SHARES BEING SOLD AND TO THE
CONSUMMATION OF THE OTHER TRANSACTIONS PURSUANT TO THE RECAPITALIZATION. SEE
"THE RECAPITALIZATION." THE OFFERING WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON
JULY __, 1996, SUBJECT TO EXTENSION BY THE COMPANY, IN ITS SOLE DISCRETION, FROM
TIME TO TIME THROUGH AUGUST __, 1996. AFTER THE EXPIRATION DATE, THE RIGHTS
WILL NO LONGER BE EXERCISABLE. IF THE OFFERING HAS NOT BEEN CONSUMMATED WITHIN
30 DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE TERMINATED BY THE
COMPANY AND ALL AMOUNTS SUBMITTED BY RECORD DATE HOLDERS AND COMMUNITY OFFERING
PARTICIPANTS WILL BE RETURNED WITHOUT INTEREST.
RIGHTS OFFERING
The Company is issuing Rights to each Record Date Holder as of the close of
business on the Record Date at no charge to such Record Date Holders. The
Company will issue one Right for each _______ shares of Common Stock held of
record on the Record Date. No fractional Rights will be issued. Instead, the
aggregate number of Rights issued by the Company to a stockholder will be
rounded up to the next whole number. Each Right will entitle the holder thereof
to subscribe for one
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<PAGE>
share of Common Stock. Each Record Date Holder is entitled to subscribe for
all, or any portion of, the Shares which may be acquired through the exercise of
his or her Rights.
COMMUNITY OFFERING
Concurrent with the Rights Offering, the Company is offering shares of
Common Stock to members of the general public to whom a copy of this Prospectus
is delivered, subject to the prior rights of Record Date Holders in the Rights
Offering and the prior rights of Standby Purchasers with respect to the Minimum
Standby Purchase Commitment. If the Shares not subscribed for in the Rights
Offering and not purchased by Standby Purchasers are not sufficient to satisfy
all orders received from Community Offering Participants, the Company reserves
the right to allocate such Shares among the Community Offering Participants.
Orders will be deemed received only upon receipt of both a properly completed
Community Offering Order Form and full payment for the Shares subscribed for as
described under "Subscription Procedure" below. Any excess funds paid by
persons as the Subscription Price for Shares not issued will be returned without
interest or deduction as soon as practicable following the Expiration Date.
There can be no assurance that any Shares will be available to persons desiring
to participate in the Community Offering. To subscribe for Shares in the
Community Offering, the Community Offering Order Form must be completed, and
payment in full of the Subscription Price for all Shares subscribed for must
accompany the Community Offering Order Form.
EXPIRATION DATE
The Offering will expire at 5:00 p.m., Eastern time, on July __, 1996,
subject to extension from time to time at the sole discretion of the Company.
After the Expiration Date, the Rights will no longer be exercisable. The
Company will not be obligated to honor any purported exercise of Rights or
Community Offering Order Forms received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to that exercise were
sent. The Company may extend the Expiration Date by giving oral or written
notice to the Subscription Agent on or before the Expiration Date, followed by a
press release no later than 9:00 a.m., Eastern time on the next business day
after the previously scheduled Expiration Date. The Offering will not be
extended to a time later than 5:00 p.m., Eastern time, on August __, 1996.
SUBSCRIPTION PRICE
The Subscription Price is $_____ per share.
SUBSCRIPTION PROCEDURE
Record Date Holders may exercise their Rights by delivering to the
Subscription Agent at the addresses specified below, at or prior to the
Expiration Date, properly completed and executed Rights Offering Order Forms
evidencing those Rights, together with payment in full of the Subscription Price
for each Share subscribed for pursuant to the Stockholder Subscription
Privilege. Community Offering Participants may subscribe for Shares by
delivering to the Subscription Agent, at the addresses specified below, at or
prior to the Expiration Date, properly completed and executed Community Offering
Order Forms, together with payment in full of the Subscription Price for each
Share subscribed for in the Community Offering.
Payment may be made to the Subscription Agent only (i) by check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, L.L.C., as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of receiving subscriptions at Mellon
Bank, N.A., Pittsburgh, Pennsylvania, ABA Number 043000261, Account Number 100-
2331 (Reorganization Account), Attn.: Evelyn O'Connor, Re: First Coastal
Offering. The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check,
(ii) receipt by the Subscription Agent of any certified check or
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<PAGE>
cashier's check drawn upon a U.S. bank or of any postal, telegraphic or express
money order or (iii) receipt of collected funds in the account designated above.
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR. ACCORDINGLY, RECORD DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS WHO
WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE
URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE
THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER,
IN THE ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY
ORDER OR WIRE TRANSFER OF FUNDS. All funds received in payment of the
Subscription Price will be deposited by the Subscription Agent in a noninterest
bearing account maintained with the Escrow Agent as directed by the Company.
The account in which such funds will be held may not be insured by the FDIC. No
interest will be earned on such funds and no interest will be paid to Record
Date Holders or Community Offering Participants, or otherwise applied to their
purchase of Shares.
The Rights Offering Order Forms and Community Offering Order Forms,
together with the payment of the Subscription Price, must be delivered to the
Subscription Agent as follows:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight
courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
The Company will pay the fees and expenses of the Subscription Agent and
the Escrow Agent and has also agreed to indemnify the Subscription Agent and the
Escrow Agent from certain liabilities which they may incur in connection with
the Offering.
If a Record Date Holder wishes to exercise Rights or a Community Offering
Participant wishes to subscribe for Shares, but time will not permit such Record
Date Holder or Community Offering Participant to cause the Rights Offering Order
Form or Community Offering Order Form to reach the Subscription Agent prior to
the Expiration Date, such Rights may nevertheless be exercised and such Shares
may nevertheless be subscribed for if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) the Record Date Holder or Community Offering Participant has caused
payment in full in good funds of the Subscription Price for each Share being
subscribed for to be received (in the manner set forth above) by the
Subscription Agent at or prior to the Expiration Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the
form provided with the Instructions as to Use of Rights Offering Order Form or
Community Offering Order Form distributed with the Rights Offering Order Form or
Community Offering Order Form, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or from a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Record
Date Holder or the name of the subscribing
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Community Offering Participant, the number of Shares being subscribed for by the
Record Date Holder or Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Rights Offering Order Form or
Community Offering Order Form within five (5) business days of the Subscription
Agent's receipt of such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Rights
Offering Order Form or Community Offering Order Form within five (5) business
days of the Subscription Agent's receipt of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Rights Offering Order Forms or
Community Offering Order Forms at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopier no.
(201) 296-4293). Additional copies of the form of Notice of Guaranteed Delivery
are available upon request from Dennis D. Byrd, Treasurer of the Company, or
from John H. Howland, Vice President of First Albany.
If an exercising Record Date Holder does not indicate the number of Rights
being exercised, or does not forward full payment of the aggregate Subscription
Price for the number of Rights that the Record Date Holder indicates are being
exercised, then the Record Date Holder will be deemed to have exercised the
Stockholder Subscription Privilege with respect to the maximum number of Rights
exercisable by the Record Date Holder that may be exercised for the aggregate
payment delivered by the Record Date Holder (subject to reduction to comply with
certain limitations on the purchase of the Company's Common Stock or the
conditions of the Offering). Any amount remaining after application of the
foregoing procedures shall be returned to the Record Date Holder promptly by
mail without interest or deduction.
If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community Offering
Participant does not specify the number of Shares subscribed for, then the
Community Offering Participant will be deemed to have subscribed for the number
of Shares which may be purchased by the full amount of the payment tendered
(subject to reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering). If the aggregate
Subscription Price paid by a Community Offering Participant exceeds the amount
necessary to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant will be
deemed to have subscribed for the number of Shares which may be purchased by the
full amount of the payment tendered (subject to reduction to comply with certain
limitations on the purchase of the Company's Common Stock or the conditions of
the Offering).
Record Date Holders who hold shares of Common Stock for the account of
others, such as brokers, trustees or depositories for securities, should contact
the respective beneficial owners of such shares as soon as possible to ascertain
those beneficial owners' intentions and to obtain instructions with respect to
their Rights. If a beneficial owner so instructs, the Record Date Holder of
that beneficial owner's Rights should complete appropriate Rights Offering Order
Forms and submit them to the Subscription Agent with the proper payment. In
addition, the beneficial owners of Rights through such a nominee holder should
contact the nominee holder and request the nominee holder to effect transactions
in accordance with the beneficial owners' instructions. If a beneficial owner
wishes to obtain a separate Rights Offering Order Form, he or she should contact
the nominee as soon as possible and request that a separate Rights Offering
Order Form be issued. A nominee may request any Rights Offering Order Form held
by it to be split into such smaller denominations as it wishes, provided that
the Rights Offering Order Form is received by the Subscription Agent, properly
endorsed, no later than 5:00 p.m., Eastern time, on July __, 1996.
The instructions accompanying the Rights Offering Order Forms and Community
Offering Order Forms should be read carefully and followed in detail. RIGHTS
OFFERING ORDER FORMS AND COMMUNITY OFFERING ORDER FORMS SHOULD BE SENT WITH
PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS OFFERING
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ORDER FORMS OR COMMUNITY OFFERING ORDER FORMS TO THE COMPANY OR THE ESCROW
AGENT.
THE METHOD OF DELIVERY OF RIGHTS OFFERING ORDER FORMS AND COMMUNITY
OFFERING ORDER FORMS AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION
AGENT WILL BE AT THE ELECTION AND RISK OF RECORD DATE HOLDERS AND COMMUNITY
OFFERING PARTICIPANTS. IF RIGHTS OFFERING ORDER FORMS AND COMMUNITY OFFERING
ORDER FORMS AND PAYMENTS ARE SENT BY MAIL, RECORD DATE HOLDERS AND COMMUNITY
OFFERING PARTICIPANTS ARE URGED TO SEND SUCH MATERIALS BY CERTIFIED MAIL AND ARE
URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE
SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE.
BECAUSE UNCERTIFIED CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, RECORD
DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS ARE URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights and submission of Community Offering Order Forms will be
determined by the Company, whose determinations will be final and binding. The
Company, in its sole discretion, may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine,
or reject the purported exercise of any Right and submission of any Community
Offering Order Form. Rights Offering Order Forms and Community Offering Order
Forms will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines, in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Rights Offering Order Forms or Community
Offering Order Forms or incur any liability for failure to give such
notification. The Company reserves the right to reject subscriptions received
in the Offering in whole or in part at the sole discretion of the Board of
Directors of the Company or at the request or direction of regulatory
authorities. See "-- Limitations on Purchase of Stock."
Certificates or order confirmations representing Shares purchased will be
delivered to Record Date Holders, Community Offering Participants and Standby
Purchasers as soon as practicable after the Expiration Date and after all
prorations and reductions contemplated by the terms of the Offering have been
effected. IF THE OFFERING HAS NOT BEEN CONSUMMATED WITHIN 30 DAYS FOLLOWING THE
EXPIRATION DATE, THE OFFERING WILL BE TERMINATED BY THE COMPANY AND ALL AMOUNTS
SUBMITTED BY RECORD DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS WILL BE
RETURNED WITHOUT INTEREST.
Any questions or requests for assistance concerning the method of
exercising Rights, submission of Rights Offering Order Forms or Community
Offering Order Forms or requests for additional copies of this Prospectus should
be directed to Dennis D. Byrd, Treasurer of the Company, at (207) 774-5000 or to
John H. Howland, Vice President of First Albany, at (617) 228-3076.
NO REVOCATION
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION AGENT FROM
RECORD DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS MAY NOT BE REVOKED.
LIMITATIONS ON PURCHASE OF STOCK
THE COMPANY HAS SUBSTANTIAL NET OPERATING LOSS CARRYFORWARDS FOR FEDERAL
TAX PURPOSES. IN ORDER TO REDUCE THE LIKELIHOOD THAT THERE WILL BE A REDUCTION
IN THE AMOUNT
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OF SUCH CARRYFORWARDS BY REASON OF AN "OWNERSHIP CHANGE" AS DEFINED IN SECTION
382 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE COMPANY AMENDED ITS
RESTATED CERTIFICATE OF INCORPORATION ON JUNE __, 1996 TO PROVIDE THAT UNLESS
OTHERWISE APPROVED BY THE COMPANY'S BOARD OF DIRECTORS, NO PERSON SHALL BECOME
OR MAKE AN OFFER TO BECOME THE BENEFICIAL OWNER OF FIVE PERCENT OR MORE OF THE
COMPANY'S VOTING STOCK FOR THREE YEARS FROM THE EFFECTIVE DATE. Such amendment
further provides that holders of five percent or more of the Company's
outstanding voting stock on the Effective Date will not be deemed in violation
of the provision; provided, however, that if after the Effective Date, any such
five percent or more holder shall become or make an offer to become the
beneficial owner of any additional shares of voting stock, such person will be
deemed to be in violation of the amendment. In connection with the approval of
the amendment, the Board of Directors of the Company approved the acquisition of
Shares in the Offering by stockholders of the Company holding five percent or
more of the Company's voting stock on the Effective Date up to such number of
Shares as would cause such stockholder to maintain his or her pre-Offering
percentage ownership interest in the Company following the Offering. Except
under certain circumstances with respect to existing stockholders
beneficially owning five percent or more of the Company's issued and
outstanding Common Stock, the Company does not anticipate accepting any
purchases of Common Stock in the Offering that, when aggregated with any
other shares beneficially owned by such purchaser, would equal or exceed five
percent of the Company's issued and outstanding Common Stock upon completion
of the Offering, but reserves the right to do so. The Company's Restated
Certificate of Incorporation includes certain other restrictions and
limitations with respect to the acquisition of the Company's securities. See
"Description of Capital Stock."
NO BOARD OR PLACEMENT AGENT RECOMMENDATION
While the Company's Board of Directors has determined that the
Recapitalization is in the best interests of the Company and its stockholders as
the means to facilitate the repayment in full of the FDIC Note, neither the
Board of Directors nor the Placement Agent is making any recommendation to
Record Date Holders, prospective Community Offering Participants or Standby
Purchasers regarding whether such persons should purchase the Shares. An
investment in the Common Stock must be made pursuant to each investor's
evaluation of his or her best interests.
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, the receipt and exercise of the
Stockholder Subscription Privilege should be treated as a non-taxable
distribution to Record Date Holders with respect to the Common Stock. A Record
Date Holder will have a zero basis in the Stockholder Subscription Privilege,
unless (i) either the Record Date Holder elects under Section 307 of the
Internal Revenue Code of 1986, as amended, to allocate a portion of his or her
basis in his or her existing Common Stock to the Stockholder Subscription
Privilege (based on the relative fair market value) or the fair market value of
the Stockholder Subscription Privilege at the time of distribution equals or
exceeds 15% of the fair market value of the Common Stock at that time, in which
case the allocation of basis (based upon relative fair market values) is
required, and (ii) the Record Date Holder exercises such Stockholder
Subscription Privilege.
Upon exercise of the Stockholder Subscription Privilege, a Record Date
Holder will not recognize gain or loss. The basis of each share of Common Stock
acquired upon exercising a Stockholder Subscription Privilege will equal the sum
of the Subscription Price and the basis, if any, in the Stockholder Subscription
Privilege exercised. The holding period for such Common Stock will begin the
date the Stockholder Subscription Privilege is exercised. No loss will be
recognized by a Record Date Holder who elects not to exercise a Stockholder
Subscription Privilege and allows it to lapse.
Record Date Holders who do not exercise their Stockholder Subscription
Privilege by the Expiration Date will not recognize any gain or loss, and no
adjustment will be made to the basis of their Common Stock.
Community Offering Participants who purchase Common Stock in the Community
Offering or Standby Purchasers will have a per share basis in such Shares equal
to the Subscription Price.
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BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, RECORD DATE HOLDERS,
COMMUNITY OFFERING PARTICIPANTS AND STANDBY PURCHASERS ARE ADVISED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THESE AND OTHER FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE DISTRIBUTION AND EXERCISE OF THE STOCKHOLDER SUBSCRIPTION
PRIVILEGE AND THE PURCHASE OF COMMON STOCK.
STANDBY PURCHASE AGREEMENTS
Prior to the commencement of the Rights Offering, the Company has entered
into Standby Purchase Agreements pursuant to which, subject to certain
conditions, certain institutional investors and other individuals have severally
agreed to acquire from the Company, at the Subscription Price, up to a maximum
of _______ Shares, if available after the Rights Offering and the Community
Offering. Pursuant to such agreements, the Company has agreed to sell, and the
Standby Purchasers have agreed to purchase, a minimum of _____ Shares at the
Subscription Price pursuant to the Minimum Standby Purchase Commitment.
Each Standby Purchase Agreement is subject to a maximum and a minimum
standby purchase commitment with respect to each Standby Purchaser. In the
event that the number of Shares remaining after the exercise of the Stockholder
Subscription Privilege and the Community Offering is less than the Standby
Purchasers' aggregate maximum standby purchase commitments, such Shares will
first be allocated among the Standby Purchasers in satisfaction of the Minimum
Standby Purchase Commitment and any remaining Shares will be allocated pro rata
among the Standby Purchasers according to their respective maximum standby
purchase commitments. The rights and obligations of the Company and the Standby
Purchasers pursuant to the Standby Purchase Agreements are subject to certain
customary conditions.
The Company and First Albany have entered into an agreement pursuant to
which First Albany has been engaged to act as the Company's financial advisor
and as the Company's Placement Agent in connection with the Offering. Pursuant
to such agreement, First Albany has acted as financial advisor to the Company in
connection with negotiating and finalizing the Standby Purchase Agreements. The
Company has agreed to pay First Albany a fee equal to 5.0% of the aggregate
gross proceeds raised in the Offering, including the gross proceeds from the
sale of Shares pursuant to the Standby Purchase Agreements, less 50% of certain
retainer fees previously paid to First Albany pursuant to the agreement. See
"Plan of Distribution."
The following table sets forth certain information relating to the Standby
Purchasers.
<TABLE>
<CAPTION>
STANDBY PURCHASERS
MINIMUM STANDBY
MAXIMUM COMMITMENT PURCHASE COMMITMENT
------------------------- -------------------------
STANDBY PURCHASER NO. OF SHARES AMOUNT NO. OF SHARES AMOUNT
- ----------------- ------------- ------ ------------- ------
<S> <C> <C> <C> <C>
$ $
----------- ------------ -------------- -----------
TOTAL. . . . . . . . . . $ $
----------- ------------ -------------- -----------
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
The Company has engaged First Albany to act as the Company's financial
advisor and as its Placement Agent in connection with the Offering pursuant to
an agreement executed between the Company and First Albany. In its capacity as
the Placement Agent, First Albany also has acted as financial advisor to the
Company in connection with identifying Standby Purchasers and negotiating and
finalizing the Standby Purchase Agreements. First Albany was engaged because of
its general experience in the financial services industry and because of its
experience in rights offerings by financial institutions. It is anticipated
that Shares offered in the Community Offering will be offered through broker-
dealers engaged by the Company pursuant to certain broker assistance agreements
entered into with the Company. The Rights Offering and the Community Offering
are made on a "best efforts" basis and neither First Albany nor any of the
broker-dealers engaged by the Company will be obligated to purchase any Shares.
The Company has agreed to pay First Albany a fee equal to 5.0% of the
aggregate gross proceeds raised in the Offering, including the gross proceeds
from the sale of Shares pursuant to the Standby Purchase Agreements, less 50% of
certain retainer fees previously paid to First Albany as described below. To
the extent that Shares are sold in the Community Offering by broker-dealers
engaged by the Company, such broker-dealers will receive commissions equal to
3.0% of the aggregate dollar amount of such sales, and First Albany's
compensation will be reduced so that the total compensation paid for such Shares
will equal 6.5% of the gross proceeds from the sale of such Shares. The Company
also has agreed to reimburse the Placement Agent for certain legal and other
expenses not to exceed $40,000 and to indemnify the Placement Agent against
certain liabilities, including liabilities under the Securities Act.
Other than the Placement Agent and the broker-dealers engaged by the
Company who assist in the sale of Shares in the Community Offering, the Company
has not employed any brokers, dealers or underwriters to solicit the exercise of
Rights in the Rights Offering or the sale of Shares to Standby Purchasers or in
the Community Offering and, except as described herein, no other commissions,
fees or discounts will be paid in connection with the Offering. Certain
employees of the Company may solicit responses in connection with the
Offering, but such employees will not receive any commissions or compensation
for such services other than their normal employment compensation.
First Albany is acting as financial advisor to the Company pursuant to an
engagement letter dated October 12, 1995, as amended March 6, 1996 and April 11,
1996. The agreement provides that the Company will pay First Albany an initial
retainer fee of $25,000 payable within 30 days of the execution of the letter
agreement and additional retainer fees of $25,000 payable on December 15, 1995,
March 15, 1996 and June 14, 1996 (collectively, the "Retainer Fees"). The fees
to be paid to First Albany in connection with the sale of Shares and the
consummation of the Offering as described above are reduced by an amount equal
to 50% of the aggregate of the Retainer Fees previously paid by the Company to
First Albany. In addition, in connection with the consummation of the
Recapitalization and in addition to the fees to be paid in connection with the
Offering, the Company will pay First Albany a placement fee equal to 1.0% of the
gross proceeds of the Recapitalization Loan and a financial advisory fee of
$20,000 in connection with the consummation of the Kezar Falls Branch Sale at
the time the Recapitalization is consummated. First Albany has also been
engaged by the Company to render an opinion as to the fairness of the Offering,
from a financial point of view, to the Company's stockholders, for which the
Company has agreed to pay First Albany a fee of $25,000.
Funds received by the Subscription Agent for the purpose of participating
in the Offering will be deposited by the Subscription Agent in a segregated
noninterest bearing account with the Escrow Agent pending final determination of
the issuance of the Shares. The Company will pay the fees and expenses of the
Subscription Agent and the Escrow Agent, and also has agreed to indemnify the
Subscription Agent and the Escrow Agent from certain liabilities in connection
with the Offering.
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This Offering is not effective within, or available to the residents of any
jurisdiction in which the offer or solicitation of an offer to buy the Shares
would violate the securities laws of such jurisdiction. Subscriptions from
residents of any such jurisdiction will not be accepted.
The directors and officers of the Company have advised the Company that
they intend to purchase an aggregate of ________ Shares for an aggregate
purchase price of $______, pursuant to the Rights Offering and the Community
Offering.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Company's
Restated Certificate of Incorporation and Amended and Restated Bylaws and by the
provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's authorized capital stock consists of 6,700,000 shares of
Common Stock, par value $1.00 per share, and 1,000,000 shares of Serial
Preferred Stock, par value $1.00 per share. As of March 31, 1996, 600,361
shares of Common Stock were issued and outstanding, held by approximately 1,575
stockholders of record, and as of March 31, 1996, there were outstanding options
to purchase 308 shares of Common Stock, which the Company and the holder thereof
terminated as of May 30, 1996. On May 2, 1996, the Company's Board of Directors
adopted the Stock Option and Equity Incentive Plan, which was approved by
stockholders on June 11, 1996, pursuant to which 130,000 shares of Common Stock
have been reserved for issuance pursuant to the exercise of stock options to be
granted, or in connection with stock bonus awards to be made in accordance with
the terms of such plan. As of the date of this Prospectus, the Company has
awarded 7,500 shares of restricted stock and granted options exercisable for
46,500 shares of Common Stock under the Stock Option and Equity Incentive Plan,
subject to the consummation of the Offering.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share with respect
to all matters that are to be voted on by stockholders generally, including the
election of directors. One-third of the shares entitled to vote, present in
person or by proxy, constitutes a quorum at a meeting of stockholders, and if a
quorum exists, action on a matter is taken if the votes cast favoring the action
exceed the votes cast opposing the action, except with respect to (i) certain
actions that, under Delaware law, must be approved by the affirmative vote of a
majority or more of outstanding shares entitled to vote (including, but not
limited to, amendment of the Company's Restated Certificate of Incorporation,
merger and disposition of substantially all property and assets) and
(ii) certain amendments to the Company's Restated Certificate of Incorporation
and Amended and Restated Bylaws as set forth therein and described below under
"-- Certain Charter and Statutory Provisions." Holders of Common Stock are
entitled to receive such cash dividends on an equal per share basis as may be
declared from time to time by the Board of Directors of the Company out of funds
legally available therefor. The Company has not paid dividends since 1990, and
the Company is subject to certain restrictions on its ability to pay dividends
in the future, including those arising under the Recapitalization Loan
Agreement. See "The Recapitalization" and "Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters" and Note J of "Item 8. Financial
Statements and Supplementary Data" of the Company's 1995 Form 10-K attached to
this Prospectus as Appendix A. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and all liquidation
preferences, if any, granted to holders of Serial Preferred Stock. No holder of
Common Stock has any preemptive right to subscribe for any of the Company's
securities, nor does any holder of Common Stock have conversion rights. The
rights, privileges, preferences and priorities of holders of the Common Stock
are subject to, and may be adversely affected by, the rights
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of the holders of shares of any series of Serial Preferred Stock that the
Company may designate and issue in the future.
SERIAL PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the Board of
Directors, from time to time and without further stockholder action, to provide
for the issuance of up to 1,000,000 shares of Serial Preferred Stock, in one or
more series, and to fix the relative rights and preferences of the shares,
including, without limitation, voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges. As of the date of
this Prospectus, the Board of Directors has not provided for the issuance of any
series of Serial Preferred Stock, and there are no agreements or understandings
for the issuance of any Serial Preferred Stock. Because of its broad discretion
with respect to the creation and issuance of Serial Preferred Stock without
stockholder approval, the Board of Directors could adversely affect the voting
power of the holders of Common Stock and, by issuing shares of Serial Preferred
Stock with certain voting, conversion and/or redemption rights, could discourage
any attempt to obtain control of the Company.
CERTAIN CHARTER AND STATUTORY PROVISIONS
CLASSIFIED BOARD; AMENDMENT OF CHARTER AND BYLAWS. The Company's Restated
Certificate of Incorporation provides for the division of the Board of Directors
into three classes of directors, serving staggered three-year terms. The
Company's Amended and Restated Bylaws permit stockholders to make nominations
for directors but only if such nominations are made pursuant to timely notice in
writing to the Company. To be timely, notice of stockholder nominations for
directors must be delivered in writing to the Secretary of the Company not less
than 30 days nor more than 90 days prior to the meeting of stockholders at which
such directors are to be elected, together with certain additional information
as specified in the Amended and Restated Bylaws. The Restated Certificate of
Incorporation further provides that the approval of at least two-thirds of the
entire Board of Directors at a duly constituted meeting called for such purpose
and the approval of the holders of at least two-thirds of the shares entitled to
vote thereon at a duly called annual or special meeting of stockholders are
necessary for the amendment of certain sections of the Restated Certificate of
Incorporation relating to election and classification of the Board of Directors;
limitation of certain liabilities of directors; adoption, alteration, amendment
or repeal of the Amended and Restated Bylaws; limitation on calling of special
meetings of stockholders; approval of acquisitions of control and offers to
acquire control; criteria for evaluation of certain offers by the Board of
Directors; anti-greenmail; and stockholders' action by unanimous written
consent. In addition, the approval of the holders of at least 80% of the shares
entitled to vote thereon at a duly called annual or special meeting of
stockholders is necessary for the amendment of certain sections of the Restated
Certificate of Incorporation relating to the vote requirements for approval of
certain business combinations and to the vote requirements for amendment of the
Restated Certificate of Incorporation. The Amended and Restated Bylaws provide
that the approval of at least two-thirds of the entire Board of Directors at a
duly constituted meeting called for such purpose and the approval of the holders
of at least two-thirds of the shares entitled to vote thereon at a duly
constituted meeting of stockholders called for such purpose are necessary for
the amendment of the Amended and Restated Bylaws. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of the Company.
BUSINESS COMBINATION PROVISIONS. The Company is subject to the provisions
of Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless prior to the date the stockholder became an interested
stockholder the board approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder
or unless one of two exceptions to the prohibitions are satisfied: (i) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
corporation's voting stock outstanding at the time the
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transaction commenced (excluding, for purposes of determining the number of
shares outstanding, shares owned by certain directors or certain employee stock
plans) or (ii) on or after the date the stockholder became an interested
stockholder, the business combination is approved by the board of directors and
authorized by the affirmative vote (and not by written consent) of at least two-
thirds of the outstanding voting stock excluding that stock owned by the
interested stockholder. A "business combination" includes a merger, asset sale
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who (other than the
corporation and any direct or indirect majority owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an affiliate
or associate, within three years prior, did own) 15% or more of the
corporation's outstanding voting stock.
In addition, the Restated Certificate of Incorporation provides that a
"business combination" with an "interested shareholder" must be approved by the
affirmative vote of at least 80% of the outstanding voting stock unless either
(a) the business combination is approved by a majority of the "continuing
directors" or (b) certain price and procedure requirements are satisfied.
Except for business combinations requiring such higher stockholder vote, any
merger or consolidation involving the Company must, as a condition to its
effectiveness, be approved by the affirmative vote of at least two-thirds of the
issued and outstanding shares of each class of capital stock of the Company. A
"business combination" includes a merger, asset sale or acquisition,
reclassification of securities, recapitalization or other transaction resulting
in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who (other than the Company or any subsidiary of the
Company), (i) together with affiliates and associates, directly or indirectly
beneficially owns 10% or more of the Company's outstanding voting stock, or
(ii) is an affiliate of the Company and, together with affiliates and
associates, within two years prior directly or indirectly beneficially owned 10%
or more of the Company's outstanding voting stock. A "continuing director" is a
member of the Board of Directors of the Company who is unaffiliated with the
interested shareholder and was a member of the Board of Directors prior to the
time that the interested shareholder (including any affiliate or associate
thereof) became an interested shareholder, and any successor of a continuing
director who is unaffiliated with the interested shareholder and is recommended
to succeed a continuing director by a majority of continuing directors then on
the Board of Directors.
The Restated Certificate of Incorporation requires the Board of Directors,
when evaluating a tender offer, merger or acquisition proposal, in connection
with the exercise of its judgment in determining the best interests of the
Company and its stockholders, to take into account all relevant factors,
including, without limitation, the economic effects of acceptance of such offer
on (i) depositors, borrowers and employees of the insured bank or institution
subsidiary or subsidiaries of the Company, and on the communities in which such
subsidiary or subsidiaries operate or are located, and (ii) the ability of such
subsidiary or subsidiaries to fulfill the objectives of an insured institution
under applicable federal and state statutes and regulations.
APPROVAL FOR CERTAIN STOCK ACQUISITIONS AND OFFERS TO ACQUIRE STOCK AND
ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE CONTROL PROVISIONS. The Company
has substantial net operating loss carryforwards for federal tax purposes. In
order to reduce the likelihood that there will be a reduction in the amount of
such carryforwards by reason of an "ownership change" as defined in Section 382
of the Internal Revenue Code of 1986, as amended, the Company amended its
Restated Certificate of Incorporation. The amendment provides that unless
otherwise approved by the Company's Board of Directors, no person shall become
or make an offer to become the beneficial owner of five percent or more of the
Company's voting stock (a "prohibited 5% owner") for three years from the
Effective Date. A person who is the beneficial owner of five percent or more of
the Company's outstanding voting stock on the Effective Date (an "existing 5%
owner") will not be deemed in violation of the provision; provided, however,
that if after the Effective Date, any existing 5% owner shall become or make an
offer to become the beneficial owner of any additional shares of the Company's
voting stock, then such person will be deemed to be a prohibited 5% owner if,
following the acquisition of such additional shares, such existing 5% owner is
or will be the beneficial owner of five percent or more of the Company's voting
stock. Such amendment further provides that no person will become a prohibited
5% owner as a result of an acquisition of shares of
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<PAGE>
voting stock by the Company which, by reducing the number of shares of the
Company's voting stock outstanding, increases the proportionate number of shares
of voting stock beneficially owned by such person to five percent or more of the
shares of the Company's voting stock then outstanding; provided, however, that
if a person becomes a beneficial owner of five percent or more of the Company's
voting stock then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the beneficial owner of
any additional shares of the Company's voting stock, then such person will be
deemed to be a prohibited 5% owner if such person is then the beneficial owner
of five percent or more of the voting stock then outstanding.
In the event that any person becomes a prohibited 5% owner in violation of
the amendment, such number of the shares of voting stock of which such person is
the beneficial owner, in excess of the number of shares of voting stock of which
such person might be the beneficial owner without becoming a prohibited 5%
owner, will be considered from and after the date such person becomes a
prohibited 5% owner to be "excess shares" for purposes of the amendment. Such
excess shares will thereafter no longer (i) be entitled to vote on any matter,
(ii) be entitled to take other stockholder action, (iii) be entitled to be
counted in determining the total number of outstanding shares for purposes of
any matter involving stockholder action, or (iv) be transferable, except with
the approval of the Company's Board of Directors or by an independent trustee
appointed by the Company's Board of Directors for the purpose of having such
excess shares sold on the open market or otherwise. The proceeds from the sale
by the trustee of such excess shares shall be paid (i) first, to the trustee in
an amount equal to the trustee's reasonable fees and expenses, (ii) second, to
the beneficial owner of such excess shares in an amount up to such owner's
federal income tax basis in such excess shares, and (iii) third, to the Company
as to any remaining balance.
Finally, the amendment provides that if the Company's Board of Directors
determines in good faith that a person who would otherwise be a prohibited 5%
owner has inadvertently become a prohibited 5% owner and such person ceases to
be the beneficial owner and disposes of a sufficient number of shares of the
Company's voting stock within the time fixed by the Company's Board of Directors
incident to the foregoing determination, so that such person would no longer be
a prohibited 5% owner, pending and upon such disposition of shares of voting
stock, such person will not be deemed a prohibited 5% owner for purposes of the
amendment unless and until such person subsequently becomes a prohibited 5%
owner.
In connection with the approval of the amendment, the Board of Directors of
the Company approved the acquisition of Shares in the Offering by stockholders
of the Company holding five percent or more of the Company's voting stock on the
Effective Date up to such number of Shares as would cause such stockholder to
maintain his or her pre-Offering percentage ownership interest in the Company
following the Offering.
The Restated Certificate of Incorporation of the Company provides that if
the Common Stock is then traded on a national securities exchange or quoted on
the NASD Automated Quotation System, no person shall make any offer to acquire
"control" of the Company unless such person has received the prior approval to
make such offer either (a) by obtaining approval of the Board of Directors of
the Company or (b) by obtaining all required federal and state regulatory
approvals and furnishing the Board of Directors of the Company a complete copy
of all notices and other documents filed by such person pursuant to applicable
federal and state law and regulations. "Control" means the sole or shared power
to vote or to direct the voting of, or to dispose or to direct the disposition
of, 10% or more of the voting stock of the Company.
The Restated Certificate of Incorporation also provides that no person
shall acquire control of the Company at any time unless such acquisition of
control has been approved (a) either (i) by the affirmative vote of at least
two-thirds of the outstanding voting stock at a duly constituted meeting of
stockholders called for such purpose or (ii) by at least two-thirds of the
entire Board of Directors at a duly constituted meeting called for such purpose
and (b) by all regulatory authorities required under
-41-
<PAGE>
applicable federal and state statutes and in the manner provided by all
applicable regulations adopted thereunder.
ANTI-GREENMAIL PROVISIONS. The Restated Certificate of Incorporation
prohibits the Company from purchasing any shares of the Company's voting stock
from any person that beneficially owns, directly or indirectly, five percent or
more of the Company's voting stock at a price exceeding the average closing
price or the mean of the bid and ask prices of a share of voting stock for the
20 trading days immediately preceding the date of execution of a definitive
agreement to purchase the voting stock, unless a majority of the Company's
disinterested stockholders approve the transaction. This restriction on
purchases by the Company does not apply to any offer to purchase shares of a
class of the Company's voting stock which is made on the same terms and
conditions to all holders of that class of voting stock or to any purchase of
stock owned by such a five-percent stockholder occurring more than two years
after such stockholder's last acquisition of the Company's stock.
LISTING
The Company has applied to have the Common Stock approved for quotation on
The Nasdaq SmallCap Market under the trading symbol "FCME".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
reports, proxy statements and other information can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered by this Prospectus.
As permitted by the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement.
For further information about the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the financial statements,
exhibits and schedules filed therewith. Copies of any contract or document
referred to in the Prospectus and filed as part of the Registration Statement
with the Commission may be obtained from the Commission at its principal office
in Washington, D.C. upon payment of the charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's 1995 Form 10-K attached as Appendix A to this Prospectus and
the Company's March 1996 Form 10-Q attached to this Prospectus as Appendix B,
are incorporated by reference in this Prospectus.
All other documents subsequently filed by the Company pursuant to Sections
13(a) or 15(d) of the Exchange Act since the year ended December 31, 1995 and
prior to the termination of the
-42-
<PAGE>
Offering of the Shares of Common Stock offered hereby, shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in the documents
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH
PERSON TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE FOREGOING DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS THERETO,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
DOCUMENTS THAT THIS PROSPECTUS INCORPORATES). REQUESTS FOR COPIES SHOULD BE
DIRECTED TO THE ATTENTION OF DENNIS D. BYRD, FIRST COASTAL CORPORATION, 36
THOMAS DRIVE, WESTBROOK, MAINE 04092; TELEPHONE (207) 774-5000.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Morris, James, Hitchens & Williams,
special Delaware counsel to the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994, and the consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1995 and financial statement schedule included herein and elsewhere in the
Registration Statement have been audited by Coopers & Lybrand, L.L.P.,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
-43-
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-K ON FORM 10-K/A
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to __________
Commission file number 0-14087
FIRST COASTAL CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1177661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 THOMAS DRIVE, WESTBROOK, MAINE 04092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 774-5000
Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00
PAR VALUE PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On and effective as of September 11, 1991, First Coastal Corporation was
advised by the National Association of Securities Dealers that its Common Stock
had been removed from the NASDAQ National Market System due to an insufficient
number of active market makers in the stock. The Common Stock is traded in the
over-the-counter market in the "pink sheets," although such trades are
limited and sporadic and there is no established public trading market for the
Common Stock. The aggregate market value of the Common Stock held by non-
affiliates based on the book value per share of Common Stock of $6.66 at
December 31, 1995 was $3,989,779.
As of the close of business on March 29, 1996, 600,361 shares of the
registrant's Common Stock, par value $1.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
A-1
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
FIRST COASTAL CORPORATION
First Coastal Corporation, a Delaware corporation ("First Coastal" or the
"Company") is a bank holding company whose sole operating subsidiary is Coastal
Savings Bank ("Coastal" or the "Bank"). The Company was organized in January
1987 for the purpose of becoming the parent holding company of Suffield Bank
following Suffield Bank's conversion from mutual to stock form. The Company
acquired Coastal Bancorp, a Maine corporation ("Bancorp"), which was the bank
holding company of Coastal, a Maine-chartered, stock savings bank, on April 1,
1987. On September 6, 1991, Suffield Bank was placed in receivership by the
Connecticut Department of Banking, leaving the Bank as the Company's sole
operating subsidiary. On July 26, 1994, Bancorp was dissolved with the effect
that the Bank became a direct wholly-owned subsidiary of the Company. See
"Certain Regulatory Matters -- Receivership of Suffield Bank" and "-- Settlement
of Cross Guaranty Claim."
COASTAL SAVINGS BANK
The Bank was formed in 1981 as a Maine-chartered savings bank through the
consolidation of Brunswick Savings Institution and York County Savings Bank,
which were organized in 1858 and 1860, respectively. On July 11, 1984, the Bank
completed its conversion from mutual form to a Maine stock savings bank.
The Bank had total assets of approximately $145 million at December 31, 1995.
The region served by the Bank includes the communities of Brunswick, Freeport,
Kennebunk, Kezar Falls, Saco, Topsham and Westbrook. The Bank operated eight
banking offices as of December 31, 1995.
The principal business of the Bank consists of attracting deposits from the
general public and originating residential real estate, construction, consumer,
commercial and commercial real estate loans and investment securities. Deposits
at the Bank are federally insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC").
The principal executive offices of the Company and the Bank are located at 36
Thomas Drive, Westbrook, Maine 04092; telephone (207)774-5000.
A-2
<PAGE>
CERTAIN REGULATORY MATTERS
RECEIVERSHIP OF SUFFIELD BANK
On September 6, 1991, the Company announced that Suffield Bank was placed into
receivership by the Connecticut Banking Department and the FDIC was appointed as
the receiver. Financial data reported for 1991 gives effect to the closure of
Suffield Bank as if it had occurred at the beginning of 1991. Since the
receivership of Suffield Bank, management's efforts have been primarily focused
on resolving the cross guaranty claim as described below and improving
operations of the Company's subsidiary, Coastal.
SETTLEMENT OF CROSS GUARANTY CLAIM
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "Note" or the "FDIC Note"), secured by the Company's pledge of
the outstanding stock of the Bank. In 1994 the Company incurred an
extraordinary charge to earnings resulting from the issuance of the Note.
Principal and interest under the FDIC Note are deferred until its maturity date,
which is January 31, 1997, subject to extension under certain circumstances.
The Company announced on January 31, 1996 that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through an offering of its common stock,
including a rights offering to the Company's existing stockholders. The
offering will be made only by means of a prospectus. In addition to the
proceeds from the common stock offering, the Company also expects to use funds
derived from dividends from the Bank and the proceeds from a loan to satisfy its
obligation under the FDIC Note. The recapitalization and related transactions
are subject to a number of conditions, including the receipt of appropriate
regulatory approvals, and there can be no assurance that such recapitalization
and related transactions will be consummated or that the Company will be
successful in repaying the FDIC Note. The Company anticipates that the
recapitalization would be completed in the third quarter of 1996.
MEMORANDUM OF UNDERSTANDING
Effective as of January 23, 1992, Coastal consented to an Order to Cease and
Desist (the "Order to Cease and Desist" or the "Order") issued by the FDIC and
concurred with by the Maine Bureau of Banking (the "Maine Bureau of Banking").
The Order required Coastal to cease and desist from engaging in certain
activities and practices detrimental to the Bank and also required, among other
things, the maintenance by the Bank of specified capital ratios. Effective
December 8, 1994, the Order was terminated.
A-3
<PAGE>
The Order was replaced with a Memorandum of Understanding ("Memorandum") among
the Bank, the FDIC and the Maine Bureau of Banking effective as of
November 22, 1994. The Memorandum provides, among other things, that (i) the
Bank continue to maintain its allowance for loan and lease losses in accordance
with applicable regulatory requirements, (ii) the Board of Directors of the Bank
continue to review the adequacy of the Bank's loan and lease loss reserves and
provide for adequate reserves, (iii) the Bank continue to have a Tier 1 capital
to total assets ratio at or in excess of 6.0%, (iv) the Bank continue to comply
with the FDIC's Statement of Policy on Risk-Based Capital, (v) the Bank provide
monthly progress reports regarding substandard or doubtful assets, (vi) the Bank
agree not to extend or renew credit to, or for the benefit of, any borrower who
or which has a loan or other extension of credit with the Bank that has been
charged-off or classified in whole or in part, loss, doubtful or substandard and
is uncollected unless certain conditions are met, (vii) the Bank not declare or
pay any dividends without the prior written consent of the FDIC and the Maine
Bureau of Banking, and (viii) the Bank continue to furnish written progress
reports detailing the form and manner of any action taken to seek to secure
compliance with the Memorandum. In addition, the Board of Directors is required
to develop a written plan of action to reduce the Bank's risk position with
respect to each borrower who had outstanding principal debt owing to the bank in
excess of $500,000 and for the formulation of a strategic plan and policies
covering investments, funds management and various lending policies. At
December 31, 1995, the Bank had a Tier 1 capital to total assets ratio of 9.19%.
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies covering capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with the policies of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") regarding the payment of cash
dividends by bank holding companies. Management addressed these matters by
developing plans and policies which were submitted to the Federal Reserve in
1988, and updated such plans and policies in 1992 and 1995. Effective March
13, 1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
REGULATORY CAPITAL REQUIREMENTS
Under applicable federal regulations, the Company and Coastal are each required
to maintain minimum levels of regulatory capital. The Federal Reserve has
adopted a leverage-based capital requirement for bank holding companies with a
composite rating of 1 under the bank holding company rating system of a minimum
level of tier 1 capital to total assets of 3.0%. All other bank holding
companies or bank subsidiaries of bank holding companies are required to
maintain a minimum ratio of tier 1 capital to total assets of 4.0% to 5.0%.
Under the Federal Reserve's risk-based capital guidelines, bank holding
companies or banks also are required to maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.0%. The guidelines apply
on a consolidated basis to bank holding companies with consolidated assets of
$150 million or more. For bank holding companies which have less than $150
million in consolidated assets, as did the Company for each of the quarters
ended March 31, 1995, June 30, 1995, September 30, 1995 and December 31, 1995,
the guidelines are applied on a bank-only basis (as opposed to a consolidated
basis) unless (i) the parent bank holding company is engaged in nonbank activity
involving significant leverage or
A-4
<PAGE>
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines. As a
result, applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets, qualifying total capital
to risk-weighted assets of 9.19%, 14.32%, and 15.59%, respectively, at December
31, 1995 were in compliance with such guidelines.
The FDIC has also adopted minimum capital requirements as regulations for state
non-member banks such as the Bank. Under the minimum leverage capital
requirement, insured state non-member banks must maintain a Tier 1 capital to
total assets ratio of at least 3% to 5% depending on the CAMEL rating of the
bank. The Memorandum requires that the Bank continue to maintain a Tier 1
capital to total assets ratio at or in excess of 6.0%. At December 31, 1995,
the Bank had a Tier 1 capital to total assets ratio of 9.19%.
In addition, under such regulations insured non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%,
including a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At
December 31, 1995, the Bank had a ratio of Tier 1 capital to risk-weighted
assets of 14.32% and a ratio of qualifying total capital to risk-weighted assets
of 15.59%.
A-5
<PAGE>
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate mortgage:
Residential $ 30,966 $ 33,158 $ 39,771 $ 51,898 $ 71,216
Commercial 50,797 57,997 61,953 65,567 75,073
Real estate construction - - 429 669 1,542
Commercial and industrial 2,524 2,510 3,013 3,703 6,650
Consumer and other loans 16,263 15,991 18,305 22,208 26,787
-------- -------- -------- -------- --------
Total loans $100,550 $109,656 $123,471 $144,045 $181,268
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios of loans to:
Deposits 80% 84% 88% 92% 106%
Assets 69% 71% 72% 76% 85%
</TABLE>
The Bank's loan growth has been limited as a result of several factors.
Beginning in the late 1980's adverse real estate market conditions and a rising
interest rate environment in New England limited demand for new loans in the
Bank's market area. The Bank began to experience significant asset quality
problems and significant operating losses, resulting in a curtailment in loan
volume as these problems began to be addressed. The Bank's ability to grow was
further limited due to capital restraints imposed by the FDIC and the Maine
Bureau of Banking under the Order to Cease and Desist. One requirement of the
Order was that the Bank improve its Tier 1 capital to total assets ratio from
the December 31, 1991 level of 4.42% to 6.0% by December 31, 1993. This
requirement caused management to effect a strategy of selective balance sheet
shrinkage, including a reduction in loan originations. Payoffs of loans also
reduced loan balances as interest rates began to decline. Though the 6.0% Tier
1 capital to total assets level was achieved (6.24% at December 31, 1993),
management's continued focus on improving overall asset quality, in conjunction
with the pre-settlement uncertainties arising from the FDIC cross guaranty
claim, and the post-settlement efforts to develop a plan for repaying the FDIC
Note, resulted in new loan volume receiving less emphasis until mid-1995.
While the Bank's asset growth has been hampered in recent years as discussed
above, the Company's pending recapitalization is expected to allow the Bank to
focus on increasing its loan origination activities and pursuing a strategy of
managed growth, with a particular focus on residential mortgage, commercial and
industrial, and consumer loans.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Loans," which is incorporated herein by reference.
A-6
<PAGE>
The following table sets forth the maturities of the loan portfolio by loan type
as of December 31, 1995:
<TABLE>
<CAPTION>
After One
Within But Within After
(IN THOUSANDS) One Year Five Years Five Years Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgage:
Residential $ 205 $ 1,071 $29,690 $ 30,966
Commercial 9,795 21,619 19,383 50,797
Real estate construction - - - -
Commercial and industrial 753 1,223 548 2,524
Consumer and other 418 1,500 14,345 16,263
------- ------- ------- --------
Total loans $11,171 $25,413 $63,966 $100,550
------- ------- ------- --------
------- ------- ------- --------
Loans maturing after
one year with:
Fixed interest rate $5,462 $15,975 $ 21,437
Variable/adjustable interest rate 19,951 47,991 67,942
------- ------- ------- --------
$25,413 $63,966 $ 89,379
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
LOAN ORIGINATIONS
Mortgage loans originated by the Bank are primarily secured by property located
within its existing market area in Maine. The bank is an active residential
mortgage lender. A significant percentage of loans originated are 1-4 family
residential real estate loans, a large portion of which are sold in the
secondary market on a servicing-retained basis. Most of the Bank's residential
loans are originated using the Federal National Mortgage Association ("FNMA")
underwriting guidelines.
In April 1995, the Bank hired a new senior officer responsible for branch
administration and retail lending and commenced a focused effort to originate
residential and consumer loans through its branch offices, several of which have
since been re-staffed to support such efforts. While the Bank's newly focused
origination strategy is still in its early stages, the Bank's residential and
consumer loan originations have increased since mid-1995, as set forth below.
While the Bank intends to continue its focus on residential and consumer lending
in 1996, the level of such lending will depend upon a number of factors,
including the level of interest rates and general economic conditions.
<TABLE>
<CAPTION>
For the Quarter Ended
--------------------------------------------------
(IN THOUSANDS) December 31, September 30, June 30, March 31,
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 originations (1) :
Residential real estate $1,658 $1,563 $776 $ 171
Consumer 930 583 625 250
------ ------ ------ ------
Total $2,588 $2,146 $1,401 $ 421
------ ------ ------ ------
------ ------ ------ ------
1994 originations (1):
Residential real estate $ 561 $ 439 $1,412 $2,309
Consumer 356 404 837 219
------ ------ ------ ------
Total $ 917 $ 843 $2,249 $2,528
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(1) Includes refinancing of existing portfolio and off balance sheet serviced
loans.
A-7
<PAGE>
The continued improvement in overall asset quality has also allowed the Bank to
begin focusing more resources towards the generation of new commercial loans.
The Bank expects to complete certain staffing changes early in 1996 that are
intended to facilitate the Bank's goal of growth in commercial loan generation
in 1996 and thereafter.
The commercial real estate mortgage portfolio of approximately $50.8 million at
December 31, 1995, as compared to $58.0 million at December 31, 1994, includes
loans secured by apartment buildings, mixed use commercial buildings, office
buildings and other income-producing properties. Substantially all of these
loans are secured by mortgages on properties located in Maine. The maturities
are set forth in the above table.
At December 31, 1995 and 1994, commercial and industrial loans totaled $2.5
million. The Bank makes commercial and industrial loans secured by equipment
and other corporate or personal assets, including accounts receivable,
inventory, marketable securities and real estate. The terms and maturities of
commercial loans are negotiated with the borrower, but generally the loans
mature in seven years or less and bear interest at a fixed or adjustable rate.
Consumer loans originated by the Bank primarily include automobile, mobile home
and boat loans, home improvement loans, loans secured by deposits, lines of
credit secured by residential real estate and credit card agreements, subject to
applicable provisions of Maine law and regulations, and student loans under the
Maine Guaranteed Student Loan Program. The interest on student loans is
partially subsidized, and a minimum of 98% of each loan is guaranteed by the
federal government. As of December 31, 1995, the Bank had approximately $16.3
million in consumer loans, compared to $16.0 million as of December 31, 1994.
All consumer loans originated are reviewed for creditworthiness, adequacy of
collateral and the borrowers' ability to repay.
For information on Allowance for Loan Losses and Nonperforming Assets, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is incorporated herein by reference.
SECONDARY MARKET ACTIVITY
The Bank is active in secondary market transactions primarily through the sale
of long-term, fixed-rate residential mortgage loans that it originates. The
sale of these loans is intended to improve the interest rate sensitivity of the
Bank's assets (consistent with the Bank's asset/liability policy), generate
future fee income and provide additional funds for lending and liquidity. The
Bank seeks to originate longer term fixed-rate mortgages only when commitments
to sell these mortgages can readily be obtained. Due to interest rate
fluctuations, it may periodically be necessary for the Bank to fill such
commitments by selling mortgages having a higher or lower interest rate than the
rate specified in the commitment. Such sales will be made at a premium or
discount depending on the interest rate variation and will result in realized
gains or losses to the Bank on the transaction.
The Bank is an approved seller and servicer by and for FNMA and the Maine State
Housing Authority ("MSHA"). At December 31, 1995 and December 31, 1994, the
Bank was servicing loans for others of $53.7 million and $57.0 million,
respectively.
A-8
<PAGE>
INVESTMENT ACTIVITIES
The Bank's investment portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and reviewed on an annual
basis. Under this policy, and in accordance with applicable provisions of the
Bank Holding Company Act of 1956, as amended ("BHCA"), without the prior
approval of the Federal Reserve Bank of Boston and the Board of Directors, the
Company is prohibited from purchasing shares of any company if such purchase
would cause the Company's existing ownership to equal or exceed 5% of such
company's outstanding shares. The Company's investment policy provides that all
investment purchases of equity securities initiated by the Bank must receive the
advance approval of the Board's Investment Committee. The Company's investment
portfolio is comprised primarily of U.S. government and agency obligations and
miscellaneous other securities. For a summary of investments, see Item 8,
"Financial Statements and Supplementary Data -- Notes B and D," which are
incorporated herein by reference.
Effective January 1, 1994, with the implementation of Financial Accounting
Standards Board ("FASB") Statement No. 115, investment securities classified as
available for sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. Investment securities held to maturity are stated at cost adjusted for
amortization of bond premiums and accretion of bond discounts. There was no
effect to the Company's Financial Statements on January 1, 1994 as a result of
implementing FASB Statement No. 115. During 1995, net unrealized gains (losses)
on available for sale securities increased by $323,000 as compared to December
31, 1994. The net unrealized gains (losses) on these securities was $38,000 at
December 31, 1995.
Since the adoption of FASB Statement No. 115, the Company's Investment Policy
states that all securities purchased with an original maturity of over one year,
other than mortgage backed securities originated by the Bank with current loan
production, will be classified as available for sale. Securities purchased with
an original maturity of one year or less, or callable U.S. government agency
notes, will be considered held-to-maturity. Mortgage backed securities
originated by the Bank with current loan production will be classified as
trading securities.
A-9
<PAGE>
SOURCES OF FUNDS
GENERAL
Deposits and advances from the Federal Home Loan Bank ("FHLB") of Boston are the
principal sources of Coastal's funds for use in lending and for other general
business purposes. Coastal's deposits are primarily derived from the areas
where its banking offices are located. Coastal does not actively solicit
deposits outside the State of Maine or use brokers to obtain deposits.
In addition to deposit accounts and advances, Coastal derives funds from loan
repayments, sales of loans and returns on investments. Unscheduled loan
repayments and scheduled amortization have been a substantial source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates, money market and general economic conditions. Subject to the
limitations described under "Borrowings", FHLB advances may be used on a short-
term basis to compensate for reductions in normal sources of funds such as
deposit inflows at less than projected levels. The Bank has also been
authorized for access to the discount window of the Federal Reserve Bank in its
District; however, to date this borrowing source has not been used. See
"Regulation -- Federal Reserve System" concerning limitations on a Federal
Reserve Bank's ability to lend to undercapitalized institutions.
DEPOSITS
The Bank has a wide variety of deposit programs designed to attract both short-
term and long-term deposits from the general public, primarily from consumers
and businesses. These programs include interest bearing and non-interest
bearing checking accounts, savings accounts, certificates of deposit, jumbo
certificates of deposit and individual retirement accounts. Deposits at the
Bank are federally insured by the BIF, which is administered by the FDIC.
The Bank's deposit growth has been limited in large part by the same factors
discussed under "Lending Activities" above, including the Bank's prior strategy
of selectively shrinking the balance sheet. The following table sets forth the
Company's deposit balances at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 5,128 $ 5,425 $ 5,871 $ 7,217 $ 7,900
Interest bearing
demand deposits 15,741 17,300 18,470 18,813 16,472
Savings and escrow deposits 42,020 48,205 53,655 55,581 52,994
Time deposits 62,776 59,107 62,591 74,707 93,017
-------- -------- -------- -------- --------
Total $125,665 $130,037 $140,587 $156,318 $170,383
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
A-10
<PAGE>
Beginning in early 1995, while the Company evaluated various alternatives for
repaying the FDIC Note, management implemented a strategy designed to stabilize
deposit levels. As a result, total deposits were relatively unchanged at
December 31, 1995 equaling $125.7 million, as compared to the January 31, 1995
level of $126.7 million.
On February 22, 1996, the Bank entered into an agreement to sell its Kezar Falls
branch to Maine Bank & Trust Company. Included in the sale are all of the
branch's deposits (totaling approximately $9.9 million at December 31, 1995),
the real estate and certain of the furniture, fixtures and equipment of the
branch. The agreement between the Bank and Maine Bank & Trust Company is
expected to be consummated during the second quarter of 1996, subject to the
receipt of appropriate regulatory approvals.
The mix of the Bank's deposits has varied from year to year, with higher cost
time deposits increasing in 1995 as a percentage of the Bank's total deposits.
This trend is largely reflective of an industry-wide trend, reflecting the
continuing impact of deregulation on the banking industry, as well as increased
competition for funds from nonbank competitors, including money market and
stock mutual funds.
At December 31, 1995, 1994 and 1993, Coastal's deposits consisted of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1995 1994 1993
-------------------------------------------------------
Average Average Average Average Average Average
(DOLLARS IN THOUSANDS) Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 4,973 - $ 5,798 - $ 6,132 -
Interest bearing
demand deposits 15,958 2.24% 17,749 2.27% 12,375 2.16%
Savings deposits 44,201 2.91 51,162 2.74 60,580 2.92
Time deposits 61,344 5.43 60,930 4.60 68,288 4.96
-------- -------- --------
Total $126,476 $135,639 $147,375
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1995, jumbo certificates of deposit maturities and weighted
average interest rates were as follows:
<TABLE>
<CAPTION>
Balance Weighted Average
Maturities (IN MONTHS) (In thousands) Interest Rate
- --------------------------------------------------------------------------
<S> <C> <C>
3 months or less $ 438 5.50%
over 3 - 6 101 5.25
over 6 - 12 432 5.89
over 12 738 6.40
------
Total $1,709 5.66%
------
------
</TABLE>
As of December 31, 1995, Coastal had no brokered deposits as these deposits all
matured in 1993.
A-11
<PAGE>
BORROWINGS
The Bank has used FHLB advances in the past to expand its lending and investment
activities and to enhance the Bank's mix of rate-sensitive assets and
liabilities, E.G., to extend maturities or to improve liquidity. The following
table sets forth the amount of the Company's borrowed funds at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
FHLB advances $ 6,000 $12,612 $18,108
FDIC Note (1) 9,000 9,000 -
------- ------- -------
$15,000 $21,612 $18,108
------- ------- -------
------- ------- -------
</TABLE>
(1) The FDIC Note bears interest at a rate of 5% from January 31, 1995 to
January 31, 1996 and 6.5% from February 1, 1996 to January 31, 1997,
subject to certain exceptions. See Item 8, "Financial Statements and
Supplementary Data -- Note A."
At December 31, 1995, the Bank had outstanding $6.0 million in borrowings with a
weighted average interest rate of 5.77% from the FHLB of Boston, maturing as
follows:
<TABLE>
<CAPTION>
Amount Maturing
Due Date (IN THOUSANDS) Interest Rate
--------------------------------------------------------------
<S> <C> <C>
July 1997 $2,000 6.06%
January 1998 2,000 5.92
March 1998 2,000 5.32
------
$6,000
------
------
</TABLE>
The following table sets forth information regarding the weighted average
interest expense at December 31 and the highest month end balances of the Bank's
total borrowings:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest expenses of
total borrowings 5.37% 7.28% 8.08%
Highest month end balance of
total borrowings $10,412 $18,108 $24,684
</TABLE>
Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the collateral maintenance level. The collateral maintenance level for a member
bank is the aggregate amount of collateral that, based on certain percentages
of book value, market value or unpaid principal, has a value equal to the
A-12
<PAGE>
aggregate amount of the member bank's outstanding advances. Depending on the
ratio of tangible capital to assets as defined by the FHLB and certain other
factors, each member bank is assigned by the FHLB to one of three collateral
status groups:
(i) Blanket Lien Status - tangible capital of 4.5% or more of
assets;
(ii) Listing/Segregation Status - tangible capital below 4.5% of
assets; and
(iii) Delivery (Possession) Status - tangible capital below 3.5% of
assets.
Although its tangible capital is above 3.5% of assets, Coastal is in delivery
status. Because of the potential contingent liability of affiliated
institutions within a holding company structure, the FHLB closely reviews the
financial condition of a member bank's parent company. If a member bank's
parent holding company has a low tangible capital ratio or is experiencing
substantial financial problems, the member bank may be assigned to listing or
delivery status. In connection with the waiver and release of the FDIC cross
guaranty claim, the Bank requested the removal of the foregoing restrictions
imposed by the FHLB. On May 1, 1995, the Bank received a letter from the FHLB
stating that it would lengthen the maturity restriction on new fixed term and
fixed rate advances from six months to one year.
The Bank also has been approved by the Federal Reserve Bank of Boston to obtain
liquidity from its discount window. No funds have been, or are anticipated to
be, obtained from this source.
The Bank estimates that it has approximately $20 million ($7.2 million with the
FHLB and $12.8 million with the Federal Reserve Bank of Boston) in additional
short-term borrowing capacity as of December 31, 1995. This amount fluctuates
based on qualified collateral.
For additional information on Borrowings, see Item 8, "Financial Statements and
Supplementary Data -- Note I," incorporated herein by reference.
EMPLOYEES
As of December 31, 1995, the Company and its subsidiary had 65 full-time
equivalent employees.
COMPETITION
The Bank is a full service savings bank with eight banking offices which are
located in the communities of Brunswick, Freeport, Kennebunk, Kezar Falls, Saco,
Topsham and Westbrook. Competition among financial institutions in the Bank's
market area is intense and the Bank competes in obtaining funds and in making
loans with other state and national banks, savings and loan associations,
consumer financial companies, credit unions, money market mutual funds, and
other financial institutions which have far greater financial resources than
those available to the Bank. At June 30, 1995 a total of approximately 46% of
deposits in Maine was held by three large financial institutions, two of which
are wholly owned subsidiaries of superregional bank holding companies with
assets in excess of $50.0 billion and one of which is a Maine-based savings bank
with assets in excess of $2.0 billion. Competition among financial
institutions is based upon interest rates and
A-13
<PAGE>
other credit and service charges, the quality of services rendered, the
convenience of banking facilities and in the case of loans to larger commercial
borrowers, relative lending limits.
REGULATION
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is subject to regulation under the BHCA and is required to file with
the Federal Reserve annual reports and such additional information as the
Federal Reserve may require pursuant to the BHCA. The Federal Reserve may
conduct examinations of the Company and its subsidiary.
Under the BHCA, Federal Reserve approval is required for any action which causes
a bank or other company to become a bank holding company and for any action
which causes a bank to become a subsidiary of a bank holding company. A bank
holding company must obtain Federal Reserve approval before it acquires direct
or indirect ownership or control of any voting shares of any bank if, after such
acquisition, it will own or control directly or indirectly more than 5% of the
voting stock of such bank unless it already owns a majority of the voting stock
of such bank. Federal Reserve approval also must be obtained before a bank
holding company acquires all or substantially all of the assets of a bank or
merges or consolidates with another bank holding company. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorized
the acquisition of banks in any state by bank holding companies, subject to
compliance with federal and state antitrust laws, the Community Reinvestment Act
(the "CRA") and specific deposit concentration limits. The IBBEA removes most
state law barriers to interstate acquisitions of banks and ultimately will
permit multi-state banking operations to merge into a single bank.
A bank holding company is prohibited, except in certain statutorily-prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, and from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or furnishing services to its
subsidiaries. A bank holding company may, however, subject to the approval of
the Federal Reserve, engage in, or acquire shares of companies engaged in,
activities which are deemed by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Under the Change in Bank Control Act, persons who intend to acquire control of a
bank holding company, acting directly or indirectly, or through or in concert
with one or more persons, generally must give 60 days prior written notice to
the Federal Reserve. "Control" exists when the acquiring party directly or
indirectly has voting control of at least 25% of the bank holding company's
voting securities or the power to direct the management or policies of such
company. Under Federal Reserve regulations, a rebuttable presumption of control
arises with respect to an acquisition where, after the transaction, the
acquiring party has ownership, control or the power to vote at least 10% (but
less than 25%) of any class of the company's voting securities if (i) the
company has securities registered under Section 12 of the Securities Exchange
Act of 1934 or (ii) immediately after the
A-14
<PAGE>
transaction no other person will own a greater proportion of that class of
voting securities. The Federal Reserve may disapprove the proposed acquisition
on certain specified grounds.
As a bank holding company, the Company is subject to capital adequacy guidelines
of the Federal Reserve. The guidelines apply on a consolidated basis to bank
holding companies with consolidated assets of $150 million or more. For bank
holding companies which have less than $150 million in consolidated assets, as
did the Company for each of the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995 and December 31, 1995, the guidelines are applied on a bank-
only basis (as opposed to a consolidated basis) unless (i) the parent bank
holding company is engaged in nonbank activity involving significant leverage or
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines.
A bank holding company's ability to pay dividends and expand business through
the acquisition of new banking subsidiaries can be restricted if its capital
falls below levels established by these guidelines. In addition, any bank
holding company whose capital falls below specified levels can be required to
implement a plan to increase capital.
The Federal Reserve's capital adequacy guidelines provide for three types of
capital: tier 1 capital (or core capital), tier 2 capital (or supplementary
capital) and total capital. Tier 1 capital generally includes common
stockholders' equity, qualifying noncumulative perpetual preferred stock and
related surplus, qualifying cumulative perpetual preferred stock and related
surplus (limited to a maximum of 25% of tier 1 elements) and minority interest
in the equity accounts of consolidated subsidiaries. Goodwill and most types of
intangible assets are required to be deducted from tier 1 capital. The only
types of intangible assets that may be included in a bank holding company's
capital are readily marketable purchased mortgage-servicing rights and purchased
credit-card relationships, provided that the total amount of these assets
included in capital may not exceed 50% of tier 1 capital elements. Purchased
credit-card relationships are subject to a separate sublimit of 25% of tier 1
capital elements. The amount of purchased mortgage-servicing rights and
purchased credit-card relationships that a bank holding company may include in
capital, subject to the aggregate limitations described above, is limited to the
lesser of (i) 90% of their fair market value or (ii) 100% of their book value.
Tier 2 capital generally includes allowances for loan and lease losses (limited
to 1.25% of risk-weighted assets), most perpetual preferred stock and any
related surplus, certain hybrid capital instruments, perpetual debt and
mandatory convertible securities and certain intermediate-term preferred stock
and subordinated debt instruments (subject to a maximum of 50% of tier 1 capital
excluding goodwill, but phased-out as the instrument matures). Total capital
generally includes tier 1 capital, plus qualifying tier 2 capital, minus
investments in unconsolidated subsidiaries, reciprocal holdings of bank holding
company capital securities and other deductions as may be determined by the
Federal Reserve.
Under current Federal Reserve capital adequacy guidelines, bank holding
companies generally must maintain a ratio of tier 1 capital to qualifying total
consolidated assets of 4.0% to 5.0%. The
A-15
<PAGE>
minimum ratio is 3.0% for the most highly rated bank holding companies or banks.
The Federal Reserve's capital adequacy guidelines also require bank holding
companies to maintain a minimum ratio of qualifying total capital to risk-
weighted assets of 8.0%, including a minimum ratio of tier 1 capital to risk-
weighted assets of 4.0%. The maximum amount of tier 2 or supplementary capital
elements that qualify as total capital is limited to 100% of tier 1 capital, net
of goodwill. A bank holding company's risk-weighted assets are determined by
multiplying the balance sheet amount by a specified risk-weight determined by
the Federal Reserve in accordance with the relative risk level of the asset.
Off-balance sheet items, such as standby letters of credit, are converted to an
on-balance sheet credit equivalent amount by multiplying the face amount of the
off-balance sheet item by a credit conversion factor determined by the Federal
Reserve.
On a bank-only basis, the Company's ratios of tier 1 capital to total assets,
tier 1 capital to total risk-weighted assets, and total capital to risk-weighted
assets of 9.19%, 14.32%, and 15.59%, respectively, at December 31, 1995 were in
compliance with such guidelines.
The Federal Reserve has proposed to modify its risk-based capital adequacy
guidelines to take into account interest-rate risk. The interest-rate risk
proposal would attempt to estimate the effect that changes in market interest
rates might have on the net economic value of an institution. An institution
with interest-rate risk exposure in excess of an as yet to be determined
threshold level would be required to allocate additional capital equal to the
dollar amount of the estimated change in its net economic value that is in
excess of that level. The FDIC has proposed similar changes to its risk-based
capital guidelines that will apply to the Bank. The foregoing proposals may
have the effect of requiring the Company and the Bank to maintain increased
capital.
The Federal Reserve also is empowered to initiate cease and desist proceedings
and other supervisory actions for any violation of the BHCA and the regulations,
orders and notices issued by the Federal Reserve thereunder. Under Federal
Reserve regulations, banks and bank holding companies which do not meet minimum
capital requirements are considered undercapitalized. Undercapitalized bank
holding companies are required to submit an acceptable plan for achieving
capital adequacy and are subject to appropriate enforcement actions by the
Federal Reserve.
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies concerning capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with Federal Reserve policies regarding the payment
of cash dividends by bank holding companies. Management addressed these matters
by developing plans and policies which were submitted to the Federal Reserve in
1988, and updated such plans and policies in 1992 and 1995. Effective March 13,
1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
MAINE BANK HOLDING COMPANY REGULATION
Maine state law regulates bank holding companies. The state law is designed to
conform with the registration, application and reporting requirements of the
BHCA to the maximum extent feasible. As a holding company, the Company must
register with the Maine Superintendent of Banking, and
A-16
<PAGE>
must notify the Maine Superintendent of Banking whenever any person or company
directly or indirectly acquires control of 5% or more of the Company's stock or
whenever there is a "material" change in the ownership of the Company. If 5% or
more of the stock in the Company is acquired by a financial institution or by a
financial institution holding company, the Superintendent must approve that
acquisition. Similarly, other transactions require advance approval by the
Superintendent including, among other things, the acquisition of control of the
Company or the Bank, the acquisition by the Company or the Bank of 5% or more of
the stock of another financial institution and the engagement of the Company,
Bank or a subsidiary in an activity closely related to banking.
In February 1996, the Maine legislature amended Maine's Banking Code to permit
interstate branching in accordance with the IBBEA. Among other things, the
amendments prohibit the operation of deposit production offices, establish a
limit on the amount of deposits that may be acquired through merger or
acquisition and impose reporting requirements necessary to monitor compliance.
The amendments also permit the establishment of DE NOVO branches in Maine on a
reciprocal basis.
At the state level, the Maine Bureau of Banking regulates the Bank's internal
organization and its permissible activities. Under Maine law, in addition to
taking deposits and making loans, savings banks, like the Bank, are permitted to
engage in real estate investments and investments in securities. The Bank must
maintain capital in accordance with rules adopted by the Superintendent of
Banking. By law, these capital rules may be no less stringent than the capital
requirements imposed by federal banking regulators on federally chartered
institutions. The stock held by the Company in the Bank is assessable. If the
Bank's capital becomes impaired, the Superintendent may order the Board of
Directors to restore the deficiency.
BANK REGULATION
As a BIF-insured savings bank, the Bank is subject to regulation, supervision
and examination by the FDIC. The Bank also is subject to regulation,
supervision and examination by the Maine Bureau of Banking.
The Maine Bureau of Banking administers the Maine statutes which regulate the
Bank's internal organization as well as its deposit, lending and investment
activities. The approval of the Maine Bureau of Banking is required for changes
in the Bank's articles of incorporation, bylaws, branch offices and major
transactions. The Maine Bureau of Banking conducts periodic examinations of the
Bank as part of its supervision. Many of the areas regulated by the Maine
Bureau of Banking, including location of branch offices, acquisitions of other
financial institutions and mergers, are subject to similar regulation by the
FDIC.
As a BIF-insured savings bank, the Bank is subject to certain FDIC requirements
designed to maintain the safety and soundness of individual banks and the
banking system. The FDIC has prescribed safety and soundness guidelines
relating to (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate
exposure; (v) asset growth; and (vi) compensation and benefit standards for
officers, directors, employees and principal stockholders. Such guidelines
impose standards based upon an institution's asset quality and
A-17
<PAGE>
earnings. The guidelines are intended to set out standards that the agencies
will use to identify and address problems at institutions before capital becomes
impaired. Institutions are required to establish and maintain a system to
identify problem assets and prevent deterioration of those assets in a manner
commensurate with its size and the nature and scope of its operations.
Furthermore, institutions must establish and maintain a system to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with their size and the nature and
scope of their operation.
Under the guidelines, an institution not meeting one or more of the safety and
soundness guidelines is required to file a compliance plan with the FDIC. In
the event that an institution, such as the Bank, were to fail to submit an
acceptable compliance plan or fail in any material respect to implement an
accepted compliance plan within the time allowed by the FDIC, the institution
would be required to correct the deficiency and the appropriate federal agency
would also be authorized to: (i) restrict asset growth; (ii) require the
institution to increase its ratio of tangible equity to assets; (iii) restrict
the rates of interest that the institution may pay; or (iv) take any other
action that would better carry out the purpose of the corrective action. The
Bank believes it was in compliance with all such guidelines as of December 31,
1995.
The FDIC periodically conducts examinations of insured institutions and, based
upon evaluations, may revalue assets of an insured institution and require
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets.
The FDIC also has adopted minimum capital adequacy regulations. Although there
are some differences between the capital adequacy guidelines adopted by the
Federal Reserve and the FDIC, the primary elements of each are generally
identical. Under the minimum leverage-based capital requirement adopted by the
FDIC, insured state nonmember banks must maintain a ratio of Tier 1 capital to
total assets of at least 3% to 5% depending on the CAMEL rating of the Bank.
Under such regulations, state nonmember banks must maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.0%, including a minimum
ratio of Tier 1 capital to risk-weighted assets of 4.0%. At December 31, 1995,
the Bank had a ratio of qualifying total capital to risk-weighted assets of
15.59% and a ratio of Tier 1 capital to risk-weighted assets of 14.32%. The
FDIC has proposed to amend its risk-based capital standards to ensure that those
standards provide adequately for interest-rate risk in a manner similar to that
proposed by the Federal Reserve. See "Business -- Regulation -- Federal Bank
Holding Company Regulation."
Capital requirements higher than the generally applicable minimum requirements
may be established for a particular bank if the FDIC determines that the bank's
capital is, or may become, inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate where the bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk or poses other safety and soundness concerns.
The FDIC adopted prompt corrective action regulations ("PCA regulations").
Under the PCA regulations, insured institutions will be considered (i) "well
capitalized" if the institution has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
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<PAGE>
leverage ratio of 5% or greater (provided that the institution is not subject to
an order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specified capital level for any capital
measure), (ii) "adequately capitalized" if the institution has a total risk-
based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater and a leverage ratio of 4% or greater (3% or greater if the institution
is rated composite 1 in its most recent report of examination and is not
experiencing or anticipating significant growth), (iii) "undercapitalized" if
the institution has a total risk-based capital ratio that is less than 8%, or a
Tier 1 risk-based ratio of less than 4% or greater and has a leverage ratio that
is less than 4% (3% if the institution is rated composite CAMEL 1 in its most
recent report of examination and is not experiencing or anticipating significant
growth), (iv) "significantly undercapitalized" if the institution has a total
risk-based capital ratio that is less than 6%, a Tier 1 capital risk-based
capital to total adjusted assets that is less than 3% or a leverage ratio to
adjusted total assets that is less than 3% and (v) "critically undercapitalized"
if the institution has a ratio of tangible equity to total assets that is less
than or equal to 2%. At December 31, 1995, the Bank was classified as an
"adequately capitalized" institution.
Any insured depository institution that falls below the minimum capital
standards must submit a capital restoration plan. Under the PCA regulations,
undercapitalized institutions are precluded from increasing their assets,
acquiring other institutions, establishing additional branches or engaging in
new lines of business without an approved capital plan and an agency
determination that such actions are consistent with the plan. Any insured
institution is prohibited from making a capital distribution if, after making
the distribution, the institution would be undercapitalized, except in limited
circumstances approved by the FDIC. Insured depository institutions that are
significantly undercapitalized may be required to take one or more of the
following actions: (i) raise additional capital so that the institution will be
adequately capitalized, (ii) be acquired by, or combined with, another
institution if grounds exist for appointing a receiver, (iii) refrain from
affiliate transactions, (iv) limit the amount of interest paid on deposits to
the prevailing rates of interest in the region where the institution is located,
(v) further restrict asset growth, (vi) hold a new election for directors,
dismiss any director or senior executive officer who held office for more than
180 days immediately before the institution became undercapitalized or employ
qualified senior executive officers, (vii) stop accepting deposits from
correspondent depository institutions and (viii) divest or liquidate any
subsidiary which the appropriate federal banking agency determines poses a
significant risk to the institution. Any company which controls a significantly
undercapitalized depository institution may be required to: (i) divest or
liquidate any affiliate other than an insured depository institution, (ii)
divest the institution if the appropriate federal banking agency determines that
divestiture would improve the institution's financial condition and future
prospects and (iii) if such company is a bank holding company, refrain from
making any capital distributions without the prior approval of the Federal
Reserve.
Critically undercapitalized institutions are subject to additional restrictions.
No later than 90 days after an insured depository institution becomes critically
undercapitalized, the appropriate federal banking agency is required to appoint
a receiver (or, with the concurrence of the FDIC, a conservator) for the
institution, unless the appropriate federal banking agency determines, with the
concurrence of the FDIC, that other action would better achieve the purposes of
FDIA. The appropriate federal banking agency must make periodic
redeterminations that the alternative action continues to be justified no less
frequently than every 90 days. The appropriate federal banking
A-19
<PAGE>
agency is required to appoint a receiver if the institution remains critically
undercapitalized nine months later, unless the institution is in compliance with
an approved capital plan and the applicable federal banking agency and the FDIC
certify that the institution is viable.
The FDIA also requires any company that has control of an undercapitalized
depository institution, in connection with the submission of a capital
restoration plan by the institution, to guarantee that the institution will
comply with the plan and provide appropriate assurances of performance. The
aggregate liability of any such controlling company under such guaranty is
limited to the lesser of (i) 5% of the institution's assets at the time it
became undercapitalized or (ii) the amount necessary to bring the institution
into capital compliance at the time it fails to comply with the terms of its
capital plan. If the Bank is classified as undercapitalized, the Company may be
required to guarantee performance of any capital plan required to be submitted
under the FDIA.
An insured state bank, such as the Bank, may not engage as principal in any
activity that is not permissible for a national bank, unless the FDIC has
determined that the activity would pose no significant risk to the BIF and the
state bank is in compliance with applicable capital standards. Activities of
subsidiaries of insured state banks are similarly restricted to those activities
permissible for subsidiaries of national banks, unless the FDIC has determined
that the activity would pose no significant risk to the BIF and the state bank
is in compliance with applicable capital standards. The FDIA also provides
that, except for subsidiaries of which the insured state bank is a majority
owner and except for certain investments in qualified housing projects, an
insured state bank may not, directly or indirectly, acquire or retain any equity
investment of a type that is not permissible for a national bank. Insured state
banks are required to divest any equity investment the retention of which is not
permissible as quickly as can be prudently done, but in no event later than
December 9, 1996. Notwithstanding the foregoing, an insured state bank may, to
the extent permitted by the FDIC, acquire and retain ownership of common or
preferred stock listed on a national securities exchange, provided that the
insured state bank made or maintained an investment in such securities during
the period beginning on September 30, 1990 and ending on November 26, 1991 and
provided further that the aggregate amount of the investment does not exceed
100% of the bank's capital. This exception would cease to apply with respect to
any insured state bank upon any change in control of such bank or any conversion
of the charter of such bank. Determinations under these provisions by the FDIC
must be made by regulation or order. The Bank believes that its activities as
presently conducted conform to those permissible for national banks, except for
approximately $125,000 of certain other investments of the Bank at December 31,
1995 which the Bank intends to sell pursuant to a divestiture plan.
Transactions between the Bank and its affiliates, are subject to Sections 23A
and 23B of the Federal Reserve Act. For purposes of these sections, the term
"affiliate" with respect to the Bank refers to the Company. A transaction is
deemed to be one with an affiliate if the proceeds of the transaction are
transferred to, or used for the benefit of, an affiliate. Under sections 23A
and 23B, transactions between banks and their affiliates are generally limited
in the following ways: First, the aggregate amount of all "covered
transactions" (which include, among other things, loans or other extensions of
credit to or on behalf of an affiliate, purchases of assets from an affiliate or
investments in the securities of an affiliate) between a bank (and its
subsidiaries) and any one affiliate may not exceed 10% of the capital stock and
surplus of the bank, and the aggregate amount of covered transactions
A-20
<PAGE>
between a bank (and its subsidiaries) and all affiliates may not exceed 20% of
the capital stock and surplus of the bank. Second, any loan or extension of
credit to, or guarantee, acceptance or letter of credit issued on behalf of an
affiliate by a bank or any of its subsidiaries must at all times be secured by
collateral having a market value equal to from 100% to 130% of the outstanding
balance of the extension of credit, depending upon the nature of the collateral.
Third, neither low quality assets or securities issued by an affiliate may be
accepted by a bank as collateral for an extension of credit issued to or on
behalf of any affiliate. Fourth, a bank and its subsidiaries are prohibited
from purchasing a low-quality asset from an affiliate unless the bank or any
such subsidiary, pursuant to an independent credit evaluation, committed itself
to purchase the asset prior to the time the asset was acquired by the affiliate.
Transactions between a bank and its subsidiaries or affiliates generally must be
on terms and conditions, including credit standards, that are substantially the
same or at least as favorable to the bank or its subsidiary as those prevailing
at the time for comparable transactions with or involving unaffiliated parties
or, in the absence of comparable transactions, on terms or under circumstances,
including credit standards, that in good faith would be offered or would apply
to unaffiliated parties. Section 23B imposes additional restrictions on the
ability of a bank and its subsidiaries (i) when acting in a fiduciary capacity,
to purchase securities or assets from an affiliate, and (ii) whether acting as
principal or fiduciary, to purchase or acquire, during the existence of any
underwriting or selling syndicate, any security if a principal underwriter of
the security is an affiliate of the bank. Finally, neither a bank nor any of
its subsidiaries or affiliates may publish an advertisement or enter into any
agreement stating or suggesting that the bank is in any way responsible for the
obligations of its affiliates.
INSURANCE OF DEPOSITS
The Bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation. The Bank is required to pay quarterly
insurance premiums on semiannual assessments for FDIC insurance.
The FDIC implemented a risk-based deposit insurance assessment system. Deposit
insurance assessment rates are currently within a range of $0.00 to $0.27 per
$100 of insured deposits, depending on the assessment risk classification
assigned to each institution. The FDIC places each institution into one of nine
assessment risk classifications based on the institution's capital and
supervisory classification. Adequately capitalized banks, such as the Bank, are
subject to BIF assessment rates within a range of $0.03 to $0.24 per $100 of
insured deposits, depending on the supervisory subgroup to which the bank is
assigned by the FDIC. The FDIC sets assessment rates at a level sufficient to
maintain the BIF's reserve ratio to 1.25% of insured deposits. The FDIC is
authorized to establish a higher reserve ratio and to impose special assessments
to pay for the costs of authorized borrowings. The FDIC considers BIF revenue
and expense levels, the BIF reserve ratio and BIF borrowings in establishing
assessment rate ranges.
In August 1995, the FDIC determined that the BIF had achieved its designated
reserve ratio and lowered BIF deposit insurance premium rates for all but the
riskiest institutions. Effective January 1, 1996, BIF deposit insurance
premiums for adequately capitalized banks were set at $0.00 to $0.27
A-21
<PAGE>
per $100 of insured deposits per year, depending upon an institution's
supervisory rating. The deposit insurance premiums imposed by the FDIC are
subject to change.
FDIC insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations as an insured bank, or has violated any applicable law,
regulation, rule or order of, or condition imposed on the FDIC. Additionally,
if insurance termination proceedings are initiated against a bank, the FDIC may
temporarily suspend insurance on new deposits received by the institution under
certain circumstances.
BIF insured banks, such as the Bank, and savings institutions insured through
the Savings Association Insurance Fund ("SAIF") may merge, consolidate or engage
in asset transfer and liability assumption transactions. The resulting
institution may continue to be subject to BIF and SAIF assessments in relation
to that portion of its combined deposit base which is attributable to the
deposit base of its respective predecessor BIF and SAIF institutions or may
apply to the FDIC to convert all of its deposits to either insurance fund upon
payment of the then applicable entrance and exit fees for each fund.
Under the Community Reinvestment Act (the "CRA") and the implementing FDIC
regulations, which were amended in 1995 to provide for a performance-based
evaluation system, a savings institution has a continuing and affirmative
obligation to help meet the credit needs of its local communities, including low
and moderate income neighborhoods, consistent with the safe and sound operation
of the institution. The CRA requires the board of directors of savings
institutions, such as the Bank, to adopt a CRA statement for each assessment
area that, among other things, describes its efforts to help meet the community
credit needs and the specific types of credit that the institution is willing to
extend. In connection with its examination of a savings institution, the FDIC
is required to take into account the institution's record of meeting the credit
needs of its community in determining whether to grant approval for certain
types of applications including mergers and acquisitions. The Bank's CRA rating
is satisfactory as of the last examination.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB of Boston, one of the 12 regional banks of the
FHLB System. The FHLB System provides a central credit facility for member
institutions. The Bank, as a member of the FHLB of Boston, is required to own
shares of capital stock in the FHLB of Boston in an amount at least equal to the
greater of 1% of the aggregate principal amount of unpaid residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances (borrowings) from the FHLB of Boston, whichever is
greater. The Bank was in compliance with this requirement with an investment at
December 31, 1995 of $1.3 million.
Under applicable regulations, member banks are required to maintain at all times
an amount of qualified collateral that is at least sufficient to satisfy the
collateral maintenance level established by the FHLB. See "Business -- Sources
of Funds -- Borrowings."
A-22
<PAGE>
FEDERAL RESERVE SYSTEM
The Federal Reserve has adopted regulations that require insured depository
institutions to maintain nonearning reserves against their transaction accounts
(primarily NOW and regular checking accounts) and nonpersonal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than 18 months. At December 31, 1995, the
Bank was in compliance with these requirements.
The Bank also has the ability to borrow from the Federal Reserve Bank of Boston
"discount window." The FDIA places limitations upon the ability of the Federal
Reserve Bank of Boston to extend advances to undercapitalized and critically
undercapitalized depository institutions. The FDIA provides that a Federal
Reserve Bank generally may not have advances outstanding to an undercapitalized
institution for more than 60 days in any 120-day period. Under FDIA, the
Federal Reserve Bank of Boston will be liable for a portion of any excess losses
incurred by the FDIC with respect to an institution that receives Federal
Reserve Bank of Boston advances after becoming critically undercapitalized.
TAXATION
FEDERAL
The Company files a consolidated federal income tax return with the Bank using
the accrual method of accounting.
Internal Revenue Service ("IRS") guidance dealing with the tax consequences of
federal financial assistance (E.G., cash) provided by the FDIC requires all
federal financial assistance provided to an acquiring bank to be taxable to the
bank that has been seized. Accordingly, all federal financial assistance
provided to the acquiror of Suffield Bank's assets and liabilities may be
taxable income included in the consolidated federal income tax return of the
Company. This income may generally be offset by tax losses resulting from the
sale of assets sold by the FDIC. Although management has been informed by the
FDIC that there will be no net taxable income resulting from seizure of Suffield
Bank, management has not been able to obtain written confirmation from the FDIC
at this time. Accordingly, income taxes disclosed in the Consolidated Financial
Statements do not take into account adjustments, if any, which may result from
the seizure of Suffield Bank.
In 1990, Coastal Bancorp and its subsidiaries carried back their share of the
consolidated net operating losses of the Suffield Financial Corporation and
subsidiaries group to the years 1984, 1985 and 1986. Tentative tax refunds in
the amount of $926,000 were paid to the Bank as a result of this carryback. In
1989 and 1990, Suffield Financial Corporation and Suffield Bank also carried
back their share of the net operating losses of the group. A portion of the
1990 losses was carried back to the 1986 taxable year of the Suffield group as
it existed before the acquisition of Coastal Bancorp and the Bank (the "Old
Suffield Group") and resulted in a tentative refund of $1,973,000 and a portion
of the 1989 losses was carried back to the years 1979 through 1985 of the Old
Suffield Group and resulted in tentative refunds of $1,279,000.
A-23
<PAGE>
All refunds in excess of $1.0 million must be approved by the Joint Committee on
Taxation of the U.S. Congress. The IRS has reviewed and approved the refund
claims and has forwarded the case to the Joint Committee on Taxation in
Washington, D.C. with a recommendation that the refunds be approved as made.
The final approval of the Joint Committee on Taxation is expected as early as
the third quarter of 1996. If the Joint Committee on Taxation were to conclude
that the losses were not eligible for the ten-year carryback, the Bank would be
liable for the repayment of $926,000 of refunds plus interest and would increase
its net operating loss carryforwards by $2.4 million. The Bank also believes
that the requirements have been satisfied with respect to the carryback of 1989
and 1990 losses by Suffield Financial Corporation and Suffield Bank under the
ten-year rule. In any event, none of the Company, Coastal Bancorp or the Bank
were members of the Old Suffield Group in the above carryback years.
Consequently, the Bank believes that in accordance with the consolidated return
regulations, the Company, Coastal Bancorp or the Bank would not be liable for
the repayment of any refunds generated by carryback to the Old Suffield Group.
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1988 and such years are
not subject to further IRS audit except with respect to carrybacks to those
years.
STATE
The State of Maine imposes income and franchise taxes on financial institutions
such as the Bank equal to 1% of Maine net income and $0.08 per $1,000 of the
Bank's year-end assets, respectively. Maine net income equals the Bank's net
income or loss as reported on its federal income tax return. The Maine
franchise tax may be reduced by a credit in the event of a book net operating
loss for a particular taxable year. The credit equals the book net operating
loss multiplied by the franchise tax rate and may be carried forward for up to
five years. The Maine income and franchise taxes are deductible in determining
federal taxable income.
A-24
<PAGE>
ITEM 2. PROPERTIES.
The Company primarily utilizes the premises, equipment and furniture of the Bank
without direct payment of any rental or other fees to the Bank. The Bank's
executive offices and operations center is located at 36 Thomas Drive,
Westbrook, Maine. The Bank currently maintains eight branches as listed below.
Location Address Leased/Owned Lease Expiration
- -------- ------- ------------ ----------------
Brunswick 83 Main Street Owned n/a
Brunswick, ME
Brunswick 14 Gurnet Road Owned n/a
Brunswick, ME
Topsham Topsham Fair Mall Building Owned n/a
Route 196 Land Leased June 2000
Topsham, ME
Freeport 165 Main Street Owned n/a
Freeport, ME
Westbrook 36 Thomas Drive Owned n/a
Westbrook, ME
Saco 32 Saco Valley Shopping Ctr. Leased January 2001
Saco, ME
Kennebunk Shoppers Village Leased December 2000
Kennebunk, ME
Kezar Falls(1) Federal Road Owned n/a
Kezar Falls, ME
(1) The Bank entered into an agreement with Maine Bank & Trust Company dated
February 22, 1996 pursuant to which the Bank will sell substantially all of
the assets of its Kezar Falls, Maine branch office to Maine Bank & Trust
Company, and Maine Bank & Trust Company will assume certain liabilities of
the Bank with respect to the branch. Pending the receipt of appropriate
regulatory approvals, the transaction is expected to be consummated in the
second quarter of 1996.
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1995, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with
A-25
<PAGE>
legal counsel, resolution of these matters is not expected to have a material
effect on the consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
As of December 31, 1995, the Company had approximately 1,573 holders of
record and 600,361 outstanding shares of Common Stock. The Common Stock is
traded in the over-the-counter market in the "pink sheets," although such
trades are limited and sporadic and there is no established public trading
market for the Common Stock.
For the periods reported below, the following table sets forth the range of
high and low closing bid prices for the Common Stock on the OTC Bulletin
Board as reported by NASDAQ Trading and Market Services. Such quotations
represent prices between dealers without adjustment for retail markups,
markdowns or commissions and may not necessarily represent actual
transactions. Information prior to May 31, 1995 has been adjusted to reflect
the one for ten reverse stock split with respect to the Company's outstanding
Common Stock effective as of such date.
<TABLE>
<CAPTION>
High Low
- ------------------------------------------------------------
<S> <C> <C>
1994
First Quarter $1.50 $1.50
Second Quarter 0.10 0.10
Third Quarter -- --
Fourth Quarter 5.00 1.20
1995
First Quarter $5.00 $1.25
Second Quarter 2.00 1.50
Third Quarter 2.50 1.50
Fourth Quarter 3.50 1.50
</TABLE>
No dividends were declared by the Company in 1991 through 1995. The Company's
only source of cash is from dividends from the Bank. The Amended and Restated
Settlement Agreement prohibits the payment of dividends by the Company to its
stockholders until the unpaid principal amount and interest under the FDIC Note
are paid in full in accordance with the terms thereof. There are certain
additional restrictions on the ability of the Company to pay dividends and on
the ability of the Bank to transfer funds to the Company in the form of cash
dividends. See Item 8, "Financial Statements and Supplementary Data -- Note A
and Note J," which are incorporated herein by reference.
A-26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA OF FIRST COASTAL CORPORATION
The following table sets forth, in summary form, certain selected financial data
as of and for each of the five years in the period ended December 31, 1995.
The 1994 financial results reflect a $9.0 million extraordinary charge to
earnings as a result of the issuance by the Company of the non-recourse
promissory note to the Federal Deposit Insurance Corporation ("FDIC") in
consideration of the waiver and release of the FDIC's cross guaranty claim
against Coastal Savings Bank ("Coastal" or the "Bank") in connection with the
consummation of the Amended and Restated Settlement Agreement on January 31,
1995. See Item 8, "Financial Statements and Supplementary Data -- Note A,"
which is incorporated herein by reference.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income $11,707 $11,780 $12,748 $16,319 $21,032
Interest expense (1) 5,850 5,726 7,254 9,986 14,639
------- ------- ------- ------- -------
Net interest income 5,857 6,054 5,494 6,333 6,393
Provision for loan losses (425) 107 (30) 1,136 5,967
------- ------- ------- ------- -------
Net interest income
after provision for loan losses 6,282 5,947 5,524 5,197 426
Investment securities gains (losses) (4) 38 99 (19) 360
Other income 576 391 1,323 1,126 980
Other expenses (2) 5,194 6,278 6,158 7,049 12,853
Income tax benefit - - (4) (198) (114)
------- ------- ------- ------- -------
Income (loss) before minority
interest and extraordinary item 1,660 98 792 (547) (10,973)
Minority interest in
net income (loss) - - 44 (18) (378)
------- ------- ------- ------- -------
Income (loss) before
Extraordinary Item 1,660 98 748 (529) (10,595)
Extraordinary Item -
Charge to earnings as a result of the
settlement of the cross guaranty claim - 9,000 - - --
------- ------- ------- ------- -------
Net income (loss) $ 1,660 $(8,902) $ 748 $ (529) $(10,595)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
PER SHARE DATA:
Weighted Average Shares Outstanding 600,361 600,361 600,361 600,361 600,361
Income (loss) before
extraordinary item $ 2.77 $ .16 $ 1.25 $ (.88) $ (17.65)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income (loss) $ 2.77 $(14.83) $ 1.25 $ (.88) $ (17.65)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
There were no cash dividends declared for the five years ended December 31,
1995.
(1) The 1995 interest expense includes $419,000 in interest expense associated
with the $9.0 million note to the FDIC.
(2) In 1995 and 1994, the Company incurred approximately $0.3 million and $0.8
million, respectively, consisting of legal and other professional fees in
connection with the settlement of the cross guaranty claim with the FDIC.
The 1991 other expense included a $3.2 million writedown for the
deconsolidation of Suffield Bank.
A-27
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Total assets $145,453 $154,212 $170,819 $188,838 $214,422
Investment securities 19,712 16,746 1,036 4,061 l,487
Assets held for sale 281 185 3,421 6,882 3,661
Loans, net 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses 2,659 4,042 3,642 4,280 6,098
Nonperforming assets 7,517 9,006 11,627 24,382 27,303
Deposits 125,665 130,037 140,587 156,318 170,383
Borrowings 6,000 12,612 18,108 21,249 31,595
FDIC Note 9,000 9,000 - - -
Stockholders' equity 3,997 2,014 9,878 9,130 9,659
FINANCIAL RATIOS:
Net interest rate spread 4.13% 3.79% 3.26% 3.26% 2.47%
Return on average assets before
extraordinary item 1.14 .06 .41 (.27) (4.62)
Return on average assets 1.14 (5.48) .41 (.27) (4.62)
Return on average equity before
extraordinary item 58.20 .92 7.63 (5.44) (82.20)
Return on average equity 58.20 (83.78) 7.63 (5.44) (82.20)
Equity to assets 2.75 1.31 5.78 4.83 4.50
Dividend payout ratio -- -- -- -- --
Tier 1 leverage capital 2.74 1.41 5.63 4.81 4.50
Total risk-based capital 5.54 3.46 9.69 8.02 7.72
</TABLE>
A-28
<PAGE>
SELECTED FINANCIAL DATA FOR COASTAL SAVINGS BANK
The following table sets forth, in summary form, certain selected financial data
as of and for each of the five years in the period ended December 31, 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
Unaudited
---------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income $11,707 $11,774 $12,731 $16,275 $20,980
Interest expense 5,435 5,727 7,255 9,989 14,639
------- ------- ------- ------- -------
Net interest income 6,272 6,047 5,476 6,286 6,341
Provision for loan losses (425) 107 (30) 1,136 5,967
------- ------- ------- ------- -------
Net interest income after provision
for loan losses 6,697 5,940 5,506 5,150 374
Investment securities gains (losses) (4) 38 99 (19) 360
Other income 576 392 1,321 1,145 1,089
Other expenses 4,811 6,063 5,940 7,104 9,539
Income tax expense (benefit) -- -- 6 (198) (114)
------- ------- ------- -------- --------
Net income (loss)(1) $ 2,458 $ 307 $ 980 $ (630) $(7,602)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
</TABLE>
(1) In 1994, the Bank incurred approximately $0.6 million consisting of legal
and other professional fees in connection with the settlement of the cross
guaranty claim with the FDIC.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
Unaudited
---------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $145,446 $153,948 $170,177 $188,144 $212,611
Investment
securities 19,712 16,746 1,036 4,061 l,487
Assets held for sale 281 185 3,421 6,882 3,661
Loans, net 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses 2,659 4,042 3,642 4,280 6,098
Nonperforming assets 7,517 9,006 11,627 24,382 27,303
Deposits 125,764 130,076 140,599 156,378 170,528
Borrowings 6,000 12,612 18,108 21,249 31,595
Stockholders' equity 13,335 10,754 10,906 9,926 9,406
FINANCIAL RATIOS:
Return on average assets 1.68% .19% .54% (.32)% (3.33)%
Return on average equity 20.67 2.82 9.20 (6.37) (49.01)
Equity to assets 9.17 6.99 6.41 5.28 4.42
Tier 1 leverage capital 9.19 7.05 6.24 5.25 4.42
Total risk-based capital 15.59 12.12 10.57 8.60 7.57
</TABLE>
A-29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following management's discussion and analysis of First Coastal Corporation
("First Coastal" or the "Company") financial condition and results of operations
for the last three fiscal years should be read in conjunction with the
consolidated selected financial data and the consolidated financial statements
and notes appearing elsewhere herein.
SETTLEMENT OF CROSS GUARANTY CLAIM
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "Note" or the "FDIC Note"), secured by the Company's pledge of
the outstanding stock of the Bank. In 1994, the Company incurred an
extraordinary charge to earnings resulting from the issuance of the Note.
Principal and interest under the FDIC Note are deferred until its maturity date,
which is January 31, 1997, subject to extension under certain circumstances.
The Company announced on January 31, 1996 that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through an offering of its common stock,
including a rights offering to the Company's existing stockholders. The
offering will be made only by means of a prospectus. In addition to the
proceeds from the common stock offering, the Company also expects to use funds
derived from dividends from the Bank and the proceeds from a loan to satisfy its
obligation under the FDIC Note. The recapitalization and related transactions
are subject to a number of conditions, including the receipt of appropriate
regulatory approvals, and there can be no assurance that such recapitalization
and related transactions will be consummated or that the Company will be
successful in repaying the FDIC Note. The Company anticipates that the
recapitalization would be completed in the third quarter of 1996.
REMOVAL OF GOING CONCERN MODIFICATION
The report of the independent accountants ("Report") issued in connection with
the Company's 1993 consolidated financial statements stated that, among other
things, the Company's financial statements have been prepared assuming that the
Company will continue as a going concern due to the significance of the
uncertainty regarding the FDIC cross guaranty claim at the time. As a result of
the consummation of the Amended and Restated Settlement Agreement and certain
other factors as described in Note A to the Company's Consolidated Financial
Statements, the 1994 and 1995 Report of Independent Accountants expresses an
unqualified opinion on the financial statements of the Company for the years
ended December 31, 1994 and 1995.
A-30
<PAGE>
FINANCIAL CONDITION
INTEREST RATE SENSITIVITY
The following table sets forth certain information at December 31, 1995
regarding the rate sensitivity of the Company's earning assets and sources of
funds. For purposes of this table, rate sensitive earning assets ("RSA") and
rate sensitive liabilities ("RSL") include all such assets and liabilities
maturing or subject to repricing within the time frames outlined in the
following table. Other investment securities and interest-bearing demand
deposits are considered non-rate sensitive.
<TABLE>
<CAPTION>
After Three
Within Months After One After Two After Three
Three within But within But within But within After Non-rate
(IN THOUSANDS) Months One Year Two Years Three Years Five Years Five Years Sensitive Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning deposits $4,375 $4,375
Fed Funds 10,000 10,000
Securities:
Available for sale (1) 1,999 $2,021 $994 $787 $3,440 9,241
Held-to-maturity (1) 4,993 5,794 999 11,786
Assets held for sale 281 281
Loans (2) 25,713 42,850 9,769 $4,556 $2,969 12,793 1,878 100,528
Other assets 9,242 9,242
------- ------- ------- ------ ------ ------- ------- --------
TOTAL ASSETS $47,361 $50,665 $11,762 $4,556 $2,969 $13,580 $14,560 $145,453
------- ------- ------- ------ ------ ------- ------- --------
------- ------- ------- ------ ------ ------- ------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Savings and MMDA's $46,056 $46,056
CD's 13,823 $26,903 $11,385 $7,533 $3,031 $101 62,776
FHLB Advances 2,000 4,000 6,000
FDIC Note 9,000 9,000
Other liabilities $17,624 17,624
Stockholders' equity 3,997 3,997
------- ------- ------- ------ ------ ------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $59,879 $26,903 $22,385 $11,533 $3,031 $101 $21,621 $145,453
------- ------- ------- ------ ------ ------- ------- --------
------- ------- ------- ------ ------ ------- ------- --------
Gap $(12,518) $23,762 $(10,623) $(6,977) $(62) $13,479 $(7,061)
Cumulative Gap (12,518) 11,244 621 (6,356) (6,418) 7,061
RSA/Total assets 32.56% 34.83% 8.09% 3.13% 2.04% 9.34% 10.01%
RSL/Total assets 41.17 18.50 15.39 7.93 2.08 0.07 14.86
Cumulative RSA/RSL 79.09 112.96 100.57 94.73 94.81 105.70
Cumulative Gap/Total assets (8.61) 7.73 .43 (4.37) (4.41) 4.85
</TABLE>
(1) Non-rate sensitive securities include certain equity investments such as
FHLB stock and limited partnership interests. Callable securities are
placed according to earliest call date.
(2) Nonaccrual loans are considered non-rate sensitive and the allowance for
loan losses is included in the non-rate sensitive category.
A-31
<PAGE>
At December 31, 1995, Coastal is asset-sensitive (positive Gap) within a one
year time frame in the amount of $11.2 million or 7.73% of total assets. This
compares to a positive Gap of $1.9 million or 1.2% of total assets at December
31, 1994. When a bank's ability to reprice interest-earning assets exceeds its
ability to reprice interest-bearing liabilities within shorter time periods, as
in the case with the Company, decreases in interest rates generally would
adversely affect net interest income, while increases in interest rates
generally would have the opposite effect. However, because earning assets and
sources of funds do not reprice in exactly the same manner as interest levels
change, the preceding table should not be viewed as a sole indicator of how the
Company will be affected by changes in interest rates. It is the Company's
policy to seek to reduce its exposure to the adverse effects of volatile
interest rates. Evaulating and managing this potential exposure is a continual
challenge in a changing environment and a primary objective of the Company's
asset/liability management policy. Managing the rate sensitivity within the
balance sheet can be accomplished in several ways. By managing the origination
of new assets and liabilities, or the rollover of the existing balance sheet
assets, incremental change towards the desired sensitivity position can be
achieved. However, as interest levels decrease the volume of new adjustable
rate loans decrease and conversely the demand for fixed rate loans increase.
The Company has an asset/liability committee which meets weekly to discuss the
management of interest rate risk, liquidity and funds management.
INVESTMENT SECURITIES
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations and also contains miscellaneous equity securities. Total
investment securities at December 31, 1995 were $19.7 million compared to $16.7
million at December 31, 1994. This increase is attributable to the purchase of
$11.8 million in U.S. government agency callable notes and $1.0 million in U.S.
treasury securities, partially offset by sales totaling $2.0 million of the
Bank's holdings in an adjustable rate mutual fund for financial institutions,
$1.0 million in mortgage backed securities and maturities of $7.0 million in
U.S. treasury securities.
At December 31, 1995 securities classified as held to maturity consisted of $0.9
million in U.S. government treasury bills and $10.8 million in callable notes
issued by Fannie Mae, FHLB, Sallie Mae and Freddie Mac.
A-32
<PAGE>
The following tables set forth the book value and maturities of investment
securities and weighted average yields at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
(DOLLARS IN THOUSANDS) Book Value Yield Book Value Yield
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations maturing
in 1-5 years $ 5,014 5.6% $ 4,852 5.8%
Mortgage backed securities maturing
in over 10 years 787 7.5 858 7.5
Equity/mutual fund 2,000 6.2 3,894 5.6
Other 125 - 320 2.9
------- -------
$ 7,926 5.9% $ 9,924 5.9%
------- -------
------- -------
Held to maturity:
U.S. government obligations maturing
in one year or less $ 993 6.5% $ 6,822 5.2%
U.S. government agency callable notes
maturing after 1-5 years (final maturity) 8,991 6.6 -
5-10 years (final maturity) 1,802 7.3 - -
------- -------
10,793 6.7 - -
------- -------
$11,786 6.7% $ 6,822 5.2%
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
--------------------
(DOLLARS IN THOUSANDS) Book Value Yield
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and
agency obligations:
maturing 1 year or less $ 628 3.5%
maturing after 1-5 years - -
------
628 3.5
Other bonds and notes:
maturing after 1-5 years - -
maturing after 10 years - -
Other securities 408 2.3
------
Total investments $1,036 3.0%
------
------
</TABLE>
A-33
<PAGE>
LOANS
Loans, net of unearned income, decreased $9.1 million (or 8.3%) from $109.6
million at December 31, 1994 to $100.5 million at December 31, 1995. The
reasons for the decrease are (i) $14.4 million in early loan payoffs,
(ii) reclassification during 1995 of approximately $1.0 million of loans to real
estate owned, (iii) amortization of $3.6 million, and (iv) charge-off of loans
totaling approximately $1.3 million, partially offset by new loan volume of
$11.2 million.
The decline in loan balances in 1995 represents the continuation of a five year
trend that is largely the result of a combination of two factors: Coastal's
financial difficulties during this period and the FDIC's cross guaranty claim
against Coastal, which resulted from the 1991 failure of Suffield Bank.
Coastal's financial difficulties had two primary adverse effects on the Bank's
ability to generate new loan volume and retain existing loan customers. First,
as a result of the Order to Cease and Desist among the Bank, the FDIC and the
Maine Bureau of Banking effective January 30, 1992, Coastal was required to
improve its ratio of Tier 1 capital to total assets to 6.0% by December 31,
1993, from the December 31, 1991 level of 4.42%, with incremental improvement
required at six month intervals. As a result of this requirement, management
effected a strategy of selective balance sheet shrinkage. The reduction in
asset size, from $212.6 million at December 31, 1991 to $170.2 million at
December 31, 1993, along with the Bank's return to profitability in 1993
resulted in the Bank's Tier 1 capital to total assets ratio improving to 6.24%
at December 31, 1993. At December 31, 1995, this ratio had further improved to
9.19%.
Secondly, the Bank's financial difficulties resulted in the need for management
to expend significant resources addressing the asset quality problems which were
the primary source of the Company's operating losses. The focus on asset
quality improvement resulted in a reduction in nonperforming assets from a peak
level of $29.2 million at July 31, 1992 to $7.5 million at December 31, 1995.
In combination with the need to reduce the size of Coastal's deposit and loan
balances, this focus on asset quality improvement resulted in significantly
reduced efforts at loan originations, except for residential mortgage loans
which were primarily originated with an intent to sell these loans in the
secondary mortgage market.
The uncertainties surrounding the resolution of the FDIC's cross guaranty claim
contributed further to the decline in the Bank's loan balances. Management was
required to devote significant resources towards negotiating a satisfactory
settlement of the cross guaranty claim and subsequently, towards determining the
best alternative for repaying the FDIC Note. Also, for an extended period of
time the cross guaranty claim created uncertainties with respect to the future
of the Bank. These uncertainties adversely affected Coastal's ability to
develop new commercial and retail loan business. Further, until the Company
chose among the alternatives for repaying the FDIC Note, certain management
initiatives were deferred, including those relating to the development of new
loan and deposit business. Until late 1995, the Bank's commercial real estate
lending has been primarily limited to the restructuring of existing commercial
real estate loans and the financing of real estate owned.
A-34
<PAGE>
The Bank began expanding in mid-1995 its residential and consumer lending
capabilities, and subsequently has experienced a significant increase in new
loan originations. In early 1996, the combination of the continued improvement
in overall asset quality and the announcement relating to the Company's plans
to recapitalize, has recently allowed the Bank to begin focusing more resources
on the generation of new commercial loans.
Coastal is an approved seller and servicer by and for the Federal National
Mortgage Association. At December 31, 1995, Coastal was servicing $53.7 million
of loans which were owned by others, as compared to $57.0 million at December
31, 1994. Servicing fee income related to these loans is reported as other
income in the consolidated statements of operations and for the years ended
December 31, 1995 and 1994, was $179,000 and $58,000, respectively. Servicing
fee income for 1994 reflects a $132,000 charge, resulting from higher than
anticipated prepayments of serviced loans.
Coastal continues to be active in secondary market transactions primarily
through the sale of residential mortgage loans and mortgage-backed securities
that it originates, although lower interest rates led to an increase in
prepayments of off balance sheet serviced loans in 1995. The sale of long-term
fixed rate mortgage loans is intended to improve the interest rate sensitivity
of the Bank's assets (consistent with the Bank's asset/liability policy),
generate future fee income and provide additional funds for lending and
liquidity.
A-35
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The following table represents the allocation of the allowance for loan losses
("Allowance") at December 31, 1995, 1994 and 1993. The percentages represent
the percent of loans in each category to total loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
Percent Percent Percent
of Loans of Loans of Loans
to Total to Total to Total
(DOLLARS IN THOUSANDS) Amount Loans Amount Loans Amount Loans
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 82 30.8% $ 66 30.2% $ 80 32.2%
Commercial 2,216 50.5 3,322 54.6 3,000 50.2
Real estate construction loans -- -- -- -- 4 .3
Commercial and industrial loans 13 2.5 46 .6 38 2.4
Consumer and other loans 120 16.2 141 14.6 177 14.9
Unallocated 228 -- 467 -- 343 --
------ ----- ------ ----- ------ -----
Total $2,659 100.0% $4,042 100.0% $3,642 100.0%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
Allowance as a percentage of loans 2.65% 3.67% 2.95%
Allowance as a percentage of
nonperforming loans 47.96% 66.47% 64.11%
Allowance as a percentage of
nonperforming loans
(excluding restructured loans) 125.60% 87.90% 247.92%
</TABLE>
The Allowance at December 31, 1995 equaled $2,659,000 as compared to $4,042,000
at December 31, 1994. The reduction in the Allowance is the result of
substantial loan charge-offs in the amount of $1,333,000 and negative provision
expense totaling $425,000, partially offset by loan loss recoveries of $375,000.
The loan charge-offs were largely associated with previously identified loan
loss exposure taken into consideration as part of management's review of the
adequacy of the Allowance at December 31, 1994. The negative provision for loan
loss expense for the year of $425,000 was largely the result of management's
determination as part of its December 31, 1995 review of the Allowance that a
surplus existed in the Allowance, leading to the decision to effect a reversal
of provision for loan loss expense in the amount of $675,000 in the fourth
quarter of 1995.
The following table sets forth the changes in the Allowance, including charge-
offs and recoveries, by loan category for the past five years:
A-36
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 4,042 $ 3,642 $ 4,280 $ 6,098 $ 9,185
Deconsolidation of Suffield Bank (4,400)
Charge-offs:
Real estate mortgage loans (1,113) (178) (1,197) (2,726) (3,665)
Real estate construction loans -- -- (28) ( 121) ( 201)
Commercial and industrial loans ( 142) -- ( 55) ( 178) ( 712)
Consumer and other loans ( 78) ( 112) ( 89) ( 143) ( 218)
----- ----- ----- ----- -----
Total charge-offs (1,333) ( 290) (1,369) (3,168) (4,796)
Recoveries:
Real estate mortgage loans 172 127 179 165 34
Commercial and industrial
loans 170 410 543 21 2
Consumer and other loans 33 46 39 28 106
------ ----- ----- ----- -----
Total recoveries 375 583 761 214 142
----- ----- ----- ------ -----
Net (charge-offs) recoveries ( 958) 293 ( 608) (2,954) (4,654)
----- ----- ----- ----- -----
Provision for loan losses ( 425) 107 ( 30) 1,136 5,967
----- ----- ----- ----- -----
Balance at end of period $2,659 $4,042 $3,642 $4,280 $6,098
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net charge-offs as a percentage
of average loans .91% (.25)% .46% 1.76% 2.39%
</TABLE>
The provision for loan losses for the years ended December 31, 1995, 1994 and
1993 have declined significantly in comparison to prior years. This is due to a
combination of factors, including (i) a reduction in the amount of new, emerging
loss exposure being identified during this period as compared to prior years,
(ii) a reduction or elimination of loss exposure previously allocated against
certain loans generally coming about as a result of improvement in the overall
credit quality of these loans or loan payoffs, and (iii) significant loan loss
recoveries.
The balance of the Allowance declined $1,383,000 during the year ended December
31, 1995. For some time prior to the beginning of the year ended December 31,
1995, management believed that a significant reduction in the level of the
Allowance as compared to the December 31, 1992, 1993 and 1994 balances of
$4,280,000, $3,642,000 and $4,042,000, respectively, was likely at some future
point, possibly as early as December 31, 1995. This expectation was based both
upon management's analysis of the loan portfolio and the fact that banks
recovering from a period of loan quality problems typically experience a decline
in the level of the allowance for loan loss reserves. This is because banks
experiencing loan quality problems typically increase their allowance for loan
loss through increases in provision expense in order to reserve against
anticipated higher future levels of loan losses. Typically over time,
individual loan losses within such loan portfolios are quantified and charged-
off against the allowance for loss. As loan quality improves, and the amount of
new exposure requiring additional loan loss declines, the amount of charge-offs
against the Allowance often signficantly exceeds the amount of offsetting new
provision expense and loan loss recoveries. For example, Coastal's large
decline in the balance of the Allowance for the year ended December 31, 1992, to
$4,280,000 from the December 31, 1991 level of $6,098,000, was attributable to
this factor. During 1995, as a result of loan restructures, loan payoffs and
paydowns, management was able to quantify the loss exposure associated with a
number of large loans against which significant
A-37
<PAGE>
loan loss reserves were allocated. In total, the resulting charge-offs were
significantly less than the level of reserves allocated against the individual
loans. The reduced level of charge-offs in combination with significant loan
loss recoveries in the amount of $375,000 in 1995, resulted in the determination
at year end, in accordance with the Bank's allowance for loan loss policy, that
the balance of the Allowance would be significantly in excess of that required
to cover the loan loss exposure estimated to exist in the loan portfolio unless
the bank effected a provision expense reversal. As a result, a provision
expense reversal in the amount of $675,000 was recorded in the fourth quarter of
1995, reducing the Allowance to $2,659,000. This resulted in total negative
provision expense for the year ended December 31, 1995 of $425,000.
Though the amount of charge-offs for the year ended December 31, 1995 of
$1,333,000 was high as compared to the prior year level of $290,000, this is
largely the result of the timing of the quantification of the losses and related
charge-offs associated with several of the large loans mentioned above. As
mentioned above, to a significant degree by December 31, 1994, the prospective
loss exposure associated with these loans had already been recognized and was
reflected in the balance of the Allowance.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans that
remain vulnerable to loan default. Deterioration in the local economy or real
estate market, or upward movements in interest rates, could have an adverse
effect on the performance of the loan portfolio that could result in the need
for an increase in the Allowance. Conversely, further improvement in overall
asset quality, favorable economic conditions or a favorable local real estate
market could positively affect the Allowance.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,948 $4,340 $1,220 $4,103 $10,638
Accruing loans past due
90 days or more 169 258 249 194 565
Restructured loans 3,427 1,483 4,212 7,455 7,678
Real estate owned 1,973 2,222 5,299 3,833 1,828
Financed real estate owned -- -- 450 1,535 --
In-substance repossessions n/a 703 197 7,262 6,594
------ ------ ------- ------- -------
$7,517 $9,006 $11,627 $24,382 $27,303
------ ------ ------- ------- -------
------ ------ ------- ------- -------
</TABLE>
A-38
<PAGE>
Nonperforming loans (consisting of nonaccrual loans, accruing loans past due 90
days or more and restructured loans) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate mortgage loans:
Residential $ 386 $ 115 $ 126
Commercial 5,007 5,667 5,420
Real estate construction loans -- -- --
Commercial and industrial loans -- 156 12
Consumer and other loans 151 143 123
------- ------- -------
Total loans $ 5,544 $ 6,081 $ 5,681
------- ------- -------
------- ------- -------
</TABLE>
The following table sets forth certain information regarding nonperforming
commercial loans:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
---------------------- ---------------------- ----------------------
(DOLLARS IN THOUSANDS) Number of Outstanding Number of Outstanding Number of Outstanding
Type of Property Security Loans Balance Loans Balance Loans Balance
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1-4 Family Residential 1 $ 158 3 $ 308 2 $ 238
5 or more Family Residential 5 977 5 1,073 5 970
Non-Residential Real Estate 5 3,872 3 4,286 5 4,212
Commercial and Industrial -- -- 2 156 2 12
-- ------ -- ------ -- ------
11 $5,007 13 $5,823 14 $5,432
-- ------ -- ------ -- ------
-- ------ -- ------ -- ------
</TABLE>
Although the level of nonperforming assets declined in 1995, the level of
nonperforming assets had a significant adverse effect on interest income.
Interest income that would have been recorded in the year ended December 31,
1995 on nonaccrual and restructured loans under their original terms was
$487,000. Interest income actually recorded on these loans in 1995 was
$406,000. Management believes that the level of nonperforming assets will
continue to decline in 1996. However, this expectation is predicated on
continued stabilization of the real estate market and local economy, along with
a continuation of the trend in lower default rates for commercial real estate
loans. This favorable trend could be adversely affected by an increase in
interest rates.
Nonperforming loans were $5.5 million, or 5.5%, of total loans at December 31,
1995, as compared to $6.1 million, or 5.5%, of total loans at December 31, 1994.
Included in nonperforming loans at December 31, 1995 and 1994 are $3.4 million
and $1.5 million, respectively, of restructured loans which are performing in
accordance with the material terms of the restructuring.
IMPAIRED LOANS
Management reviews loans on a case by case basis to determine which loans should
be classified as impaired. If management believes there is a high probability
of a loss of principal or interest, then such loans are determined to be
impaired. At December 31, 1995, the recorded investment in loans
A-39
<PAGE>
for which impairment has been recognized in accordance with FASB Statement No.
114 totaled $3.7 million, of which $230,000 related to loans with no allocated
reserve because the loans have been partially written down through charge-offs
and $3.5 million related to loans with corresponding allocated reserves of
$398,000 for the year ended December 31, 1995. Included in the impaired loans
amount is $301,000 in nonaccrual loans and $3.4 million in restructured loans.
All impaired loans were secured by real estate at December 31, 1995 and
accounted for by the lower of the fair value of the collateral or amortized loan
value.
POTENTIAL PROBLEM LOANS
Though the real estate market has improved to some degree as compared to the
depressed conditions of several years ago, management recognizes that the
overall soft Maine real estate market creates an increased risk that currently
performing loans could become nonperforming. In particular, management believes
that the greatest exposure is in the area of currently performing potential
problem commercial real estate loans.
These loans, not otherwise identified as nonperforming, nonaccrual or as a
troubled debt restructuring, are largely secured by income-producing properties
located in Maine. In many cases, the borrowers on these loans have experienced
inadequate rental revenues, increased vacancies and cash flow problems. Most of
these potential problem loans were originated in the late 1980's.
At December 31, 1995, the Bank had identified approximately $6.9 million of
currently performing but potential problem loans. Such loans represented 4.7%
of total assets, ranging in size from $4,000 to $1.8 million. This compares to
$9.0 million of potential problem real estate loans at December 31, 1994, a
23.5% decrease. Of the 1995 total, three loan relationships (property type
other) involving seven loans represent $5.5 million, or 79.2%. During the first
quarter of 1996, a $500,000 payment was applied against one of the three larger
loan relationships.
The following table sets forth certain information regarding potential problem
loans at December 31, 1995:
<TABLE>
<CAPTION>
Number of Balance
Type of Security Property Outstanding Loans (IN THOUSANDS)
- ------------------------------------------------------------------------------
<S> <C> <C>
Apartments 6 $ 2,647
Industrial 1 1,362
Single family 4 119
Other 13 2,757
-- ------
24 $6,885
-- ------
-- ------
</TABLE>
Management is unable to predict the extent, if any, to which these loans may
become nonperforming in the future. An increase in the level of nonperforming
loans could result in the need for increased provisions for loan losses. As of
December 31, 1995, the Company believes the Bank's aggregate allocated loan loss
reserves against these potential problem loans, determined in accordance with
the
A-40
<PAGE>
Bank's allowance for loan loss policy, is adequate to cover the loss exposure
estimated to be contained within these potential problem loans.
REAL ESTATE OWNED
Real estate owned ("REO") consists of properties acquired through mortgage loan
foreclosure proceedings or in full or partial satisfaction of outstanding loan
obligations, and sales of REO properties financed by Coastal which do not meet
the requirements of Financial Accounting Standards Board ("FASB") Statement
No. 66. At December 31, 1995, REO totaled approximately $2.0 million and
consisted of $1.4 million of office buildings and mixed use commercial
buildings, $0.5 million of apartment buildings and $0.1 million of land.
LIQUIDITY - COASTAL
Deposits totaled $125.7 million at December 31, 1995, a decrease of $4.3 million
(or 3.4%) from the level of $130.0 million at December 31, 1994.
On February 22, 1996, the Bank entered into an agreement to sell its Kezar Falls
branch to Maine Bank & Trust Company. Included in the sale are all of the
branch's deposits (totaling approximately $9.9 million at December 31, 1995),
the real estate and certain of the furniture, fixtures and equipment of the
branch. The agreement between the Bank and Maine Bank & Trust Company is
expected to be consummated during the second quarter of 1996, subject to the
receipt of appropriate regulatory approvals.
Coastal has the capability of borrowing additional funds from the Federal Home
Loan Bank ("FHLB") of Boston with three-day advance notice when adequately
secured by qualified collateral. In addition, effective as of June 8, 1993, the
FHLB of Boston restricted new advances to maturities of six months or less as a
result of the cross guaranty claim. On May 1, 1995, the Bank received a letter
from the FHLB of Boston stating that it would lengthen the maturity restriction
on new fixed term and fixed rate advances from six months to one year. See Note
I to the Consolidated Financial Statements for information relating to advances
from the FHLB of Boston. Coastal is also approved by the Federal Reserve Bank
of Boston to obtain liquidity from its "Discount Window" provided that assets
are pledged to the Federal Reserve Bank's satisfaction.
Unfunded loan commitments for December 31, 1995 and 1994 were approximately $8.0
million and $7.8 million, respectively, consisting primarily of home equity
lines of credit secured by real estate. There were no standby letters of credit
for the years ended December 31, 1995 and 1994.
A-41
<PAGE>
The breakdown of such commitments is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage:
Residential $ 174 $ 85
Commercial -- --
Construction -- --
Commercial lines of credit 191 615
Consumer lines of credit 7,649 7,137
------ ------
Total $8,014 $7,837
------ ------
------ ------
</TABLE>
Coastal expects to fund these commitments through its traditional sources
previously described and believes that liquidity is adequate.
LIQUIDITY - PARENT
On a parent company only basis, the Company conducts no separate operations.
Its business consists of the business of its banking subsidiary. In addition to
the FDIC Note in the principal amount of $9.0 million issued by the Company to
the FDIC on January 31, 1995 in connection with the settlement of the cross
guaranty claim, the Company's expenses primarily include Delaware franchise
taxes associated with the Company's authorized capital stock, certain legal and
various other expenses. Expenses, including certain audit and professional
fees, insurance and other expenses, are allocated between Coastal and the
Company based upon the relative benefits derived. At December 31, 1995, the
Company's assets (other than its investment in its subsidiary) consisted of
$99,000 in cash and fixed assets of $8,000.
The principal source of cash for the Company is dividend payments from Coastal;
however, as described in Note J to the Consolidated Financial Statements, there
exist certain restrictions regarding the ability of Coastal to transfer funds.
Following the receipt of appropriate regulatory approvals, on November 30, 1994
and November 13, 1995 Coastal paid the Company cash dividends of $175,000 and
$200,000, respectively, for certain current and anticipated operating expenses
of the Company.
A-42
<PAGE>
CAPITAL - COASTAL
The table below sets forth the regulatory capital requirements and capital
ratios for Coastal at December 31, 1995:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------
<S> <C>
Tier 1 capital (Leverage) to total assets (1)ratio
- --------------------------------------------------
Qualifying capital $13,296
Actual % 9.19%
Minimum requirement % 6.00%
Average assets for fourth quarter $144,658
Tier 1 capital to risk-weighted assets
- --------------------------------------
Qualifying capital $13,296
Actual % 14.32%
Minimum requirement % 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- -------------------------------------
Qualifying capital $14,475
Actual % 15.59%
Minimum requirement % 8.00%
Gross risk-weighted assets $92,821
</TABLE>
Note: As described in Note A to the Consolidated Financial Statements, the
Memorandum of Understanding among Coastal, the FDIC and the Maine Bureau of
Banking requires Coastal to maintain a Tier 1 capital to total assets ratio of
6.0% or greater. Coastal's Tier 1 capital to total assets ratio at December 31,
1995 was 9.19%.
(1) Calculated on an average quarterly basis
CAPITAL - COMPANY
The Federal Reserve capital adequacy guidelines apply on a consolidated basis to
bank holding companies with consolidated assets of $150 million or more. For
bank holding companies which have less than $150 million in consolidated assets,
as did the Company for each of the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995 and December 31, 1995, the guidelines are applied on a bank-
only basis (as opposed to a consolidated basis) unless (i) the parent bank
holding company is engaged in nonbank activity involving significant leverage or
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines. As a
result, applied on a bank-only basis, the Company's ratios
A-43
<PAGE>
of tier 1 capital to total assets, tier 1 capital to risk-weighted assets, and
qualifying total capital to risk-weighted assets of 9.19%, 14.32%, and 15.59%,
respectively, at December 31, 1995 were in complaince with such guidelines. If
the Company were required to calculate its ratios of tier 1 capital to total
assets, tier 1 capital to risk-weighted assets, and qualifying total capital to
risk-weighted assets on a consolidated basis, such ratios would be 2.74%, 4.27%
and 5.54%, respectively.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time. See Item 8, "Financial Statements and Supplementary Data --
Note J," for dividend restrictions.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
NET INCOME
For the year ended December 31, 1995, the Company had net income of $1.7 million
compared to a net loss of $8.9 million at December 31, 1994. The improvement in
earnings for 1995 is primarily attributable to three items: (i) the 1994 net
loss included a $9.0 million extraordinary charge to earnings upon the issuance
of a Note to the FDIC for the waiver and release of the cross guaranty claim
against the Bank, (ii) a negative provision for loan losses in 1995 of $425,000,
and (iii) a reduction in other expenses of $1.1 million. Each of these
principal components of the Company's operating results is discussed below.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1995 was $5.9 million,
compared to $6.0 million for the year ended December 31, 1994. Included in the
1995 net interest income total is interest expense of $0.4 million for the
Company's $9.0 million Note to the FDIC.
Changes in net interest income are caused by changes in interest rates, changes
in the mix of earning assets and sources of funds, changes in the level of
earning assets and sources of funds and changes in the amount of non-earning
assets and non-interest sources of funds. Overall, the Company's interest
income for 1995 decreased $73,000 as a result of a $973,000 reduction in
interest income due to the decline in total interest earning assets, which was
offset in part by an increase in interest income of $900,000 from higher rates
received on interest earning assets. Interest expense increased by $124,000.
This was the result of increased interest expense of $921,000 due to an increase
in the rates paid on interest bearing liabilities partially offset by reduced
interest expense of $797,000 associated with lower balances of interest bearing
liabilities. For further detail, see the rate/volume analysis that follows.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the year ended December 31, 1995 was
$(425,000) as compared to $107,000 for the year ended December 31, 1994. In the
fourth quarter of 1995, the Company
A-44
<PAGE>
posted a $675,000 provision expense reversal resulting from the determination by
management that the level of the Allowance was at a level estimated to be in
excess of that required to adequately cover the loss exposure estimated by
management to be inherent within the loan portfolio. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Allowance for Loan Losses."
The Company's policy is to fund the Allowance by charging operations in the form
of provision for loan loss expense which represents estimated loss exposure
based on periodic evaluations of the loan portfolio and current economic trends.
The Company continues to hold a large concentration of commercial real estate
loans. The ultimate collectibility of the Company's commercial real estate loan
portfolio is particularly susceptible to changes in local real estate market
conditions. Deterioration in the local economy or real estate market, or upward
movement in interest rates, could have an adverse impact on the loan portfolio
that could result in the need for increased provision for loan losses.
Management believes that the Allowance is adequate at December 31, 1995 and that
foreclosed real estate is recorded at the lower of cost or estimated fair value
(minus estimated costs to sell). While management uses available information to
recognize losses on loans and real estate owned, future additions to the
Allowance and write-downs may be necessary based on changes in the financial
condition of various borrowers, new information that becomes available relative
to various borrowers, loan real estate collateral or real estate owned, as well
as changes in local, regional or national economic conditions. In addition,
various regulatory authorities, as an integral part of their examination
process, periodically review the Company's Allowance and the carrying value of
real estate owned. Such authorities may require the Company to recognize
additions to the Allowance and/or write down the carrying value of real estate
owned, based on their judgments on information available to them at the time of
their examination.
OTHER INCOME
Other income in 1995, including investment securities gains and losses, was
$572,000 as compared to $429,000 in 1994. This increase is primarily the result
of a $132,000 charge to earnings in 1994 establishing a valuation reserve
against the deferred mortgage servicing assets as a result of higher than
anticipated prepayments of serviced loans.
OTHER EXPENSES
The following table summarizes 1995 and 1994 other expenses:
<TABLE>
<CAPTION>
Increase
(DOLLARS IN THOUSANDS) 1995 1994 (Decrease)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $2,092 $2,020 $ 72
Occupancy 440 568 (128)
Net cost of operation of REO and ISR 56 527 (471)
Other operating expenses 2,606 3,163 (557)
------ ------ -------
$5,194 $6,278 $(1,084)
------ ------ -------
------ ------ -------
</TABLE>
A-45
<PAGE>
The decrease in total expenses from 1994 to 1995 is mainly attributable to four
items: (i) in 1994 the Company incurred $812,000 in expenses associated with
the settlement of the cross guaranty claim versus approximately $300,000 in
1995, (ii) the net cost of REO declined by $471,000 ($258,000 from reduced
expenses (net of revenues) resulting from fewer REO properties and decreased
vacancies, and $213,000 resulting from a reduction in write downs from REO
properties), (iii) the cost of FDIC insurance expense on deposits declined
$216,000 resulting from a decrease in the Bank's assessment rate, and (iv) a
reduction in occupancy expenses resulting from the closure of two banking
offices in the second and third quarters of 1994.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993.
NET INCOME
For the year ended December 31, 1994, the Company had a net loss of $8.9
million, compared to net income of $0.7 million for the year ended December 31,
1993. This decrease was primarily attributable to two items. First, as a
result of the consummation of the Amended and Restated Settlement Agreement on
January 31, 1995, First Coastal issued to the FDIC a Note in the amount of $9.0
million in consideration of the waiver and release of the cross guaranty claim
against the Bank. First Coastal recorded the Note and recognized an
extraordinary charge to earnings in the amount of $9.0 million at December 31,
1994. Second, expenses related to the settlement of the cross guaranty claim
totaled $812,000 for the year ended December 31, 1994.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1994 was $6.1 million, an
increase of $0.6 million as compared to $5.5 million for the year ended December
31, 1993. This increase is mainly attributable to a rising interest rate
environment for the year ended December 31, 1994 and which resulted in an
increase in rates on existing adjustable rate loans and investments.
Notwithstanding the increased rate environment that was experienced throughout
1994, the Company's rates paid on deposit transaction accounts remained
relatively unchanged, thereby increasing the spread on Earning Assets versus
Sources of Funds, positively impacting net interest income. However, earning
assets and sources of funds do not reprice in exactly the same manner as
interest levels change. Another factor contributing to the increase in net
interest income was the investment of interest earning deposits in higher
earning securities of approximately $15.7 million throughout 1994.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the year ended December 31, 1994 was $107,000
as compared to negative provision expense of $30,000 for the year ended
December 31, 1993. In 1992 and 1991, significant provisions were made to
recognize the perceived deteriorating real estate market. In 1993, there was
present a more stable environment. Also, many of the previously recognized loan
problems were worked out or reclassified to a foreclosed status. In addition,
loan balance levels declined in 1993 and 1994 compared to prior years.
A-46
<PAGE>
OTHER INCOME
Other income in 1994, including investment securities gains and losses, was
$429,000 as compared to $1,422,000 in 1993. This decrease was primarily the
result of a decrease in gain on sales of mortgage loans as a result of a steady
reduction in loan origination volume caused by rising interest rates experienced
during 1994; consequently, fewer mortgage backed securities were sold.
Additionally, the Company posted an unrealized loss on loans held for sale of
$134,000 in the second quarter of 1994. The 1994 servicing fee income for loans
serviced for others reflects a $132,000 charge to earnings in establishing a
valuation reserve against the deferred mortgage servicing asset as a result of
higher than anticipated prepayments of serviced loans.
OTHER EXPENSES
The following table summarizes 1994 and 1993 other expenses:
<TABLE>
<CAPTION>
Increase
(DOLLARS IN THOUSANDS) 1994 1993 (Decrease)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $2,020 $2,218 $(198)
Occupancy 568 595 (27)
Net cost of operation of REO and ISR 527 593 (66)
Other operating expenses 3,163 2,752 411
------ ------ ----
$6,278 $6,158 $120
------ ------ ----
------ ------ ----
</TABLE>
The most significant increases in other operating expenses for the year ended
December 31, 1994 were the expenses related to the settlement of the cross
guaranty claim which amounted to $812,000 of which $677,000 was for legal
expenses and $135,000 was for accounting and professional services. All other
operating expense categories, exclusive of expenses related to the settlement of
the cross guaranty claim, decreased by a net of $692,000, primarily resulting
from staff reductions, two branch closures and normal cost cutting measures
throughout most operating expense categories.
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and expense of the Company for the periods indicated. For each category
of interest earning assets and interest bearing liabilities, information is
provided on changes attributable to: (i) changes in rates (change in rate
multiplied by old volume); (ii) changes in volume (change in volume multiplied
by old rate); and (iii) changes in rate/volume (change in rate multiplied by the
changes in volume which is proportionately distributed to the volume and rate
changes).
A-47
<PAGE>
The table illustrates the relative effect of changes in interest rates and the
Company's net earning assets on its net interest income.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
Compared to
Year Ended December 31, 1994
---------------------------------------
Increase (Decrease)
Due to
-----------------------
(IN THOUSANDS) Rate Volume Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans(1) $450 $(887) $(437)
Investments held to maturity 123 160 283
Investment available for sale 37 65 102
Interest earning deposits 294 (242) 52
Assets held for sale (4) (69) (73)
----- ------ ------
Total interest income 900 (973) (73)
----- ------ ------
Interest expense:
Savings 67 (229) (162)
Other time deposits 510 19 529
FHLB advances (75) (587) (662)
FDIC Note 419 - 419
----- ------ ------
Total interest expense 921 (797) 124
----- ------ ------
Net change in net interest income
before provision for loan losses $(21) $(176) $(197)
----- ------ ------
----- ------ ------
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
average balance volumes.
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Compared to
Year Ended December 31, 1993
---------------------------------------
Increase (Decrease)
Due to
-----------------------
(IN THOUSANDS) Rate Volume Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans(1) $(32) $(1,384) $(1,416)
Investments 23 498 521
Interest earning deposits 252 (145) 107
Assets held for sale (19) (161) (180)
----- ------ ----
Total interest income 224 (1,192) (968)
----- ------ ----
Interest expense:
Savings (116) (113) (229)
Other time deposits (218) (365) (583)
FHLB advances (120) (596) (716)
----- ------- ----
Total interest expense (454) (1,074) (1,528)
----- ------ ------
Net change in net interest
income before provision
for loan losses $678 $(118) $ 560
----- ------ ------
----- ------ ------
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
average balance volumes.
A-48
<PAGE>
AVERAGE BALANCE SHEETS
The table below shows the major items that affected net interest income for each
of the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans (1)(2) $105,742 $ 9,642 9.12% $115,940 $10,079 8.69% $131,795 $11,494 8.72%
Investments
Investments 1993 3,692 194 5.25
Available for sale(3) 9,782 606 6.20 8,658 504 5.82 -- -- --
Held to maturity 7,917 494 6.24 4,504 210 4.68 -- -- --
Interest earning deposits 15,889 945 5.95 21,808 894 4.10 26,747 787 2.94
Assets held for sale 372 20 5.38 1,471 93 6.32 3,591 273 7.60
-------- ------- -------- ------- -------- -------
Total interest earning assets 139,702 11,707 8.38 152,381 11,780 7.73 165,825 12,748 7.69
Noninterest earning assets 6,444 10,206 15,880
-------- -------- --------
Total assets $146,146 $162,587 $181,705
-------- -------- --------
-------- -------- --------
LIABILITIES:
Savings $ 60,159 $ 1,644 2.73% $ 68,911 $ 1,806 2.62% $ 72,955 $ 2,035 2.79%
Other time deposits 61,344 3,333 5.43 60,930 2,804 4.60 68,288 3,387 4.96
FHLB advances 7,253 454 6.26 15,296 1,116 7.30 22,679 1,832 8.08
FDIC Note(4) 9,000 419 4.66 25 -- -- -- -- --
-------- ------- -------- ------- -------- -------
Total interest bearing liabilities 137,756 5,850 4.25 145,162 5,726 3.94 163,922 7,254 4.43
Noninterest bearing deposits 4,973 5,798 6,132
Noninterest bearing liabilities 565 1,002 1,844
Stockholders' equity 2,852 10,625 9,807
-------- -------- --------
Total liabilities and stockholders'equity $146,146 $162,587 $181,705
-------- -------- --------
-------- -------- --------
Net interest income $ 5,857 $ 6,054 $ 5,494
------- ------- -------
------- ------- -------
Net interest rate spread (5) 4.13% 3.79% 3.26%
Net interest margin (6) 4.19% 3.97% 3.31%
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding.
(2) Included in interest income on loans are loan fees of $95,000, $277,000 and
$251,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(3) Yields on available for sale securities are calculated based upon
historical cost.
(4) The FDIC Note bears interest commencing upon issuance on January 31, 1995
at a rate of 5.0% for the first year and 6.5% for the second year.
(5) Return on interest earning assets less cost of interest bearing
liabilities.
(6) Net interest income divided by average earning assets.
A-49
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Company's financial statements have been prepared in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Notwithstanding this, inflation
can directly affect the value of loan collateral, in particular real estate.
Sharp decreases in real estate prices, as discussed previously, have resulted in
significant loan losses and losses on real estate acquired. Inflation, or
disinflation, could continue to significantly affect the Company's earnings in
future periods.
A-50
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
FIRST COASTAL CORPORATION:
We have audited the accompanying consolidated balance sheets of First Coastal
Corporation (the "Company") and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Coastal Corporation and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note B to the consolidated financial statements, on January 1,
1995, the Company changed its method of accounting for impaired loans to adopt
the provisions of Financial Accounting Standards Board Statement No. 114 and as
of January 1, 1994, changed its method of accounting for investments to adopt
the provisions of Financial Accounting Standards Board Statement No. 115.
Coopers & Lybrand, L.L.P.
Portland, Maine
February 5, 1996
A-51
<PAGE>
CONSOLIDATED BALANCE SHEETS
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
December 31,
-------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash - Note C $4,466 $4,701
Interest earning deposits 4,375 6,636
------ ------
Cash and Cash Equivalents 8,841 11,337
Federal funds sold 10,000 10,000
Trading securities - 915
Investment securities - Note D:
Held-to-maturity 11,786 6,822
Available-for-sale (at market value) 7,926 9,924
------ ------
19,712 16,746
Federal Home Loan Bank stock-at cost 1,315 1,315
Assets held for sale - Note B 281 185
Loans - Note E 100,550 109,656
Less:Deferred loan fees, net (22) (31)
Allowance for loan losses - Note F (2,659) (4,042)
------- -------
97,869 105,583
Premises and equipment - Note G 3,073 2,941
Accrued income receivable 1,004 783
Real estate owned and repossessions 1,973 2,925
Other assets 1,385 1,482
-------- --------
TOTAL ASSETS $145,453 $154,212
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits - Note H $125,665 $130,037
Advances from Federal Home Loan Bank - Note I 6,000 12,612
FDIC Note - Note A 9,000 9,000
Accrued expenses and other liabilities 791 549
------- -------
TOTAL LIABILITIES 141,456 152,198
STOCKHOLDERS' EQUITY - NOTES J AND K
Preferred stock, $1 par value; Authorized
1,000,000 shares; none outstanding
Common Stock, $1 par value: Authorized
6,700,000 shares; issued and outstanding
1995 and 1994 - 600,361 shares - Note K 600 600
Paid-in capital 29,375 29,375
Retained earnings (deficit) (26,016) (27,676)
Unrealized gain (loss) on available for sale securities 38 (285)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,997 2,014
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $145,453 $154,212
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-52
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $9,662 $10,172 $11,767
Interest and dividends on investment securities:
Taxable interest income 832 425 69
Dividends 268 290 125
Other interest income 945 893 787
-------- -------- --------
Total Interest and Dividend Income 11,707 11,780 12,748
INTEREST EXPENSE
Deposits - Note H 4,977 4,610 5,422
Borrowings:
Advances from Federal Home Loan Bank 454 1,116 1,832
FDIC Note 419 - -
-------- -------- --------
Total Interest Expense 5,850 5,726 7,254
-------- -------- --------
Net Interest Income Before Provision for Loan Losses 5,857 6,054 5,494
Provision for loan losses - Note F (425) 107 (30)
-------- -------- --------
Net Interest Income After Provision for Loan Losses 6,282 5,947 5,524
OTHER INCOME
Service charges on deposit accounts 257 284 300
Other service charges and fees 78 81 67
Gain (loss) on investment securities transactions (4) 38 99
Gain (loss) on sales of mortgage loans 17 (8) 606
Other 224 34 350
-------- -------- --------
572 429 1,422
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits - Note L 2,092 2,020 2,218
Occupancy - Note G 440 568 595
Net cost of operation of real estate owned 56 527 593
Other - Note P 2,606 3,163 2,752
-------- -------- --------
5,194 6,278 6,158
-------- -------- --------
Income Before Income Taxes,
Minority Interest and Extraordinary Item 1,660 98 788
Income tax benefit - Note M - - (4)
Minority interest - - 44
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 1,660 98 748
EXTRAORDINARY ITEM -
Charge to earnings as a result of the settlement
of the cross guaranty claim - Note A - 9,000 -
-------- -------- --------
NET INCOME (LOSS) $ 1,660 $(8,902) $ 748
-------- -------- --------
-------- -------- --------
PER SHARE AMOUNTS
Weighted Average Shares Outstanding - Note K 600,361 600,361 600,361
Income Per Share before Extraordinary item $ 2.77 $ .16 $ 1.25
-------- -------- --------
-------- -------- --------
Net Income (Loss) per share $ 2.77 $(14.83) $ 1.25
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A-53
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Retained on Available
Common Paid-In Earnings for Sale
(IN THOUSANDS) Stock Capital (Deficit) Securities Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $6,007 $22,645 $(19,522) - $9,130
Reverse stock split;
One-for-ten - Note K (5,407) 5,407 - - -
--------- --------- --------- --------- ---------
Balances at December 31, 1992,
as restated 600 28,052 (19,522) - 9,130
1993 net income 748 - 748
--------- --------- --------- --------- ---------
Balances at December 31, 1993 600 28,052 (18,774) 9,878
1994 net loss (8,902) (8,902)
Increase in net unrealized loss on
available for sale securities - - - $ (285) (285)
Repurchase of minority interest - 1,323 - - 1,323
--------- --------- --------- --------- ---------
Balances at December 31, 1994 600 29,375 (27,676) (285) 2,014
1995 net income 1,660 1,660
Increase in net unrealized gain on
available for sale securities - - - 323 323
--------- --------- --------- --------- ---------
Balances at December 31, 1995 $ 600 $29,375 $(26,016) $ 38 $ 3,997
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-54
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
First Coastal Corporation and Subsidiary -------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $1,660 $(8,902) $748
Adjustments to reconcile net income to net cash provided by operating activities:
Charge to earnings as a result of the settlement of the cross guaranty claim - 9,000 -
Provision for loan losses (425) 107 (30)
Writedowns of REO and ISR 13 226 467
Depreciation and amortization 292 300 323
Amortization of investment security (discounts) (248) (183) (2)
Realized investment securities (gains) losses 4 (38) (99)
(Gains) losses from assets held in trading accounts (33) 93 -
Realized (gains) on assets held for sale (17) (8) (606)
(Increase) decrease in trading account securities 948 (1,008) -
Loans originated and acquired for resale (3,376) (3,497) (14,542)
- ----------------------------------------------------------------------------------------------------------------------------------
Sales of loans originated and acquired for resale 3,297 6,741 18,609
- ----------------------------------------------------------------------------------------------------------------------------------
Decrease (increase) in interest receivable (221) (78) 252
Increase (decrease) in interest payable 392 (45) (77)
Net change in other assets 1,988 4,016 5,991
Net change in other liabilities (150) (129) 182
------- ------- -------
Net cash provided by operating activities 4,124 6,595 11,216
INVESTING ACTIVITIES
(Increase) in federal funds sold - (10,000) -
Maturities of securities - - 1,233
Maturities of securities held to maturity 8,000 634 -
Sales of securities - - 7,069
Sales of securities available for sale 2,324 233 -
Purchases of investment securities - - (5,176)
Purchases of investment securities available for sale (2) (8,990) -
Purchases of investment securities held to maturity (12,721) (6,648) -
Net change in loans 7,187 12,306 19,924
Net (purchases) of premises and equipment (424) (86) (2)
Decrease in Federal Home Loan Bank Stock - - 344
------- ------- -------
Net cash provided (used) by investing activities 4,364 (12,551) 23,392
FINANCING ACTIVITIES
Net change in deposits (4,372) (10,550) (15,731)
Proceeds from borrowings - - 5,000
Payments on borrowings (6,612) (5,496) (8,141)
Purchase of Coastal Bancorp's minority interest - (200) -
------- ------- -------
Net cash used by financing activities (10,984) (16,246) (18,872)
------- ------- -------
Increase (decrease) in cash and cash equivalents (2,496) (22,202) 15,736
Cash and cash equivalents at beginning of period 11,337 33,539 17,803
------- ------- -------
Cash and cash equivalents (interest and non- interest bearing) at end of period $ 8,841 $11,337 $33,539
------- ------- -------
------- ------- -------
NONCASH INVESTING AND FINANCING ACTIVITIES
FDIC Note - $9,000 -
Change in unrealized holding losses on investment securities available for sale $323 285 -
Securities available for sale collateralized by portfolio mortgage loans - 1,003 -
Transfer of loans to real estate owned and in-substance repossessions 952 827 $2,847
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A-55
<PAGE>
Notes to Consolidated Financial Statements
First Coastal Corporation and Subsidiary
December 31, 1995
NOTE A. REGULATORY MATTERS
SETTLEMENT OF FDIC CROSS GUARANTY CLAIM
On September 6, 1991, First Coastal Corporation (the "Company") announced that
its Connecticut subsidiary, Suffield Bank, was placed into receivership by the
Connecticut Banking Department and the Federal Deposit Insurance Corporation
("FDIC") was appointed as the receiver. Under the Federal Deposit Insurance Act
("FDIA"), as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), commonly-controlled depository institutions
such as Suffield Bank and Coastal Savings Bank ("Coastal" or the "Bank") are
liable for any loss incurred by the FDIC, or any loss which the FDIC reasonably
anticipates incurring, in connection with the default of one or more of the
commonly-controlled institutions. The FDIC had up to two years from September
6, 1991 to assert a cross guaranty claim against the Bank.
On September 3, 1991, the Company announced that Coastal had filed an
application with the FDIC for a waiver of any cross guaranty liability arising
from Suffield Bank. On September 9, 1992, the FDIC notified Coastal that it had
denied this request. The FDIC also indicated that it had authorized the
issuance of an assessment of liability under the cross guaranty provision and
claimed an anticipated loss to the Bank Insurance Fund resulting from the
failure of Suffield Bank in an amount which, if successfully asserted, would
likely result in the appointment of a receiver for Coastal. The FDIC delegated
to the Director of Supervision the authority to negotiate a settlement of the
cross guaranty liability prior to issuing a notice of assessment. On September
1, 1993, the FDIC notified Coastal that it had until February 14, 1994 or such
later date as may be extended by the FDIC, to reach a settlement with the FDIC
over the FDIC's cross guaranty claim against Coastal resulting from the
September 1991 failure of Suffield Bank. In establishing a February 14, 1994
deadline for payment of the cross guaranty liability, the FDIC indicated that
its intention was to negotiate a reasonable settlement of the cross guaranty
claim, which would enable the FDIC to maximize its recovery of losses incurred
as a result of the failure of the affiliated Suffield Bank.
On April 26, 1994, the Company, Coastal Bancorp ("Bancorp") and the Bank entered
into a definitive Settlement Agreement with the FDIC (the "Original Settlement
Agreement"). The Original Settlement Agreement provided that in consideration
for the waiver of the FDIC's cross guaranty claim against the Bank, the FDIC
would receive shares of a new class of convertible preferred stock of Coastal,
representing on conversion a 95% ownership position in the Bank. The waiver of
the cross guaranty claim was conditional and would become final and
unconditional upon the earlier of the date on which no shares of the convertible
preferred stock were outstanding or three years after the closing date of the
settlement, provided there had been no judicial determinations (or pending
actions asserting) that the stock was not validly issued, fully paid or non-
assessable.
Pursuant to the Original Settlement Agreement, the preferred stock would
automatically convert to common stock upon its sale by the FDIC to any third
party. The outstanding common stock of
A-56
<PAGE>
Coastal, representing a 5% ownership interest in the Bank on a post conversion
basis, would continue to be held by the Company. While the preferred stock was
to be voting stock, the FDIC agreed to grant a revocable proxy to Coastal so
that such shares would be voted in proportion to the votes cast by the other
holders of the Bank's common stock, subject to certain exceptions and
limitations.
In connection with the execution of the Original Settlement Agreement, Bancorp
paid the FDIC $200,000 and the FDIC delivered to Bancorp the shares of preferred
and common stock it held in Bancorp as receiver of Suffield Bank and a waiver
and release with respect to any rights related to the stock. As a result of
Bancorp's purchase of the stock, First Coastal became the owner of 100% of the
outstanding capital stock of Bancorp.
On July 20, 1994, prior to the Company submitting the Original Settlement
Agreement to its stockholders for approval, the United States Court of Federal
Claims issued an opinion in a case captioned BRANCH V. UNITED STATES, No. 93-
133C ("Branch"), which raised significant taking issues under the U.S.
Constitution adverse to the FDIC in connection with its assertion of cross
guaranty claims. After considering the BRANCH decision, the Boards of Directors
of the Company and the Bank concluded that it was in the best interests of the
Company, the Bank and the Company's stockholders to seek to modify the terms of
the Original Settlement Agreement.
Following extensive negotiations by the parties, the FDIC, the Company and the
Bank entered into the Amended and Restated Settlement Agreement dated as of
November 23, 1994 (the "Amended and Restated Settlement Agreement"), providing
for the settlement of the FDIC's cross guaranty claim against the Bank.
On January 31, 1995, following the receipt of stockholder approval, the Company,
Coastal and the FDIC consummated the Amended and Restated Settlement Agreement,
pursuant to which the Company issued to the FDIC a non-recourse promissory note
(the "Note" or the "FDIC Note") in the principal amount of $9.0 million in
consideration of the unconditional and irrevocable waiver and release of the
cross guaranty claim. As a result of the consummation of the Amended and
Restated Settlement Agreement, the Company recognized an extraordinary charge to
earnings of $9.0 million in the financial statements for the year ended December
31, 1994. The Company's obligations under the Note are secured by a pledge by
the Company of 100,000 shares of common stock, par value $1.00 per share, of the
Bank ("CSB Common Stock"), representing 100% of the outstanding CSB Common
Stock, pursuant to a Stock Pledge Agreement between the Company and the FDIC
dated January 31, 1995 (the "Stock Pledge Agreement"). The Stock Pledge
Agreement provides that the Company retains the right to receive all cash
dividends declared and paid on the pledged shares of CSB Common Stock and to
exercise all voting rights with respect to such shares for so long as no event
of default exists thereunder. Payment of principal and interest under the Note
is deferred until the "Maturity Date," which is January 31, 1997. If prior to
such Maturity Date the Company and the Bank have entered into a definitive
agreement regarding either an acquisition or recapitalization of the Company and
the Bank that, in either case, provides the Company with proceeds sufficient to
pay the FDIC the unpaid principal amount and interest under the Note, the
Maturity Date will be extended until the earlier of (i) July 31, 1997, (ii) the
first business day following January 31, 1997 on which such definitive agreement
is terminated or (iii) the date of closing of the acquisition or
recapitalization of the Company and the Bank.
A-57
<PAGE>
The Note bears interest (i) at a rate per annum equal to 5% from January 31,
1995 through February 1, 1996 and at a rate per annum equal to 6.5% thereafter
(compounded quarterly) to and including the earlier of (x) the date on which the
FDIC receives payment of the unpaid principal amount and accrued interest in
full or (y) the day prior to the Maturity Date; or alternatively, in the event
that there is an acquisition of the Bank by a third party, (ii) in an aggregate
amount equal to one half of any proceeds over $11.5 million received by the
Company from the sale of the Bank. The Amended and Restated Settlement
Agreement provides that if the Bank is sold prior to the Maturity Date, the
aggregate consideration paid by the acquiror in connection with such transaction
will be distributed in satisfaction of the Company's obligations under the Note
as follows: the first $9.0 million will be paid to the FDIC, the next $2.5
million of such consideration will be paid to the Company, and any consideration
over $11.5 million will be divided equally between the FDIC and the Company.
On January 31, 1996, the Company announced that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the Company's $9.0 million FDIC Note. As part of the recapitalization, the
Company expects to raise approximately $3.0 to $4.0 million through an offering
of its common stock, including a rights offering to the Company's existing
stockholders. The offering will be made only by means of a prospectus. In
addition to the proceeds from the common stock offering, the Company also
expects to use funds derived from dividends from the Bank and the proceeds from
a loan to satisfy its obligation under the FDIC Note. The recapitalization and
related transactions are subject to a number of conditions, including the
receipt of appropriate regulatory approvals, and there can be no assurance that
such recapitalization and related transactions will be consummated or that the
Company will be successful in repaying the FDIC Note. The Company anticipates
that the recapitalization would be completed in the third quarter of 1996.
FDIC ORDER TO CEASE AND DESIST AND MEMORANDUM OF UNDERSTANDING
Effective as of January 23, 1992, Coastal consented to an Order to Cease and
Desist (the "Order") issued by the FDIC and concurred with by the Maine Bureau
of Banking (the "Maine Bureau of Banking"). The Order required Coastal to cease
and desist from operating with an excessive volume of adversely classified
assets, engaging in any lending or management practices which are detrimental to
the Bank, engaging in violations of applicable laws and regulations, operating
with inadequate loan documentation, engaging in practices which produce
inadequate operating income and excessive loan losses, operating with inadequate
allowance for loan losses for the kind and quality of loans held, failing to
submit Reports of Condition and Income to the FDIC in accordance with
instructions, operating with inadequate liquidity and operating with excessive
interest rate risk exposure. The Order also required that certain affirmative
actions be taken relating to the preparation of certain plans and analyses and
the maintenance of specified capital ratios.
Effective December 8, 1994, the FDIC terminated the Order. The Order was
replaced with a Memorandum of Understanding ("Memorandum") among the Bank, the
FDIC and the Maine Bureau of Banking effective as of November 22, 1994. The
Memorandum provides, among other things, that (i) the Bank continue to maintain
its allowance for loan and lease losses in accordance with applicable regulatory
requirements, (ii) the Board of Directors of the Bank continue to review the
adequacy of the Bank's loan and lease loss reserves and provide for adequate
reserves, (iii) the Bank continue to have a Tier 1 capital to total assets ratio
at or in excess of 6.0%, (iv) the Bank continue to comply
A-58
<PAGE>
with the FDIC's Statement of Policy on Risk-Based Capital, (v) the Bank provide
monthly progress reports regarding substandard or doubtful assets, (vi) the Bank
agree not to extend or renew credit to, or for the benefit of, any borrower who
or which has a loan or other extension of credit with the Bank that has been
charged-off or classified in whole or in part, loss, doubtful or substandard and
is uncollected unless certain conditions are met, (vii) the Bank not declare or
pay any dividends without the prior written consent of the FDIC and the Maine
Bureau of Banking, and (viii) the Bank continue to furnish written progress
reports detailing the form and manner of any action taken to seek to secure
compliance with the Memorandum. In addition, the Board of Directors is required
to develop a written plan of action to reduce the Bank's risk position with
respect to each borrower who had outstanding principal debt owing to the Bank in
excess of $500,000 and for the formulation of a strategic plan and policies
covering investments, funds management and various lending policies.
FEDERAL RESERVE MEMORANDUM OF UNDERSTANDING
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies covering capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with the policies of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") regarding the payment of cash
dividends by bank holding companies. Management originally addressed these
matters by developing plans and policies which were submitted to the Federal
Reserve in 1988, and updated such plans and policies in 1992 and 1995.
Effective March 13, 1995, the Federal Reserve Bank of Boston terminated the
Memorandum of Understanding.
NOTE B. ACCOUNTING POLICIES
BUSINESS
First Coastal Corporation (formerly Suffield Financial Corporation), a Delaware
Corporation, was organized in January 1987 for the purpose of becoming the
parent holding company of Suffield Bank following Suffield Bank's conversion
from mutual to stock form. The Company acquired Coastal Bancorp, a Maine
corporation, which was the bank holding company of Coastal Savings Bank, a Maine
chartered, stock savings bank, on April 1, 1987. On September 6, 1991, Suffield
Bank was placed in receivership by the Connecticut Department of Banking,
leaving the Bank as the Company's principal operating subsidiary. On July 26,
1994, Coastal Bancorp was dissolved with the effect that the Bank became a
direct wholly-owned subsidiary of the Company. The principal business of the
Bank consists of retail and commercial banking, including attracting deposits
from the general public and originating residential mortgage, consumer,
commercial and small business loans. Deposits are federally insured by the Bank
Insurance Fund ("BIF"), which is administered by the FDIC.
Coastal Savings Bank was formed in 1981 as a Maine-chartered savings bank
through the consolidation of Brunswick Savings Institution and York County
Savings Bank, which were organized in 1858 and 1860, respectively. On July 11,
1984, the Bank completed its conversion to a Maine stock savings bank.
A-59
<PAGE>
BASIS OF PRESENTATION
The consolidated financial statements of the Company and subsidiary have been
prepared in conformity with generally accepted accounting principles and
reporting practices applied in the banking industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Prior period amounts are reclassified when necessary to
conform with the current year's presentation. Set forth below is a summary of
the significant accounting policies.
Most of the Company's commercial real estate loans as of December 31, 1995 are
collateralized by real estate in Maine which has experienced a significant
decline in value since the market peak in the late 1980's. In addition, all of
the real estate owned ("REO") are located in this same market. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
and the recovery of a substantial portion of the carrying amount of REO have
been impacted by this real estate market decline and are particularly
susceptible to changes in market conditions in Maine.
While management uses available information to recognize losses on loans and
REO, future additions to the allowance for loan losses ("Allowance") or
writedowns may be necessary based on changes in economic conditions. In
addition, various regulatory authorities, as an integral part of their
examination process, periodically review the Company's Allowance and the
carrying value of REO. Such authorities may require the Company to recognize
additions to the Allowance and/or write down the carrying value of REO based on
their judgments of information available to them at the time of their
examination.
NEW ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard (SFAS) No. 122, MORTGAGE SERVICING RIGHTS,
which amends FASB Statement No. 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING
ACTIVITIES. This standard eliminates the distinction between purchased and
originated mortgage servicing rights and establishes the use of a valuation
allowance to recognize any impairment in the fair value of mortgage servicing
rights. The Company believes that there will be no material impact to its
financial position and results of operations upon adopting FASB Statement No.
122 when required in 1996.
In addition, during October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which establishes fair-value based accounting to
recognize compensation expense related to stock-based transactions. For
employers, the fair-value based recognition provisions are not mandatory;
however certain disclosure requirements are provided. The Company intends to
comply with the disclosure requirements when required in 1996 and expects no
material impact to its financial statements or results of operations upon
adoption.
A-60
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
Effective January 1, 1994, with the implementation of FASB Statement No. 115,
investment securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Investment securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. There was no effect to the Company's financial
statements or results of operations on January 1, 1994 as a result of
implementing FASB Statement No. 115. For the year ended December 31, 1995,
investment securities classified as available for sale increased in fair value
by $323,000 as a result of declining interest rates.
As of December 31, 1995, the Company's investment accounting policy states that
all securities purchased with an original maturity of over one year, other than
mortgage backed securities originated by the Bank with current loan production,
will be classified as available for sale. Securities purchased with an original
maturity of one year or less, or callable U.S. government agency notes, will be
considered held-to-maturity. Mortgage backed securities originated by the Bank
with current loan productions, will be classified as trading securities.
ASSETS HELD FOR SALE STATED AT MARKET VALUE
Assets held for sale, consisting primarily of residential mortgages originated
for the purpose of potential sale, are valued at the lower of cost or market.
LOANS
Interest on loans is accrued and credited to operations based on the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes delinquent and, in management's opinion, borrowers may be unable to meet
contractual obligations. Such accrual is discontinued where interest or
principal is 90 days or more past due, unless the loans are deemed to be
adequately secured and in the process of collection. In these instances,
interest is recognized only when received. When interest accruals are
discontinued, unpaid interest credited to income in the current year is reversed
and interest accrued in prior years is charged to the Allowance.
Loan origination fees and certain direct loan origination costs are deferred and
the new amount amortized as an adjustment to the related loan yield over the
estimated contractual life of the loan.
ALLOWANCE FOR LOAN LOSSES
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance
A-61
<PAGE>
is based on an evaluation of the portfolio, past and expected loan loss
experience, current economic conditions, growth and diversification of the loan
portfolio, the results of the most recent regulatory examinations, the nature
and level of nonperforming assets, impaired loans and loans that have been
identified as potential problems, the adequacy of collateral and other relevant
factors. The Allowance is increased by provisions for loan losses charged
against income and recoveries on loans previously charged off.
The Company adopted FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN, on January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, IF THERE IS A HIGH
PROBABILITY that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Management identifies impaired loans on a loan-by-loan basis. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
with the exception of all collateral-dependent loans, which are measured for
impairment based on the fair value of the collateral. The adoption of FASB
Statement No. 114 resulted in no additional provision for loan losses as
determined at January 1, 1995 and December 31, 1995.
REAL ESTATE OWNED ("REO")
REO, other than bank premises, consists of properties acquired through mortgage
loan foreclosure proceedings or in satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date of foreclosure and any difference is charged to the Allowance at the
time of reclassification. Subsequently, the values of such properties are
reviewed by management and writedowns, if any, are charged to expense.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated provisions for
depreciation and amortization, computed using the straight-line method over
estimated useful lives.
INCOME TAXES
The Company adopted FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, in 1993
which requires a change from the deferred method of accounting for income taxes
of APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At December 31,
1995, the Company estimated that net operating loss ("NOL") carryforwards for
federal income tax return purposes of $6.8 million were available to offset
future taxable income. Due to the uncertainty that the benefit of net deferred
tax assets will be realized, a full valuation allowance has been recorded at
December 31, 1995 and December 31, 1994.
A-62
<PAGE>
RETIREMENT BENEFITS
Coastal has a non-contributory defined benefit pension plan covering
substantially all of their officers and employees. The benefit formula is based
on a covered employee's final average compensation and credited service. The
funding policy for this plan is to contribute amounts to the plan sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Bank may
periodically determine to be appropriate.
NOTE C. NONINTEREST EARNING DEPOSITS AND CASH
Noninterest bearing deposits and cash balances at December 31, 1995 are subject
to withdrawal and usage restrictions of $100,000 to be maintained at the Federal
Reserve Bank of Boston to meet Coastal's reserve requirements.
NOTE D. INVESTMENT SECURITIES
The following table sets forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(IN THOUSANDS) Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. government obligations $ 4,998 $ 5,014 $ 23 $ (7)
Mortgage backed securities 765 787 22 -
Equity/mutual fund 2,000 2,000 - -
Other 125 125 - -
------- ------- ------- -------
$ 7,888 $ 7,926 $ 45 $ (7)
------- ------- ------- -------
------- ------- ------- -------
Held to Maturity:
U.S. government obligations $ 993 $ 995 $ 2 -
U.S. government agency
callable notes 10,793 10,914 121 -
------- ------- ------- -------
$11,786 $11,909 $ 123 -
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
A-63
<PAGE>
The following table sets forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1994:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(IN THOUSANDS) Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $ 4,993 $4,852 - $ (141)
Mortgage backed securities 896 858 - (38)
Equity/mutual fund 4,000 3,894 - (106)
Other 320 320 - -
------- ------- ------- -------
$10,209 $9,924 - $ (285)
Held to maturity:
------- ------- ------- -------
------- ------- ------- -------
U.S. government obligations $6,822 $6,792 - $ (30)
------- ------- ------- -------
$6,822 $6,792 - $ (30)
------- ------- ------- -------
------- ------- ------- -------
Trading securities:
Mortgage backed securities $1,008 $ 915 - $ (93)
------- ------- ------- -------
$1,008 $ 915 - $ (93)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The following is a summary of gross realized gains and losses on investment
securities sold for 1995, 1994 and 1993. The 1995 and 1994 security gains and
losses were all related to securities classified as available for sale. For
computation of gross realized gains and losses, cost was determined by the
specific identification method.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1995 1994 1993
Gross Realized Gross Realized Gross Realized
(IN THOUSANDS) Gains Losses Gains Losses Gains Losses
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales of:
U.S. government obligations - - - - $ 62 -
U.S. government agency $ 1 - - - 59 -
Mortgage-backed securities - - - - - -
Equity securities 7 $ (12) $ 38 - - $ (22)
------ ------ ------ ------ ------ ------
$ 8 $ (12) $ 38 - $121 $ (22)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
A-64
<PAGE>
The following table represents the contractual maturities for investments in
debt securities for each major security type at December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------
Maturing
-----------------------------------------------------
After One After Five
Within But Within But Within After
(IN THOUSANDS) One Year Five Years Ten Years Ten Years
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $4,020 $ 994 -
Mortgage backed securities - - - $ 787
---------- ---------- ---------- ----------
$4,020 $ 994 - $ 787
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Held to maturity:
U.S. government obligations $ 993 - - -
U.S. government agency callable
notes (final maturity) - $8,991 $1,802 -
---------- ---------- ---------- ----------
$ 993 $8,991 $1,802 -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Investment securities gains and losses as reported in the consolidated statement
of operations include for the years ended 1995, 1994 and 1993, a loss of $4,000,
a gain of $38,000 and a loss of $99,000, respectively.
At December 31, 1995, the Company had $200,000 of securities pledged as
collateral to secure public and private deposits.
NOTE E. LOANS
Loans consisted of the following:
December 31,
-----------------------
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 30,966 $ 33,158
Commercial 50,797 57,997
Commercial and industrial loans 2,524 2,510
Consumer and other loans 16,263 15,991
-------- --------
$100,550 $109,656
-------- --------
-------- --------
Included in interest and fees on loans as reported in the consolidated
statements of operations are origination, commitment, late charges and
application fees for the years ended December 31, 1995, 1994 and 1993 of
$95,000, $277,000, and $251,000, respectively.
A-65
<PAGE>
As of December 31, 1995 and 1994, the Company was servicing loans for others of
$53.7 million and $57.0 million, respectively. As of December 31, 1995 and
1994, Coastal had approximately $1,504,000 and $1,468,000 in excess residential
mortgage servicing fees reflected in other assets. This amount is being
amortized over the expected average life of the loans. Accumulated amortization
was approximately $663,000 and $464,000 at December 31, 1995 and 1994,
respectively. As of December 31, 1995 and 1994, the Bank reflects a valuation
reserve of $132,000 against the deferred mortgage servicing asset as a result of
higher than anticipated prepayments on serviced loans.
At December 31, 1995, Coastal had no binding commitments for the sale of
mortgage loans held for sale.
At December 31, 1995, Coastal had $12,136,281 of loans pledged to the Federal
Home Loan Bank ("FHLB") of Boston as collateral for outstanding advances of
$6,000,000.
Information with respect to nonperforming loans was as follows:
December 31,
------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
Nonaccrual loans $1,948 $4,340 $1,220
Accruing loans past due
90 days or more 169 258 249
Restructured loans 3,427 1,483 4,212
------ ------ ------
$5,544 $6,081 $5,681
------ ------ ------
------ ------ ------
Interest income recognized on nonaccrual and restructured loans totaled
$406,000, $154,000 and $280,000 in 1995, 1994 and 1993, respectively. Had
interest income on these year-end loans been paid at the contracted rates and
due dates, the Company would have recorded additional interest income in 1995,
1994 and 1993 of $81,000, $130,000 and $28,000, respectively.
Management reviews impaired loans on a case by case basis. If management
believes there is a high probability of a loss of principal or interest, then
such loans are determined to be impaired. At December 31, 1995, the recorded
investment in loans for which impairment has been recognized in accordance with
FASB Statement No. 114 totaled $3.7 million, of which $230,000 related to loans
with no allocated reserve because the loans have been partially written down
through charge-offs and $3.5 million related to loans with corresponding
allocated reserves of $398,000 (representing 15% of the Allowance of $2.7
million) for the year ended December 31, 1995. Included in the impaired loans
total is $301,000 in nonaccrual loans and $3.4 million in restructured loans.
A-66
<PAGE>
Impaired loans consisted of the following:
(IN THOUSANDS) December 31, 1995
- -------------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 301
Commercial 3,427
Real estate construction loans -
Commercial and industrial loans -
Consumer and other loans -
-------
$ 3,728
-------
-------
All impaired loans were secured by real estate at December 31, 1995 and
accounted for by the lower of the fair value of the collateral or amortized book
value.
Unfunded loan commitments for December 31, 1995 and 1994 were approximately $8.0
million and $7.8 million, respectively, consisting primarily of home equity
lines of credit secured by real estate. There were no standby letters of credit
for the years ended December 31, 1995 and 1994.
Loan commitments include unfunded portions of real estate, construction and
other loans and unused lines of credit. Loan commitments are subject to the
same credit policies as loans and generally have expiration dates and
termination clauses. Coastal obtains collateral to secure loans based upon
management's credit assessment of the borrower. Collateral held varies but may
include receivables, inventory, equipment and real estate.
NOTE F. ALLOWANCE FOR LOAN LOSSES
Changes in the Allowance were as follows:
Year Ended December 31,
-------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------
Balance at beginning of year $4,042 $3,642 $4,280
Charge-offs (1,333) (290) (1,369)
Recoveries 375 583 761
------ ------ ------
Net charge-offs (958) 293 (608)
Provision for loan losses (425) 107 (30)
------ ------ ------
Balance at end of year $2,659 $4,042 $3,642
------ ------ ------
------ ------ ------
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic
A-67
<PAGE>
conditions, growth and diversification of the loan portfolio, the results of the
most recent regulatory examinations, the nature and level of nonperforming
assets, impaired loans and loans that have been identified as potential
problems, the adequacy of collateral and other relevant factors. The Allowance
is increased by provisions for loan losses charged against income and recoveries
on loans previously charged-off.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans that
remain vulnerable to loan default. Deterioration in the local economy or real
estate market, or upward movements in interest rates, could have an adverse
effect on the performance of the loan portfolio that could result in the need
for an increase in the Allowance. Conversely, further improvement in the
overall asset quality, favorable economic conditions or a favorable local real
estate market could positively affect the Allowance.
The Allowance at December 31, 1995 equaled $2,659,000 as compared to $4,042,000
at December 31, 1994. The reduction in the Allowance is the result of
substantial loan charge-offs in the amount of $1,333,000 and negative provision
expense totaling $425,000, partially offset by loan loss recoveries of $375,000.
The loan charge-offs were largely associated with previously identified loan
loss exposure taken into consideration as a part of management's review of the
Allowance at December 31, 1994. The negative provision for loan loss expense
for the year of $425,000 was largely the result of management's determination as
part of its December 31, 1995 review of the Allowance that a surplus existed in
the Allowance, leading to the decision to effect a reversal of provision for
loan loss expense in the amount of $675,000 in the fourth quarter of 1995.
NOTE G. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
---------------------
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
Land $ 423 $ 423
Buildings and building improvements 2,774 2,670
Leasehold improvements 371 374
Equipment 2,715 3,001
------ ------
6,283 6,468
Less: Accumulated depreciation
and amortization 3,210 3,527
------ ------
$3,073 $2,941
------ ------
------ ------
Total rental expense for all leases was $75,000, $163,000 and $196,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
A-68
<PAGE>
Future minimum payments, by year and in the aggregate, for all noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1995:
(IN THOUSANDS) December 31,
- ----------------------------------------------------------------------
1996 $ 67
1997 68
1998 71
1999 75
2000 78
-----
$359
-----
-----
All leases are for premises and include options to renew for periods ranging
from 1 to 5 years.
NOTE H. DEPOSITS
Deposits consisted of the following:
December 31,
----------------------
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
Noninterest bearing demand deposits $ 5,128 $ 5,425
Interest bearing demand deposits 15,741 17,300
Savings and escrow deposits 42,020 48,205
Time deposits 62,776 59,107
-------- --------
$125,665 $130,037
-------- --------
-------- --------
Included in 1995 time deposits is $1,709,000 of deposits of $100,000 or more.
Detail of interest expense on deposits:
December 31,
------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------
Interest bearing demand deposits $ 357 $ 403 $ 443
Savings deposits 1,286 1,402 1,593
Other time deposits 3,237 2,693 3,319
Time deposits of $100,000 or more 97 112 67
------ ------ ------
$4,977 $4,610 $5,422
------ ------ ------
------ ------ ------
Total interest paid on deposits was $4,961,000, $4,420,000 and $5,470,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
A-69
<PAGE>
NOTE I. BORROWINGS
ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Maturities of advances from the FHLB of Boston outstanding at December 31, 1995
are as follows:
Weighted Average
(IN THOUSANDS) Rates Interest Rate
- ---------------------------------------------------------------------------
1997 $2,000 6.06% 6.06%
1998 4,000 5.32%-5.92% 5.62%
-------
$6,000 5.77%
-------
-------
Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the established collateral maintenance level. Depending on the ratio of
tangible capital to assets as defined by the FHLB and certain other factors,
each member bank is assigned by the FHLB to one of three collateral status
groups:
1. Blanket Lien Status - tangible capital of 4.5% or more of assets;
2. Listing/Segregation Status - tangible capital below 4.5% of assets;
and
3. Delivery (Possession) Status - tangible capital below 3.5% of assets.
Although its tangible capital is above 3.5% of assets, Coastal is in delivery
status. Because of the potential contingent liability of affiliated
institutions within a holding company structure, the FHLB closely reviews the
financial condition of a member bank's parent company. If a member Bank's
parent holding company has a low tangible capital ratio or is experiencing
substantial financial problems, the member Bank may be assigned to listing or
delivery status. In connection with the waiver and release of the FDIC cross
guaranty claim, the Bank requested the removal of the foregoing restrictions
imposed by the FHLB. On May 1, 1995, the Bank received a letter from the FHLB
stating that it will lengthen the maturity restriction on new fixed term and
fixed rate advances from six months to one year.
Total interest paid on FHLB advances amounted to $498,000, $1,159,000 and
$1,872,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
FDIC NOTE
No interest was paid on the FDIC Note for the year ended December 31, 1995.
Under the terms of the Note, interest and principal are deferred until the
Note's maturity date, which is January 31, 1997, subject to extension under
certain limited circumstances. Interest accrued on the Note amounted to
approximately $419,000 through December 31, 1995. (See Note A).
A-70
<PAGE>
FEDERAL RESERVE BANK OF BOSTON
Coastal also has been approved by the Federal Reserve Bank of Boston to obtain
liquidity from its discount window. No funds have been, or are anticipated to
be, obtained from this source.
NOTE J. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware
corporate law that dividends may be paid by the Company out of its surplus or,
in the event there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
The Amended and Restated Settlement Agreement, which was consummated on January
31, 1995, prohibits the payment of dividends by the Company to its stockholders
on any class of stock (except for a dividend paid in shares of the Company's
common stock, or in any other stock of the Company) until the unpaid principal
amount and interest under the Note are paid in full in accordance with the terms
thereof.
The principal source of cash for the parent company would normally be a dividend
from Coastal; however, certain restrictions also exist regarding the ability of
Coastal to transfer funds to the Company in the form of cash dividends, loans or
advances. The most significant of these are described below.
Maine corporate law generally provides that dividends may only be paid out of
unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. Maine banking law also imposes certain restrictions, including
the requirement that the Bank establish and maintain adequate levels of capital
as set forth in rules adopted by the Maine Bureau of Banking.
The Amended and Restated Settlement Agreement provides that the Bank may not
declare any dividends, except as necessary to pay the operating expenses of the
Company as approved from time to time by both the FDIC and the Maine Bureau of
Banking. The Amended and Restated Settlement Agreement further provides that
such operating expenses may not include any amounts for accrued interest on the
Note.
The Memorandum (effective November 22, 1994) provides that the Bank may not pay
or declare any dividends without the prior written consent of the FDIC and the
Maine Bureau of Banking.
On November 13, 1995 and November 30, 1994, following the receipt of appropriate
regulatory approvals, Coastal paid the Company cash dividends of $200,000 and
$175,000, respectively, for certain current and anticipated operating expenses
of the Company.
A-71
<PAGE>
NOTE K. REVERSE STOCK SPLIT
On May 31, 1995, the Company effected a one-for-ten reverse stock split with
respect to the issued and outstanding shares of the Company's common stock,
which was approved by the Company's stockholders on January 31, 1995. As a
result of the reverse stock split, the number of outstanding shares of common
stock of the Company was reduced from 6,006,745 shares (determined at the close
of business on May 31, 1995) to 600,361 shares. As a result, approximately
$5,407,000 was transferred from the Company's common stock account to paid-in
capital. All applicable share and per share data appearing in the consolidated
financial statements and notes thereto have been retroactively adjusted for the
reverse stock split.
NOTE L. BENEFIT PLANS
PENSION PLAN
The pension plan (the "Pension Plan") is a noncontributory defined benefit plan,
which provides retirement benefits to substantially all Bank employees.
Requirements for participation in the Pension Plan are that an employee work
more than 1,000 hours per year, have completed at least one year of service and
have attained twenty-one years of age. Employees become 100% vested after five
years of eligible service subsequent to their eighteenth birthday.
The Bank contributes such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid under the terms of the Pension Plan. The Bank
has made contributions in amounts sufficient to fund the Pension Plan's current
service cost and the initial past service cost plus interest over a period of 30
years. The Pension Plan has met the ERISA minimum funding requirements.
The Bank has the right to discontinue its contributions at any time and to
terminate the Pension Plan subject to the provisions of ERISA.
Pension expense for the Pension Plan was $14,000 for each of the years ended
December 31, 1995 and December 31, 1994, as compared to a credit of $23,000 for
the year ended December 31, 1993.
A-72
<PAGE>
The following table sets forth the Pension Plan's funded status and amounts
recognized in the consolidated financial statements:
Year Ended December 31,
-----------------------
(IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------
Actuarial Present Value of Benefit Obligations:
Accumulated benefit obligation
(including vested benefits
obligation of $1,327 in 1995 and
$1,241 in 1994) $1,414 $1,300
Effects of future salary increases 185 138
------ ------
Projected benefit obligation 1,599 1,438
Fair value of plan assets (primarily
listed stocks, U.S. bonds and
insurance contracts) 1,921 1,623
------ ------
Plan assets in excess of projected
benefit obligation 322 185
Unrecognized prior service cost (5) (6)
Unrecognized transition amount (120) (146)
Unrecognized loss 107 217
------ ------
Prepaid pension expense $ 304 $ 250
------ ------
------ ------
The components of net pension expense (credit) are as follows:
Year Ended December 31,
----------------------------------
(IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------
Service cost - benefits $62 $ 67 $ 36
Interest cost of projected
benefits 110 102 90
Actual return on plan assets (300) 18 (216)
Net amortization and deferral 142 (173) 67
----- ----- -----
Net pension expense (credit) $ 14 $ 14 $ (23)
----- ----- -----
----- ----- -----
The weighted average discount rate used was 7.5%, 8.25% and 7.0% in 1995, 1994
and 1993, respectively, and the increase in future compensation levels used was
5.5%, 6.0% and 5.5% in 1995, 1994 and 1993, respectively, in determining the
actuarial present value of the projected benefit obligation. The expected long-
term rate of return on assets was 8.0% for 1995, 1994 and 1993.
The Bank provides no post retirement benefits other than pensions.
A-73
<PAGE>
STOCK OPTION PLAN
The Company has a Stock Option Plan ("Stock Option Plan") to purchase shares of
common stock of the Company. Unless terminated by the Board of Directors, the
Stock Option Plan will automatically terminate on September 18, 1996. The total
number of shares of common stock for which options may be issued under the Stock
Option Plan, adjusted as a result of the reverse stock split, is 55,189. A
summary of transactions under the Stock Option Plan follows:
Shares Option
Under Price Range
Option Per Share
- ---------------------------------------------------------------------------
Outstanding at January 1, 1993 4,726 $35.90 - $157.40
Cancelled (934) 117.90 - 141.00
----- ----------------
Outstanding at December 31, 1993 3,792 35.90 - 157.40
Cancelled (658) 35.90
----- ----------------
Outstanding at December 31, 1994 3,134 92.50 - 157.40
Cancelled (2,667) 92.50 - 141.00
----- ----------------
Outstanding at December 31, 1995 467 $141.00 - $157.40
----- ----------------
----- ----------------
NOTE M. INCOME TAXES
Due to the uncertainty that the benefit of the net deferred tax assets will be
realized, a full valuation allowance has been recorded at December 31, 1995 and
1994.
A summary of income tax benefits is as follows:
Year Ended December 31,
----------------------------------
(IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------
Current - - $(4)
Deferred
------ ------ ------
- - $ (4)
------ ------ ------
------ ------ ------
A reconciliation of the difference between income tax benefit and the amount
computed by applying the statutory federal income tax rate to income before
income taxes, minority interest and extraordinary item is as follows:
A-74
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate $564 $33 $268
Increase (decrease)
resulting from:
Expiration of capital loss carryforwards 2,060 - -
Increase in net operating loss
carryforwards (253) - -
Net operating loss utilized - - (268)
Change in valuation
allowance (2,454) (35) -
Other items, net 83 2 (4)
------- -------- ------
Income tax benefit $ 0 $ 0 $ (4)
------- -------- ------
------- -------- ------
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to
allowance for losses $904 $1,374
REO, principally due to writedowns 304 453
Mark to market adjustments 13 129
Deferred loan fees 8 10
Reserve for mortgage servicing rights 45 45
Investment writedowns 18 14
Federal NOL credit and tax credit carryforward 2,392 2,139
Capital loss carryforward 11 2,071
State NOL credit carryforward 143 81
FDIC Note 3,060 3,060
Other 90 69
------- -------
Total gross deferred tax assets before
valuation reserve 6,988 9,445
Valuation reserve (6,850) (9,304)
------- -------
Total gross deferred tax asset 138 141
------- -------
Deferred tax liabilities:
Difference between tax and
book basis of fixed assets 138 141
------- -------
Net deferred taxes $ 0 $ 0
------- -------
------- -------
</TABLE>
A-75
<PAGE>
The net deferred tax asset at December 31, 1995 and December 31, 1994 is fully
offset by a valuation allowance. The change in the balance of the valuation
allowance in 1995 that is not allocated to continuing operations consists
principally of the tax impact of the mark to market adjustment on available for
sale securities. The amount of the valuation allowance will be reviewed
annually or on an as needed basis.
At December 31, 1995, the Company had a NOL carryforward for federal income tax
return purposes of approximately $6.8 million available to offset future taxable
income. The NOL for federal income tax return purposes will expire in the years
1996 to 2010. If there is a subsequent "change of ownership" of the Company as
defined by Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Companys's NOLs are subject to limitation as provided by the Code.
See Note A regarding the determination of the Company to pursue a
recapitalization as the means to facilitate the satisfaction of the FDIC Note.
In addition, as of December 31, 1995, the Company had a capital loss
carryforward, which will expire in the years 1996 to 2000, of approximately
$31,600 available to offset future capital gains, if any, from the sale of the
Company's capital assets.
As of December 31, 1995, the Company had an Investment Tax Credit carryforward
which will expire in the years 1997 to 2000, of approximately $77,000 available
to offset future federal income taxes.
In 1990, Coastal Bancorp and its subsidiaries carried back their share of the
consolidated net operating losses of the Suffield Financial Corporation and
subsidiaries group to the years 1984, 1985 and 1986. Tentative tax refunds in
the amount of $926,000 were paid to the Bank as a result of this carryback. In
1989 and 1990, Suffield Financial Corporation and Suffield Bank also carried
back their share of the net operating losses of the group. A portion of the
1990 losses was carried back to the 1986 taxable year of the Suffield group as
it existed before the acquisition of Coastal Bancorp and the Bank (the "Old
Suffield Group") and resulted in a tentative refund of $1,973,000 and a portion
of the 1989 losses was carried back to the years 1979 through 1985 of the Old
Suffield Group and resulted in tentative refunds of $1,279,000.
All refunds in excess of $1.0 million must be approved by the Joint Committee on
Taxation of the U.S. Congress. The Internal Revenue Service has reviewed and
approved the refund claims and has forwarded the case to the Joint Committee on
Taxation in Washington, D.C. with a recommendation that the refunds be approved
as made. The final approval of the Joint Committee on Taxation is expected as
early as the third quarter of 1996. If the Joint Committee on Taxation were to
conclude that the losses were not eligible for the ten-year carryback, the Bank
would be liable for the repayment of $926,000 of refunds plus interest and would
increase its net operating loss carryforwards by $2.4 million. The Bank also
believes that the requirements have been satisfied with respect to the carryback
of 1989 and 1990 losses by Suffield Financial Corporation and Suffield Bank
under the ten-year rule. In any event, none of the Company, Coastal Bancorp or
the Bank were members of the Old Suffield Group in the above carryback years.
Consequently, the Bank believes that in accordance with the consolidated return
regulations, the Company, Coastal Bancorp or the Bank would not be liable for
the repayment of any refunds generated by carryback to the Old Suffield Group.
A-76
<PAGE>
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1988 and such years are
not subject to further IRS audit except with respect to carrybacks to those
years.
NOTE N. LITIGATION
As of December 31, 1995, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with legal counsel, resolution of these matters
is not expected to have a material effect on the consolidated financial position
or results of operations.
A-77
<PAGE>
NOTE O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as determined
under FASB Statement No. 107 are as follows:
December 31, 1995
----------------------------
Book Fair
(IN THOUSANDS) Value Value
- ---------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents (1) $ 8,841 $ 8,841
Federal Funds sold 10,000 10,000
Trading Securities - -
Investment securities (2)
Held-to-Maturity 11,786 11,909
Available for sale 7,926 7,926
Federal Home Loan Bank stock 1,315 1,315
Assets held for sale 281 281
Loans, net of allowance (3) 97,869 99,837
Financial Liabilities:
Deposits (4) $125,665 $128,273
Borrowings (5) 15,000 14,759
____________________
(1) The carrying amount of cash and cash equivalents approximates fair value
due to their short maturity.
(2) The fair value of investment securities is based on quoted market prices,
if available. If prices are not available, quotes for similar instruments
and/or information supplied to management is used.
(3) The fair market value for fixed and adjustable rate loans was estimated
using the discounted cash flow analysis. Variable rate loans are
considered to be at fair value, since such loans change directly with the
market rates. The estimated fair value of nonperforming loans are
calculated by using book value less the specific amount of allocated
reserve from the allowance for loan losses.
(4) For deposit liabilities with no defined maturities, the fair value is the
amount payable on demand. Term deposits were estimated using the
discounted cash flow analysis.
(5) The fair value for FHLB borrowings and FDIC Note was estimated using the
discounted cash flow analysis.
NOTE P. OTHER EXPENSES
Included in other expenses are:
Year Ended December 31,
---------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
Data processing $530 $534 $527
Equipment 340 338 384
FDIC insurance 190 406 451
Insurance-general 168 268 330
Office 273 258 294
Legal 282 676 182
Advertising 112 30 32
Other 711 653 552
------- -------- ---------
$2,606 $3,163 $2,752
------- -------- ---------
------- -------- ---------
A-78
<PAGE>
NOTE Q. FIRST COASTAL CORPORATION
(PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
------------------------
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
Assets
Cash $ 99 $ 290
Investment in subsidiaries 13,334 10,754
Fixed assets 8 13
------- -------
Total assets $13,441 $11,057
------- -------
------- -------
Liabilities
Other liabilities $ 444 $ 43
FDIC Note 9,000 9,000
Stockholders' equity 3,997 2,014
------- -------
Total liabilities and
stockholders' equity $13,441 $11,057
------- -------
------- -------
STATEMENTS OF OPERATIONS
Year Ended December 31,
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
Dividends $ 200 $175 -
Interest Income 4 6 $ 1
------- ------- -------
204 181 1
Interest Expense:
Interest on FDIC Note 419 - -
------- ------- -------
419 - -
------- ------- -------
Net Interest Income (loss) (215) - -
Operating Expenses:
Stockholder relations 76 59
Professional fees 293 156
Other 14 - 100
------- ------- -------
383 215 100
Loss before income
tax, equity in undistributed
net income of subsidiaries and
extraordinary item (598) (34) (99)
Income tax benefit - - (10)
Equity in undistributed net
income of subsidiaries 2,258 132 837
------- ------- -------
Income before
Extraordinary Item 1,660 98 748
Extraordinary Item -
Charge to earnings as a result of
the settlement of the cross guaranty
claim - 9,000 -
------- ------- -------
Net Income (loss) $ 1,660 $(8,902) $ 748
------- ------- -------
------- ------- -------
A-79
<PAGE>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities
Net income (loss) $1,660 $ (8,902) $748
Charge to earnings as a result of
the settlement of the
cross guaranty claim - 9,000 -
Increase (decrease) in investment
in subsidiary, due from subsidiary,
other assets and other liabilities (1,851) 199 (794)
------- ------- -------
Net cash used
by operating activities (191) (101) (46)
Cash flows from Investing
Activities, other Net - 379 -
------- ------- -------
Increase in cash and cash
equivalents (191) 278 -
Cash, beginning of year 290 12 58
------- ------- -------
Cash, end of year $ 99 $ 290 $ 12
------- ------- -------
------- ------- -------
Non-Cash Financing Activities
FDIC Note $ 9,000
SEE NOTE J FOR RESTRICTIONS ON THE PAYMENT OF DIVIDENDS BY SUBSIDIARY TO THE
COMPANY.
A-80
<PAGE>
NOTE R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended,
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) 3/31 6/30 9/30 12/31
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
- ----
Interest income $2,917 $2,935 $2,942 $2,913
Interest expense 1,399 1,458 1,492 1,501
----- ----- ----- -----
Net interest income 1,518 1,477 1,450 1,412
Provision for loan losses 100 75 75 (675)
Other income 168 137 125 129
Securities and loan sales gains - 2 3 8
Other expense 1,361 1,327 1,210 1,296
----- ----- ----- -----
Income before income taxes 225 214 293 928
Income tax - - - -
------- ------- ----- ------
Net income $ 225 $ 214 $ 293 $ 928
----- ----- ---- -----
----- ----- ---- -----
Shares outstanding 600,361 600,361 600,361 600,361
Earnings per share $ .37 $ .36 $ .49 $ 1.55
----- ----- ----- ------
----- ----- ----- ------
1994
- -----
Interest income $2,828 $3,036 $2,911 $3,005
Interest expense 1,489 1,452 1,433 1,352
------ ------ ------ ------
Net interest income 1,339 1,584 1,478 1,653
Provision for loan losses 67 - 40 -
Other income 159 157 69 14
Securities gains (losses) 72 (112) 64 6
Other expense 1,757 1,493 1,594 1,434
------ ----- ------ ------
Income (loss) before income
taxes, minority interest and
extraordinary item (254) 136 (23) 239
Income tax - - - -
Minority interest (11) 11 - -
------- ------ ------ -------
Income (loss) before
extraordinary item (243) 125 (23) 239
------- ------ ------- ------
Extraordinary Item -
Charge to earnings as a result of
the settlement of the cross
guaranty claim - - - 9,000
-------- --------- -------- ------
Net income (loss) $ (243) $ 125 $ (23) $(8,761)
-------- ------- -------- --------
-------- ------- -------- --------
Average shares outstanding 600,361 600,361 600,361 600,361
Earnings (loss) per share
Income (loss) per share before
Extraordinary item $ (.41) $ .21 $ (.04) $ .40
-------- ------- ------- ---------
-------- ------- ------- ----------
Net income (loss) per share $ (.41) $ .21 $ (.04) $(14.59)
-------- ------- ------- -------
-------- ------- -------- -------
</TABLE>
A-81
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation, the directors
are divided into three classes, as nearly equal in number as possible, with the
number of directors as specified in the Company's Amended and Restated Bylaws.
The term of office of only one class of directors expires in each year, and
their successors are elected for terms of three years and until their successors
are elected and qualified. Under the Amended and Restated Bylaws, the directors
are divided into three classes, two of which are composed of one director and
one of which is composed of two directors. In connection with the consummation
of the Offering (as described under Item 11, "Executive Compensation --
Compensation of Directors"), the Company may seek to increase the size of its
Board of Directors pursuant to an amendment to the Company's Amended and
Restated Bylaws increasing the authorized number of directors. Under the
Company's Amended and Restated Bylaws, newly created directorships resulting
from any increase in the authorized number of directors may be filled, for the
unexpired term, by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created and until such director's successor shall have been
elected and qualified. As of May 15, 1996, the Company has made no
determination as to whether it will seek to increase the size of its Board of
Directors in connection with the Offering or who the directors designated to
fill any newly created directorships would be. In addition, there can be no
assurance that the Offering will be consummated.
The following table sets forth the names of the directors of the Company. Each
director of the Company also serves as a director of the Bank. Also set forth
is certain other information with respect to each such person's principal
occupation or employment during the past five years, the person's age at
December 31, 1995 and the periods during which such person has served as a
director of the Company.
AGE AT MEMBER OF TERM
DIRECTORS: DECEMBER 31, 1995 BOARD SINCE EXPIRES
- ---------- ----------------- ----------- -------
Roger E. Klein 53 1990 1996
Normand E. Simard (1) 54 1987 1997
Edward K. Simensky 54 1994 1997
Charles A. Stewart III 61 1995 1998
___________________
(1) Mr. Simard serves as Chairman of the Board of Directors of the Company and
the Bank.
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<PAGE>
DIRECTORS:
ROGER E. KLEIN is President and owner of the Interest Rate Futures Research
Corporation of Princeton, New Jersey, a firm established in 1980 to manage money
in the financial futures markets. In 1982, Mr. Klein established two affiliated
companies, Futures Strategies Corporation and Timing Strategies, through which
Mr. Klein manages funds and provides investment advice to institutions,
individuals and corporations. In September 1989, Mr. Klein became the Chief
Investment Officer, Executive Vice President and part owner of Quantum American,
Inc., a minority owned investment management company located in New Orleans.
NORMAND E. SIMARD has been President of York County Biscuit Company, a food
distributor in Biddeford, Maine, since July 1993, and prior thereto, served as
Vice President since 1967. Mr. Simard was originally nominated as a director of
the Company in 1987 in accordance with the provisions of the Merger Agreement by
and among the Company, Suffield Bank, Coastal Bancorp and the Bank.
EDWARD K. SIMENSKY has been President of Simensky & Thomson, certified public
accountants, in Saco, Maine, since 1978 and a member of the advisory board of
EastGuard Insurance Company, Saco, Maine ("EastGuard"), since 1995. Mr.
Simensky was a director of Mutual Fire Insurance Company, Saco, Maine ("Mutual
Fire"), from 1987 until the acquisition of Mutual Fire by EastGuard in 1995.
Mr. Simensky was a director of Suffield Bank, a subsidiary of the Company, from
1989 until September 1991 when the Banking Commissioner for the State of
Connecticut deemed Suffield Bank insolvent and appointed the FDIC as receiver.
CHARLES A. STEWART III was the President of A.L. Stewart & Sons, a food
processing company located in Cherryfield, Maine, from 1958 until 1982 when the
company was sold. Mr. Stewart also was the owner of Tennis of Maine, Inc., an
indoor tennis club located in Falmouth, Maine, from 1982 until 1985 when the
company was sold. Mr. Stewart is currently the Treasurer of M.C.S. Enterprises,
Inc., a real estate investment company based in Freeport, Maine. Mr. Stewart
has been a director of the Bank since 1986. Mr. Stewart has been a director of
the Boys & Girls Club of Greater Portland since 1987 and became chairman of the
organization's planned giving committee in 1994. In addition, in 1994,
Mr. Stewart became a director of the Maine Tennis Foundation.
EXECUTIVE OFFICERS
The following table sets forth the names of the executive officers of the
Company and the Bank, each of whom is elected to serve for a one-year period.
Also set forth is certain other information with respect to each such person's
principal occupation or employment during the past five years, the person's age
at December 31, 1995 and the positions currently held with the Company and the
Bank.
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<PAGE>
AGE AT
NAME DECEMBER 31, 1995 POSITIONS HELD
------ ------------------- ----------------
Gregory T. Caswell 40 President and Chief Executive
Officer of the Company and the
Bank and a director of the Bank
Dennis D. Byrd 33 Treasurer of the Company and
Executive Vice President, Chief
Financial Officer and Treasurer
and a director of the Bank
GREGORY T. CASWELL joined the Bank in December 1991 as Senior Vice President and
Senior Loan Officer responsible for managing the lending, loan workout and
credit administration functions of the Bank. From 1982 to 1991, he was with
First NH Banks initially as Vice President -- Commercial Lending, then as Vice
President in the bank's special assets group. In 1994, Mr. Caswell was promoted
to Executive Vice President -- Lending Division of the Bank. Effective March
31, 1995 upon the resignation of James H. Whittaker, Mr. Caswell was elected
President and Chief Executive Officer of the Company and the Bank and a director
of the Bank.
DENNIS D. BYRD joined the Bank in October 1985 as Deposit Operations Technician.
From 1987 to 1992, Mr. Byrd was responsible for financial operations of the
Bank, promoted to Assistant Treasurer/Controller in 1989 and Assistant Vice
President in 1990. In 1993, Mr. Byrd was promoted to Vice President/Controller
and Treasurer of the Bank, and Treasurer of the Company and Coastal Bancorp. In
1994, Mr. Byrd was promoted to Executive Vice President, Chief Financial Officer
and Treasurer of the Bank and on March 31, 1995, Mr. Byrd was elected to the
Board of Directors of the Bank.
Each executive officer has entered into an employment protection agreement with
the Bank. In addition, the Boards of Directors of the Company and the Bank have
proposed new employment agreements with each of Messrs. Caswell and Byrd, which
agreements are expected to be entered into and which agreements would supersede
the existing employment protection agreements with such executive officers. See
Item 11, "Executive Compensation -- Employment Agreements," which information is
incorporated herein by reference.
SECTION 16(A) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of its
Common Stock, to file with the SEC initial reports of ownership of the Company's
equity securities and to file subsequent reports when there are changes in such
ownership. Based on a review of reports submitted to the Company, the Company
believes that, during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to the Company's officers, directors and more
than 10% owners were complied with on a timely basis, except that initial
reports on behalf of Edward K. Simensky and Charles A. Stewart III in connection
with their election as a directors of the Company were not filed until after the
required filing date.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
CASH COMPENSATION
Upon the resignation of James H. Whittaker and effective March 31, 1995, Gregory
T. Caswell was elected President and Chief Executive Officer of the Company and
the Bank. The following table sets forth the compensation paid by the Company
and its subsidiary during 1995, 1994 and 1993 to each of Messrs. Caswell and
Whittaker and to Dennis D. Byrd, who was the only other executive officer whose
compensation exceeded $100,000 for services rendered in all capacities to the
Company and its subsidiary during the year ended December 31, 1995 (the "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
Other Annual
Principal Positions Year Salary Bonus Compensation
- ------------------- ---- ------- ----- -------------
<S> <C> <C> <C> <C>
Gregory T. Caswell 1995 $111,827 $34,000 -
President and Chief 1994 76,416 3,000 -
Executive Officer 1993 70,000 5,000 -
James H. Whittaker 1995 56,250 10,000 $2,454(1)
President and 1994 180,000 52,500 7,133
Chief Executive 1993 143,520 30,000 2,129
Officer (former) (2)
Dennis D. Byrd 1995 81,154 21,500 -
Treasurer 1994 53,510 3,000 -
1993 41,554 5,000 -
</TABLE>
_______________________
(1) Reimbursement for federal and state taxes on compensation for living
expenses paid by the Company in 1995.
(2) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
OPTION GRANTS
No options were granted during the fiscal year ended December 31, 1995.
OPTION HOLDINGS
The following table sets forth information with respect to the number of
securities underlying unexercised options held by each of the named executive
officers at December 31, 1995.
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<PAGE>
FISCAL YEAR-END OPTIONS
Number of Securities
Underlying Unexercised
Options at FY-End (1)(2)
Name Exercisable/Unexercisable
----- -------------------------
Gregory T. Caswell 0/0
James H. Whittaker (3) 0/0
Dennis D. Byrd 10(4)/0
-------
(1) The fair market value of the underlying shares of Common Stock at December
31, 1995 was less than the exercise price of all such options previously
granted.
(2) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(3) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
(4) Such options expire March 18, 1996.
- ----------------------------------------
PENSION PLAN
The Bank maintains a qualified noncontributory pension plan (the "Pension Plan")
for its officers and other employees through RSI Retirement Trust, created to
provide retirement benefits for the employees of savings banks and their allied
organizations. The Pension Plan is jointly administered by the plan
administrator and a pension committee appointed by the Bank and RSI Retirement
Trust. All employees are eligible to participate in the Pension Plan if they
have reached age 21 and have completed one year's service of 1,000 or more
hours. Vesting occurs after a participant completes five years of service of
1,000 or more hours per plan year. The Pension Plan is subject to the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
The Pension Plan provides for monthly benefits to or on behalf of each covered
employee at age 65 and has provisions for death benefits, early retirement after
attainment of age 55 and 10 years of service, and disability benefits. The
annual retirement benefit is 2% of the average annual earnings during the
highest paid consecutive three years of the five years immediately preceding
retirement multiplied by years of service (maximum 30 years), reduced by 1-2/3%
of the primary social security benefits multiplied by years of service (maximum
30 years). In addition, a participant will receive an annuity based upon the
actuarial value of any accumulated voluntary contributions. Annual earnings for
purposes of determining benefits under the Pension Plan consist of the annual
base compensation excluding overtime, bonus payments or any other special
payments.
The following table illustrates annual pension benefits for retirement as of
December 31, 1995 at age 65 for various levels of compensation and years of
service under the Pension Plan.
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<PAGE>
PENSION PLAN TABLE
YEARS OF SERVICE (1)
--------------------
<TABLE>
<CAPTION>
Annual
Compensation 15 20 25 30 35
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 75,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 45,000
100,000 30,000 40,000 50,000 60,000 60,000
125,000 37,500 50,000 62,500 75,000 75,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000 45,000 60,000 75,000 90,000 90,000
200,000 45,000 60,000 75,000 90,000 90,000
225,000 45,000 60,000 75,000 90,000 90,000
250,000 45,000 60,000 75,000 90,000 90,000
</TABLE>
______________________
(1) Benefits represent annual amounts under a five year and life benefit
payment option. A portion of the participant's primary social security
benefit will reduce the amount shown in this table. Pension benefits are
currently subject to a statutory maximum of $120,000, subject to cost-of-
living adjustments. The maximum annual compensation on which retirement
benefits may be calculated is limited to $150,000.
Mr. Whittaker had 3.5 years of credited service under the Pension Plan as of
March 31, 1995. Mr. Whittaker's termination of employment on March 31, 1995 was
prior to his completion of five years of service required for the vesting of
benefits. Messrs. Caswell and Byrd have 4.25 and 10.25 years, respectively, of
credited service under the Pension Plan as of December 31, 1995. Messrs.
Caswell's and Byrd's annual accrued benefit payable at age 65 under the Pension
Plan is $5,937 and $8,492, respectively, determined as of December 31, 1995.
The compensation of Messrs. Caswell and Byrd covered by the Pension Plan for
1995 consists of their respective base salary as set forth in the Summary
Compensation Table. See "Executive Compensation -- Cash Compensation."
COMPENSATION OF DIRECTORS
During 1995, there were no fees or other forms of compensation earned by or paid
to directors of the Company for any service provided as a director of the
Company. The Company has not made and does not anticipate making any payments
to directors for 1996. During 1995, each non-employee director of the Bank
received a quarterly retainer of $1,250 and a monthly aggregate meeting fee of
$250 provided that at least one meeting of the Board of Directors of the Bank
was held during the month. No amounts were paid to non-employee directors of
the Bank for meetings of committees on which such directors served. Employee
directors of the Bank receive no additional compensation for serving as
directors or committee members of the Bank.
A deferred compensation plan (the "Deferred Compensation Plan") was established
in 1987 for members of the Board of Directors of the Company and non-employee
directors of the boards of subsidiaries of the Company. Under the Deferred
Compensation Plan, each participant has the right to elect to defer a portion of
his or her annual directors' fees, with amounts deferred credited monthly with
interest at an annual rate which is determined prior to the beginning of each
calendar year. For
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<PAGE>
1995, the interest rate was 5.60% and for 1996, is 7.23%. Payment of amounts
credited is available to participants by a lump sum or a designated number of
monthly installments, which number may not be less than 12 nor more than 120.
For 1995, no director of the Bank elected to defer any portion of his director
fees.
On May 2, 1996, the Board of Directors of the Company adopted the First Coastal
Corporation 1996 Stock Option and Equity Incentive Plan (the "Plan") for the
benefit of directors and employees of the Company and employees of any
subsidiary of the Company, subject to approval by stockholders at the 1996
annual meeting of stockholders of the Company. Under the terms of the Plan, each
of the four current non-employee directors of the Company will be granted a non-
qualifying option with a 10-year term for 1,500 shares of Common Stock
(representing an aggregate of options exercisable for 6,000 shares of Common
Stock) on the date of the first public offering of shares of Common Stock that
occurs after the date of adoption of the Plan, subject to stockholder approval,
but such grants will not be made if no such offering occurs before December 31,
1996. The exercise price of such options will be equal to the offering price of
the Company's Common Stock in connection with such public offering. The Company
has filed a registration statement on Form S-2 with the SEC with respect to a
proposed public offering of 750,000 shares of Common Stock (the "Offering") and
expects to consummate the Offering in the third quarter of 1996. The Offering
will be made only by means of a prospectus. The Plan further provides that,
subject to the availability of shares, as of each annual meeting of stockholders
of the Company after December 31, 1996, each non-employee director of the
Company who is elected by the stockholders at, or whose term of office continues
after, such meeting will be granted a non-qualifying option with a 10-year term
for 500 shares upon the date of such election at a per share exercise price
equal to the market value of a share of Common Stock on the date of grant.
EMPLOYMENT AGREEMENTS
In December 1994, the Bank entered into employment protection agreements (each
an "Employment Protection Agreement" and together, the "Employment Protection
Agreements") with each of Messrs. Caswell and Byrd, which superseded the
employment protection agreements entered into with each of such executive
officers in December 1993. The Employment Protection Agreements were amended in
April 1995 to reflect the new titles of Messrs. Caswell and Byrd. The initial
term of the Employment Protection Agreements expires December 31, 1996 and may
be renewed by the written agreement of the Bank and the executive officer. In
the event of a termination of the executive officer's employment during the term
of the Employment Protection Agreement by the Bank without "cause" or by the
executive officer for "good reason" (in each case as defined therein), the
executive officer is entitled to receive a lump sum cash payment equal to one
year's "current compensation." "Current compensation" is equal to (i) the
executive officer's salary at the annual rate in effect at the time of his
termination, (ii) any bonuses (other than performance bonuses) paid to the
officer during the 12-month period prior to his termination and (iii) any
deferred compensation credited to his account as of December 31 of the year
preceding his termination. "Performance bonuses" of $3,000 each were payable to
Messrs. Caswell and Byrd on December 31, 1994, and April 30, August 31, and
December 31, 1995, respectively. The Employment Protection Agreements provide
that the executive officer is required to give the Bank at least 90 days written
notice before he voluntarily terminates his employment with the Bank (other than
for "good reason").
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<PAGE>
The Boards of Directors of the Company and the Bank have proposed new employment
agreements (each a "New Employment Agreement" and together, the "New Employment
Agreements") with each of Messrs. Caswell and Byrd, which agreements are
expected to be entered into by the parties thereto. The New Employment
Agreements would supersede the Employment Protection Agreements.
Under their respective proposed New Employment Agreements, each executive
officer may receive annual salary increases based on increases in the cost of
living and based upon performance or merit, as determined by the Boards of
Directors of the Company and the Bank. Each executive officer shall be eligible
to receive discretionary bonuses as may be authorized by the Boards of Directors
of the Company or the Bank and shall be eligible to participate in any plan of
the Company or the Bank relating to stock options, stock purchases, pension,
thrift, profit sharing, employee stock ownership, group life insurance, medical
coverage, disability insurance, education or other retirement or employee
benefits that the Company or the Bank has adopted or may adopt for the benefit
of its executive employees. In addition, each executive officer is authorized
to incur reasonable business expenses in the performance of his duties. The New
Employment Agreements provide for initial terms ending December 31, 1997 with
renewals for one additional consecutive 12-month period as of December 31, 1996
and each subsequent anniversary of December 31, unless the Company and the Bank,
or the executive officer, gives written notice to the contrary at least two
months prior to any such renewal date. The base salaries through December 31,
1996 for Messrs. Caswell and Byrd are $124,800 and $88,400, respectively, which
salaries may not be reduced under the New Employment Agreements without the
consent of the executive officer.
The Boards of Directors of the Company and the Bank may terminate the executive
officer's employment at any time. Each proposed agreement provides that if the
executive officer's employment is terminated other than for cause (as defined),
disability or incapacitation or the executive officer terminates employment with
good reason (as defined), the officer will be entitled (subject to certain
limitations) (a) to continue to participate in and accrue benefits under certain
benefit plans for the remaining term of the agreement, but not in excess of 24
months, (b) to receive certain insurance and indemnification benefits with
respect to all of such officer's acts or omissions while an officer or director
until the final expiration or running of all periods of limitation against
action which may be applicable to such acts or omissions, and (c) to be paid a
lump sum cash payment as liquidated damages in an amount equal to the amount
that would be payable over a period equal to the remaining term of the
agreement, but not in excess of 24 months. The New Employment Agreements
provide that no payment is required to be made that would constitute a "golden
parachute payment" (as defined) pursuant to certain rules and regulations of the
FDIC.
In December 1994, the Bank entered into an employment agreement with Mr.
Whittaker (the "Whittaker Employment Agreement"), which superseded the
employment agreement entered into with Mr. Whittaker in December 1993. The
Whittaker Employment Agreement terminated effective upon the resignation of
Mr. Whittaker on March 31, 1995. Pursuant to the Whittaker Employment Agreement
and during the term thereof, Mr. Whittaker's annual salary was $225,000, and he
was entitled to receive certain "performance bonuses" totaling up to $60,000.
Such performance bonuses were paid or were payable as follows: (i) $12,500 upon
the execution of the Whittaker Employment Agreement, (ii) $10,000 on January 31,
1995, (iii) $12,500 on April 30, 1995, (iv) $12,500 on August 31, 1995 and (v)
$12,500 on December 31, 1995, provided that Mr. Whittaker continued to be
employed by the Bank on the applicable date. The Bank agreed to pay or
reimburse Mr. Whittaker
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<PAGE>
for rental of a furnished apartment within 50 miles of the Bank's operations
center in Westbrook and for travel expenses from his residence in Connecticut to
Maine, as well as reimbursement of certain taxes.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of May 15, 1996 with respect to
the amount of Common Stock beneficially owned by each director of the Company,
by each of the named executives officers, and by all directors and executive
officers of the Company as a group. This information is based on information
furnished to the Company by such persons.
<TABLE>
<CAPTION>
Amount and Nature of Percent of Common
Name Beneficial Ownership (1)(2) Stock Outstanding
<S> <C> <C>
Gregory T. Caswell
President and Chief Executive Officer 5,000 (3) *
Dennis D. Byrd
Treasurer 2,500 (3) *
Roger E. Klein
Director 102 *
Normand E. Simard
Chairman of the Board 822 *
Edward K. Simensky
Director 205 *
Charles A. Stewart III
Director 308 (4) *
James H. Whittaker
President and Chief Executive Officer (former) (5) 3,376 (6) *
All directors and executive officers
as a group (6 persons) 8,937 (7) 1.5%
</TABLE>
___________________
(*)Less than 1% of shares outstanding.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is considered to "beneficially own" shares (i) over which he has or
shares voting or investment power or (ii) of which he has the right to
acquire beneficial ownership at any time within 60 days of May 15, 1996.
As used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares.
(2) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(3) Consists of restricted stock award made under the Plan which vests over a
three-year period (from May 2, 1996) and is subject to stockholder approval
of the Plan and to completion of the Offering.
(4) Consists of options which were exercisable and which were terminated as of
May 30, 1996.
(5) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
(6) Includes 2,900 shares held jointly by Mr. Whittaker and his wife and a
total of 49 shares held by Mr. Whittaker on behalf of certain of his
children. Does not include a total of 49 shares held by Mr. Whittaker's
father on behalf of certain of his grandchildren.
(7) Includes 308 options which were exercisable and which were terminated May
30, 1996, and 7,500 shares of restricted stock awarded under the Plan which
vest over a three year period (from May 2, 1996) and are subject to
stockholder approval of the Plan and to completion of the Offering.
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<PAGE>
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of May 15, 1996 with respect to
the ownership of Common Stock by each person believed by management to be the
beneficial owner of more than 5% of the outstanding Common Stock. The
historical information set forth below is based on the most recent Schedule 13D
filed on behalf of each such person with the SEC.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP (1)(2) OUTSTANDING
-------------------- ---------------------- --------------
<S> <C> <C>
Angelina J. McGillivray. . . . . . . . . . . 56,416 (3) 9.4%
195 Ethan Drive
Windsor, Connecticut 06095
Jonathan Googel. . . . . . . . . . . . . . . 31,050 (4) 5.2
Ben Sisti
65 Kane Street
West Hartford, Connecticut 06119
</TABLE>
________________________
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is considered to "beneficially own" shares (i) over which he or she
has or shares voting or investment power or (ii) of which he or she has the
right to acquire beneficial ownership at any time within 60 days of May 15,
1996. As used herein, "voting power" is the power to vote or direct the
uvoting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(2) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(3) A Schedule 13D dated May 15, 1992 states that Ms. McGillivray has sole
voting and sole dispositive power over such shares. The Company recently
has been orally advised by Ms. McGillivray that she has disposed of all
such shares.
(4) An Amendment No.5 to Schedule 13D filed on February 5, 1988 ("Amendment No.
5") states that Messrs. Googel and Sisti have shared voting power and
shared dispositive power over 31,050 shares. Amendment No. 5 further
states that Mr. Googel has sole voting and sole dispositive power over an
additional 3,000 shares. Amendment No. 5 also states that Mr. Sisti has
sole voting and sole dispositive power over an additional 1,300 shares.
The Company has been advised that Messrs. Googel and Sisti are the subject
of bankruptcy proceedings pending in the United States Bankruptcy Court
for the District of Connecticut and that their individual bankruptcy
proceedings have been substantively consolidated with the bankruptcy of
Colonial Realty Company, a Connecticut general partnership. Hal M. Hirsch
of Purchase, New York, serves as bankruptcy trustee of the consolidated
Chapter 7 estates.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time the Bank makes residential mortgage loans to directors,
officers, principal stockholders and employees of the Company. Management
believes that these residential mortgage loans are made in the ordinary course
of business, are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and neither involve more than normal risk of collectibility nor
present other unfavorable features. Other than residential mortgage loans, the
Bank does not make loans to directors, officers, principal stockholders or
employees of the Company, except for a personal credit card issued to an
employee of the Bank prior to its adoption of this loan policy.
All future residential mortgage loans made by the Bank to directors, officers,
principal stockholders and employees of the Company will be made on terms no
less favorable than those available from unaffiliated third parties, will be
made in accordance with the requirements of Regulation O under the Federal
Reserve Act and will be approved by a majority of the Board of Directors of the
Bank, including a majority of disinterested directors.
During the 1995 fiscal year, the Bank paid Futures Strategies Corporation
("FSC"), which is owned by Mr. Klein and of which he is President, $1,500 per
month for general investment services. There is no written contract between the
Bank and FSC with respect to the payment of such fees to, and the provision of
such services by, FSC.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of First Coastal
Corporation and Subsidiary, included at Item 8:
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1995
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1995
Notes to Consolidated Financial Statements--December 31, 1995
Report of Independent Accountants
(a)(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(a)(3) Exhibits. The following exhibits are either filed as part of
this Report or are incorporated herein by reference:
EXHIBIT NO. 3 ARTICLES OF INCORPORATION AND BYLAWS
3.1(i) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) to
Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-
14087 ("1995 Form 10-K"), and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit No. 3.1(ii) to 1995
Form 10-K and incorporated herein by reference).
EXHIBIT NO. 10 MATERIAL CONTRACTS
10.1 Suffield Financial Corporation Stock Option Plan and Suffield Bank
Stock Option Plan (filed as Exhibits 4.5 and 4.6, respectively, to the
Company's Registration Statement on Form S-8, File No. 33-11400, and
incorporated herein by reference).
A-93
<PAGE>
10.2 Coastal Savings Bank Stock Option Plan (filed as Exhibit 4.7 to Post-
Effective Amendment No. 1 on Form S-8 to Form S-4, File No. 33-10189, and
incorporated herein by reference).
10.3 First Coastal Corporation Director's Deferred Compensation Plan
(filed as Exhibit 10.13 to Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14087, and incorporated herein by reference).
10.4 Amended and Restated Settlement Agreement, dated as of November 23,
1994, among First Coastal Corporation, Coastal Savings Bank and the Federal
Deposit Insurance Corporation (filed as Exhibit 99a to Current Report on Form 8-
K, filed December 5, 1994, and incorporated herein by reference).
10.5 Promissory Note, dated January 31, 1995, by First Coastal Corporation
for the benefit of the Federal Deposit Insurance Corporation (filed as Exhibit
99b to Current Report on Form 8-K, filed February 13, 1995 ("1995 Form 8-K"),
and incorporated herein by reference).
10.6 Stock Pledge Agreement, dated as of January 31, 1995, between First
Coastal Corporation and the Federal Deposit Insurance Corporation (filed as
Exhibit 99c to 1995 Form 8-K, and incorporated herein by reference).
10.7 Memorandum of Understanding, among Coastal Savings Bank, the Federal
Deposit Insurance Corporation and the Maine Bureau of Banking, effective as of
November 22, 1994 (filed as Exhibit 10.16 to Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14087 ("1994 Form 10-K"), and
incorporated herein by reference).
10.8 Employment Agreement, dated December 21, 1994, between Coastal
Savings Bank and James H. Whittaker (filed as Exhibit 10.17 to 1994 Form 10-K,
and incorporated herein by reference).
10.9 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Dennis D. Byrd (filed as Exhibit 10.18 to 1994 Form 10-
K, and incorporated herein by reference).
10.10 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Gregory T. Caswell (filed as Exhibit 10.19 to 1994 Form
10-K, and incorporated herein by reference).
10.11 Purchase and Assumption Agreement, dated February 22, 1996,
between Coastal Savings Bank and Maine Bank & Trust Company (filed as Exhibit
10.11 to 1995 Form 10-K, and incorporated herein by reference).
10.12 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as Exhibit 10.12
to 1995 Form 10-K, and incorporated herein by reference).
A-94
<PAGE>
EXHIBIT NO. 21 SUBSIDIARY OF THE REGISTRANT
Subsidiary of the Company (filed as Exhibit 21 to 1995 Form 10-K, and
incorporated herein by reference).
EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE
14(b) Not applicable.
14(c) Exhibits to this Amendment No. 2 to Form 10-K on Form 10-K/A are attached
or incorporated herein by reference as stated above.
14(d) Not applicable.
A-95
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST COASTAL CORPORATION
June 4, 1996 By: /s/ Gregory T. Caswell
---------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
June 4, 1996 By:/s/ Gregory T. Caswell
---------------------------
Gregory T. Caswell
President and Chief Executive
Officer
(Principal Executive Officer)
June 4, 1996 By:/s/ Dennis D. Byrd
---------------------------
Dennis D. Byrd
Treasurer
(Principal Financial and
Accounting Officer)
And by a majority of the Board of Directors of the Registrant.
June 4, 1996 By:/s/ Normand E. Simard
---------------------------
Normand E. Simard
Chairman of the Board and Director
June 4, 1996 By:/s/ Roger E. Klein
---------------------------
Roger E. Klein
Director
June 4, 1996 By:/s/ Edward K. Simensky
---------------------------
Edward K. Simensky
Director
June 4, 1996 By:/s/ Charles A. Stewart III
---------------------------
Charles A. Stewart III
Director
A-96
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-Q ON FORM 10-Q/A
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-14087
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1177661
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
36 THOMAS DRIVE, WESTBROOK, MAINE 04092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 774-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, is:
Class: COMMON STOCK, PAR VALUE $1.00 PER SHARE
Outstanding at April 30, 1996 (approximate): 600,361 shares
B-1
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements
(Unaudited), March 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
B-2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(IN THOUSANDS) March 31, 1996 December 31,1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 4,316 $ 4,466
Interest earning deposits 14,087 4,375
-------- --------
Cash and cash equivalents 18,403 8,841
Federal funds sold - 10,000
Investment securities:
Held-to-maturity 11,798 11,786
Available-for-sale (at market value) 12,767 7,926
-------- --------
24,565 19,712
Federal Home Loan Bank stock-at cost 1,315 1,315
Loans held for sale 1,781 281
Loans 96,024 100,550
Less:Deferred loan fees, net (15) (22)
Allowance for loan losses (2,646) (2,659)
-------- --------
93,363 97,869
Premises and equipment 3,159 3,073
Real estate owned and repossessions 2,164 1,973
Other assets 2,259 2,389
-------- --------
TOTAL ASSETS $147,009 $145,453
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $126,746 $125,665
Advances from Federal Home Loan Bank 6,000 6,000
FDIC Note 9,000 9,000
Accrued interest on FDIC Note 559 419
Accrued expenses and other liabilities 433 372
-------- --------
TOTAL LIABILITIES 142,738 141,456
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; Authorized
1,000,000 shares; none outstanding
Common Stock, $1.00 par value; Authorized
6,700,000 shares; issued and outstanding as
of March 31, 1996 and December 31, 1995 - 600,361
(See Note B for information regarding the
reverse stock split) 600 600
Paid-in Capital 29,375 29,375
Retained earnings deficit (25,679) (26,016)
Unrealized gain (loss) on available for sale
securities (25) 38
-------- --------
TOTAL STOCKHOLDERS' EQUITY 4,271 3,997
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $147,009 $145,453
-------- --------
-------- --------
</TABLE>
See Notes to condensed consolidated financial statements.
B-3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
- --------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended March 31,
- --------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $2,426 $2,430
Interest and dividends on investment securities 325 269
Other interest income 252 218
--------- ---------
TOTAL INTEREST AND DIVIDEND INCOME 3,003 2,917
--------- ---------
INTEREST EXPENSE
Deposits 1,263 1,154
Borrowings
Advances from Federal Home Loan Bank 88 172
FDIC Note 141 73
--------- ---------
Total Interest Expense 1,492 1,399
--------- ---------
Net Interest Income Before Provision for Loan Losses 1,511 1,518
Provision for Loan Losses - 100
--------- ---------
Net Interest Income After Provision for Loan Losses 1,511 1,418
OTHER INCOME
Service charges on deposit accounts 70 58
Gain on investment securities transactions 7 -
Loss on sales of mortgage loans (8) -
Other 62 110
--------- ---------
131 168
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 513 542
Occupancy 130 112
Net cost of operation or real estate owned and
repossessions 56 (7)
Other 606 714
--------- ---------
1,305 1,361
--------- ---------
Income Before Income Taxes 337 225
Income Tax - -
--------- ---------
NET INCOME $ 337 $ 225
--------- ---------
--------- ---------
PER SHARE AMOUNTS
Weighted Average Shares Outstanding 600,361 600,361
Income Per Share (See Note B for information regarding
the reverse stock split) $ .56 $ .37
--------- ---------
--------- ---------
</TABLE>
See Notes to condensed consolidated financial statements.
B-4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 337 $ 225
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses - 100
Writedowns of REO 27 14
Provision for depreciation and amortization 80 73
Amortization of investment security (discounts) (10) (93)
Realized investment securities (gains) (7) -
(Gains) from assets held in trading accounts - (33)
Realized losses on assets held for sale 8 -
Decrease in trading account securities - 948
Loans originated and acquired for resale (2,517) (122)
Sales of loans originated and acquired for sale 1,009 69
Decrease in interest receivable 116 58
Increase in interest payable 156 72
Net change in other assets (510) 648
Net change in other liabilities 45 (121)
------- -------
Net cash provided by operating activities (1,266) 1,838
------- -------
INVESTING ACTIVITIES
Decrease in federal funds sold 10,000 -
Proceeds from sales and maturities of investment securities available for sale 1,080 1,049
Maturities of securities held to maturity 5,000 -
Purchases of investment securities available for sale (5,976) -
Purchases of investment securities held to maturity (5,003) (936)
Net change in loans 4,812 911
Net purchases of premises and equipment (166) (11)
------- -------
Net cash provided (used) by investing activities 9,747 1,013
------- -------
FINANCING ACTIVITIES
Net change in deposits 1,081 (3,010)
Payments on borrowings - (4,945)
------- -------
Net cash used by financing activities 1,081 (7,955)
------- -------
Increase (decrease) in cash and cash equivalents 9,562 (5,014)
Cash and cash equivalents at beginning of period 8,841 11,337
------- -------
Cash and cash equivalents (interest and noninterest bearing) at end of period $18,403 $ 6,233
------- -------
------- -------
NONCASH INVESTING ACTIVITIES
Change in unrealized holding losses on investment securities available for sale $ 63 $ 172
Securities available for sale collateralized by portfolio mortgage loans -
Transfer of loans to real estate owned and repossessions 306 583
</TABLE>
See Notes to consolidated financial statements.
B-5
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - CERTAIN REGULATORY MATTERS
RECEIVERSHIP OF SUFFIELD BANK
On September 6, 1991, First Coastal Corporation (the "Company") announced that
Suffield Bank was placed into receivership by the Connecticut Banking Department
and the Federal Deposit Insurance Corporation ("FDIC") was appointed as the
receiver. Following the receivership of Suffield Bank, management's efforts
were focused for an extended period of time on resolving the cross guaranty
claim, as described below, and improving operations of the Company's subsidiary,
Coastal Savings Bank ("Coastal" or the "Bank").
SETTLEMENT OF FDIC CROSS GUARANTY CLAIM
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "Note" or the "FDIC Note"), secured by the Company's pledge of
the outstanding stock of the Bank. In 1994, the Company incurred an
extraordinary charge to earnings resulting from the issuance of the Note.
Principal and interest under the FDIC Note are deferred until its maturity date,
which is January 31, 1997, subject to extension under certain circumstances.
The Company announced on January 31, 1996 that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. On April 18, 1996, the Company filed with the Securities and
Exchange Commission a registration statement on Form S-2 with respect to a
proposed registered public offering of 750,000 shares of the Company's common
stock. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through such offering of its common stock,
including a rights offering to the Company's existing stockholders. The
offering will be made only by means of a prospectus. In addition to the
proceeds from the common stock offering, the Company also expects to use funds
derived from dividends from the Bank and the proceeds from a loan to satisfy its
obligation under the FDIC Note. The recapitalization and related transactions
are subject to a number of conditions, including the receipt of appropriate
regulatory approvals, and there can be no assurance that such recapitalization
and related transactions will be consummated or that the Company will be
successful in repaying the FDIC Note. The Company anticipates that the
recapitalization would be completed in the third quarter of 1996.
MEMORANDUM OF UNDERSTANDING
Effective as of January 23, 1992, Coastal consented to an Order to Cease and
Desist (the "Order to Cease and Desist" or the "Order") issued by the FDIC and
concurred with by the Maine Bureau of Banking (the "Maine Bureau of Banking").
The Order required Coastal to cease and desist from engaging in certain
activities and practices detrimental to the Bank and also required, among other
things, the maintenance by the Bank of specified capital ratios. Effective
December 8, 1994, the Order was terminated.
The Order was replaced with a Memorandum of Understanding ("Memorandum") among
the Bank, the FDIC and the Maine Bureau of Banking effective as of November 22,
1994. The Memorandum provides, among other
B-6
<PAGE>
things, that (i) the Bank continue to maintain its allowance for loan and lease
losses in accordance with applicable regulatory requirements, (ii) the Board of
Directors of the Bank continue to review the adequacy of the Bank's loan and
lease loss reserves and provide for adequate reserves, (iii) the Bank continue
to have a Tier 1 capital to total assets ratio at or in excess of 6.0%, (iv) the
Bank continue to comply with the FDIC's Statement of Policy on Risk-Based
Capital, (v) the Bank provide monthly progress reports regarding substandard or
doubtful assets, (vi) the Bank agree not to extend or renew credit to, or for
the benefit of, any borrower who or which has a loan or other extension of
credit with the Bank that has been charged-off or classified in whole or in
part, loss, doubtful or substandard and is uncollected unless certain conditions
are met, (vii) the Bank not declare or pay any dividends without the prior
written consent of the FDIC and the Maine Bureau of Banking, and (viii) the Bank
continue to furnish written progress reports detailing the form and manner of
any action taken to seek to secure compliance with the Memorandum. In addition,
the Board of Directors is required to develop a written plan of action to reduce
the Bank's risk position with respect to each borrower who had outstanding
principal debt owing to the Bank in excess of $500,000 which was classified
substandard, in whole or in part, and other real estate owned with a book value
in excess of $500,000, as well as the formulation of a strategic plan and
policies covering investments, funds management and various lending policies.
At March 31, 1996, the Bank had a Tier 1 capital to total assets ratio of 9.45%.
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies covering capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with the policies of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") regarding the payment of cash
dividends by bank holding companies. Management addressed these matters by
developing plans and policies which were submitted to the Federal Reserve in
1988, and updated such plans and policies in 1992 and 1995. Effective March 13,
1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
REGULATORY CAPITAL REQUIREMENTS
Under applicable federal regulations, the Company and Coastal are each required
to maintain minimum levels of regulatory capital. The Federal Reserve has
adopted a leverage-based capital requirement for bank holding companies with a
composite rating of 1 under the bank holding company rating system of a minimum
level of tier 1 capital to total assets of 3.0%. All other bank holding
companies or bank subsidiaries of bank holding companies are required to
maintain a minimum ratio of tier 1 capital to total assets of 4.0% to 5.0%.
Under the Federal Reserve's risk-based capital guidelines, bank holding
companies or banks also are required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8.0%. The guidelines apply on a
consolidated basis to bank holding companies with consolidated assets of $150
million or more. For bank holding companies which have less than $150 million in
consolidated assets, as did the Company for each of the quarters ended March 31,
1995, June 30, 1995, September 30, 1995, December 31, 1995 and March 31, 1996,
the guidelines are applied on a bank-only basis (as opposed to a consolidated
basis) unless (i) the parent bank holding company is engaged in nonbank activity
involving significant leverage or (ii) the parent company has a significant
amount of debt that is held by the general public. The Federal Reserve capital
adequacy guidelines provide that "debt held by the general public" is debt held
by parties other than financial institutions, officers, directors, and
controlling stockholders of the banking organization or their related interests.
The FDIC Note is not considered to be "debt held by the general public" for
purposes of such capital guidelines. As a result, applied on a bank-only basis,
the Company's ratios of tier 1 capital to total assets, tier 1 capital to risk-
weighted assets, qualifying total capital to risk-weighted assets of 9.45%,
15.21%, and 16.48%, respectively, at March 31, 1996 were in compliance with such
guidelines.
B-7
<PAGE>
The FDIC has also adopted minimum capital requirements as regulations for state
non-member banks such as the Bank. Under the minimum leverage capital
requirement, insured state non-member banks must maintain a Tier 1 capital to
total assets ratio of at least 3% to 5% depending on the CAMEL rating of the
bank. The Memorandum requires that the Bank continue to maintain a Tier 1
capital to total assets ratio at or in excess of 6.0%. At March 31, 1996, the
Bank had a Tier 1 capital to total assets ratio of 9.45%.
In addition, under such regulations insured non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%,
including a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At
March 31, 1996, the Bank had a ratio of Tier 1 capital to risk-weighted assets
of 15.21% and a ratio of qualifying total capital to risk-weighted assets of
16.48%.
NOTE B - ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Most of the Company's commercial real estate loans as of March 31, 1996 are
collateralized by real estate in Maine which has experienced a significant
decline in value since the market peak in the late 1980's. In addition, all of
the real estate owned ("REO") are located in this same market. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
and the recovery of a substantial portion of the carrying amount of REO have
been impacted by this real estate market decline and are particularly
susceptible to changes in market conditions in Maine.
While management uses available information to recognize losses on loans and
REO, future additions to the allowance for loan losses ("Allowance") or
writedowns may be necessary based on changes in economic conditions. In
addition, various regulatory authorities, as an integral part of their
examination process, periodically review the Company's Allowance and the
carrying value of REO. Such authorities may require the Company to recognize
additions to the Allowance and/or write down the carrying value of REO based on
their judgments of information available to them at the time of their
examination.
NEW ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard (SFAS) No. 122, MORTGAGE SERVICING RIGHTS,
which amends FASB Statement No. 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING
ACTIVITIES. This standard eliminates the distinction between purchased and
originated mortgage servicing rights and establishes the use of a valuation
allowance to recognize any impairment in the fair value of mortgage servicing
rights. There was no effect to the Company's financial statements or results of
operations on January 1 and March 31, 1996 as a result of implementing FASB
Statement No. 122.
B-8
<PAGE>
In addition, during October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which establishes fair-value based accounting to
recognize compensation expense related to stock-based transactions. For
employers, the fair-value based recognition provisions are not mandatory;
however, certain disclosure requirements are provided. The Company intends to
comply with the disclosure requirements when required in 1996.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
Effective January 1, 1994 with the implementation of FASB Statement No. 115,
investment securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Investment securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. There was no effect to the Company's financial
statements or results of operations on January 1, 1994 as a result of
implementing FASB Statement No. 115. For the three months ended March 31, 1996,
investment securities classified as available for sale reflected an unrealized
loss of $25,000.
As of March 31, 1996, the Company's investment accounting policy states that all
securities purchased with an original maturity of over one year, other than
mortgage backed securities originated by the Bank with current loan production,
will be classified as available for sale. Securities purchased with an original
maturity of one year or less, or callable U.S. government agency notes, will be
considered held-to-maturity. Mortgage backed securities originated by the Bank
with current loan productions, will be classified as trading securities.
ASSETS HELD FOR SALE STATED AT MARKET VALUE
Assets held for sale, consisting primarily of residential mortgages originated
for the purpose of potential sale, are valued at the lower of cost or market.
LOANS
Interest on loans is accrued and credited to operations based on the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes delinquent and, in management's opinion, borrowers may be unable to meet
contractual obligations. Such accrual is discontinued where interest or
principal is 90 days or more past due, unless the loans are deemed to be
adequately secured and in the process of collection. In these instances,
interest is recognized only when received. When interest accruals are
discontinued, unpaid interest credited to income in the current year is reversed
and interest accrued in prior years is charged to the Allowance.
Loan origination fees and certain direct loan origination costs are deferred and
the new amount amortized as an adjustment to the related loan yield over the
estimated contractual life of the loan.
ALLOWANCE FOR LOAN LOSSES
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic conditions,
growth and
B-9
<PAGE>
diversification of the loan portfolio, the results of the most recent regulatory
examinations, the nature and level of nonperforming assets, impaired loans and
loans that have been identified as potential problems, the adequacy of
collateral and other relevant factors. The Allowance is increased by provisions
for loan losses charged against income and recoveries on loans previously
charged off.
The Company adopted FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN, on January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if it is probable
that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement.
Management identifies impaired loans on a loan-by-loan basis. The measurement
of impaired loans is generally based on the present value of expected future
cash flows discounted at the historical effective interest rate, with the
exception of all collateral-dependent loans, which are measured for impairment
based on the fair value of the collateral. The adoption of FASB Statement No.
114 resulted in no additional provision for loan losses as determined at
January 1, 1995 and March 31, 1996.
REAL ESTATE OWNED ("REO")
REO, other than bank premises, consists of properties acquired through mortgage
loan foreclosure proceedings or in satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date of foreclosure and any difference is charged to the Allowance at the
time of reclassification. Subsequently, the values of such properties are
reviewed by management and writedowns, if any, are charged to expense.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated provisions for
depreciation and amortization, computed using the straight-line method over
estimated useful lives.
REVERSE STOCK SPLIT
On May 31, 1995, the Company effected a one-for-ten reverse stock split with
respect to the issued and outstanding shares of the Company's common stock,
which was approved by the Company's stockholders on January 31, 1995. As a
result of the reverse stock split, the number of outstanding shares of common
stock of the Company was reduced from 6,006,745 shares (determined at the close
of business on May 31, 1995) to 600,361 shares. As a result, $5,407,000 was
transferred from the Company's common stock account to paid-in capital. All
applicable share and per share data appearing in the consolidated financial
statements and notes thereto have been retroactively adjusted for the reverse
stock split.
INCOME TAXES
The Company adopted FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, in 1993
which requires a change from the deferred method of accounting for income taxes
of APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At December 31,
1995, the Company estimated that net operating loss ("NOL") carryforwards for
federal income tax return purposes of $6.8 million were available to offset
future taxable income. Due to the uncertainty that the benefit of net deferred
tax assets will be realized, a full valuation allowance has been recorded at
March 31, 1996 and December 31, 1995.
B-10
<PAGE>
In 1990, Coastal Bancorp and its subsidiaries carried back their share of the
consolidated net operating losses of the Suffield Financial Corporation and
subsidiaries group to the years 1984, 1985 and 1986. Tentative tax refunds in
the amount of $926,000 were paid to the Bank as a result of this carryback.
In 1989 and 1990, Suffield Financial Corporation and Suffield Bank also
carried back their share of the net operating losses of the group. A portion
of the 1990 losses was carried back to the 1986 taxable year of the Suffield
group as it existed before the acquisition of Coastal Bancorp and the Bank
(the "Old Suffield Group") and resulted in a tentative refund of $1,973,000
and a portion of the 1989 losses was carried back to the years 1979 through
1985 of the Old Suffield Group and resulted in tentative refunds of
$1,279,000.
All refunds in excess of $1.0 million must be approved by the Joint Committee on
Taxation of the U.S. Congress. The IRS reviewed and approved the refund claims
and forwarded the case to the Joint Committee on Taxation in Washington, D.C.
with a recommendation that the refunds be approved as made. On April 3, 1996
the Company was notified by the Joint Committee on Taxation in Washington, D.C.
that all claims had been approved.
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1991.
B-11
<PAGE>
PART I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
TOTAL ASSETS
At March 31, 1996, total assets were $147.0 million, representing an increase of
$1.5 million (or 1.1%) from total assets of $145.5 million at December 31, 1995.
This increase was primarily attributable to the $1.0 million increase in
deposits. However, as of April 26, 1996, the Company consummated the sale of
its Kezar Falls branch to Maine Bank & Trust Company which resulted in a
decrease in deposits and overall total assets of approximately $9.9 million in
the second quarter of 1996. See "Financial Condition - Liquidity - Coastal" for
more information concerning the branch sale.
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations and also contains miscellaneous equity securities. Total
investment securities at March 31, 1996 were $24.6 million compared to $19.7
million at December 31, 1995. This increase is attributable to the purchase of
$5.0 million in U.S. government agency callable notes, $4.0 million in GNMA
mortgage-backed securities and $2.0 million in U.S. treasury securities,
partially offset by maturities of U.S. treasury securities totaling $2.0 million
and $4.0 million of U.S. government agency callable notes which were called
during the first quarter of 1996. Investment securities classified as available
for sale are reported at fair value, with unrealized gains and losses excluded
from earnings and reported in a separate component of stockholders' equity.
Investment securities held to maturity are stated at cost, adjusted for
amortization of bond premiums and accretion of bond discounts.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(IN THOUSANDS) Cost Value Gain Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $5,958 $5,968 $18 $ (8)
Mortgage backed securities 4,724 4,695 10 (39)
Equity/mutual fund 2,000 1,994 - (6)
Other 110 110 - -
------- ------- ------- -------
$12,792 $12,767 $ 28 $ (53)
------- ------- ------- -------
------- ------- ------- -------
Held to maturity:
U.S. government callable notes 11,798 11,688 5 (115)
------- ------- ------- -------
$11,798 $11,688 $ 5 $(115)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The net unrealized loss on investment securities classified as available for
sale was $25,000 at March 31, 1996, versus a net unrealized gain of $38,000 at
December 31, 1995. The net unrealized loss on securities available for sale is
attributable to an increase in interest rates during the first three months of
1996. The Company will continue to give consideration to further investments in
U.S. government agency, U.S. government obligations
B-12
<PAGE>
and mortgage backed securities, after giving consideration to the potential
impact on the fair value of these securities that may result from interest rate
fluctuations in comparison to alternative investment securities.
The following table represents the contractual maturities for investments in
debt securities for each major security type at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------
Maturing
----------------------------------------------------------
After One
Within But Within After
(IN THOUSANDS) One Year Five Years Five Years Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $ 4,007 $ 1,961 - $ 5,968
Mortgage backed securities - - 4,695 4,695
-------- -------- -------- --------
$ 4,007 $ 1,961 $ 4,695 $ 10,663
-------- -------- -------- --------
-------- -------- -------- --------
Held to maturity:
U.S. government agency callable
notes (final maturity) - 7,998 3,800 11,798
-------- -------- -------- --------
$ - $ 7,998 $ 3,800 $ 11,798
-------- -------- -------- --------
-------- -------- -------- --------
LOANS
Loans consisted of the following:
March 31, December 31,
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 28,724 $30,966
Commercial 49,258 50,797
Commercial and industrial loans 2,264 2,524
Consumer and other loans 15,778 16,263
-------- --------
$ 96,024 $100,550
-------- --------
-------- --------
</TABLE>
Loans decreased $4.5 million (or 4.5%) at March 31, 1996 as compared to
December 31, 1995. The most significant reason for the decrease was the
prepayment of loans in advance of their scheduled maturity dates, as borrowers
refinanced at lower interest rates.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses ("Allowance") was $2.6 million at March
31, 1996 compared to $2.7 million at December 31, 1995. The Allowance
represented 2.76% and 2.65% of total loans, and 182.48% and 47.96% of
nonperforming loans, at March 31, 1996 and December 31, 1995, respectively.
Although the balance of the Allowance remained relatively unchanged at March 31,
1996 as compared to December 31, 1995, the level is still expected to trend
moderately downwards for the remainder of 1996. This is anticipated to occur as
previously identified loan loss exposure is quantified and recognized (charged-
off),
B-13
<PAGE>
either through negotiations and work out efforts, or through the commencement of
collateral liquidations. Management believes there will not be a dramatic
decline in the Allowance such as was experienced at the end of 1995.
In determining reserve adequacy, management places a high reliance upon the
review of individual commercial loan assets to determine whether or not loss
exposure exists. All such loans classified substandard or worse are assigned
individual allocated loan loss reserves, where appropriate. Consistent with
current guidelines, a five percent reserve is also established against loans
graded special mention and various reserve percentages are established against
the non-classified balance of the commercial portfolio, as well as residential
loans, construction loans and consumer loans. This methodology relies upon a
combination of current and anticipated trends, along with historical trends, in
establishing the appropriate reserve percentages for the different portfolios.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans that
remain vulnerable to loan default. Deterioration in the local economy or real
estate market, or upward movements in interest rates, could have an adverse
effect on the performance of the loan portfolio that could result in the need
for an increased allowance for loan losses. Conversely, further improvement in
overall asset quality, favorable local economic conditions or a favorable local
real estate market, could positively effect the Allowance.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
March 31, December 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 736 $1,948
Accruing loans past due 90 days or more 89 169
Restructured loans 625 3,427
Real estate owned 2,164 1,973
-------- -------
Total $3,614 $7,517
-------- -------
-------- -------
</TABLE>
The level of nonperforming assets declined 51.9% from December 31, 1995 to March
31, 1996, from $7.5 million to $3.6 million, respectively. The current level of
nonperforming assets represents an 86.8% decline from the level established at
December 31, 1991 of $27.3 million. While the downward trend in nonperforming
assets that has developed since 1991 is significant, the Company continues to
hold a large concentration of commercial real estate loans that remain
vulnerable to default. Many of these loans were made at or near the peak in the
commercial real estate market in the late 1980's and the collateral coverage for
many loans may not be adequate to protect the Bank from potential losses in the
event such loans become nonperforming. Deterioration in the local economy or
real estate market, or upward movements in interest rates, could have an adverse
impact on currently performing commercial real estate loan relationships. These
factors could result in an increased incidence of loan defaults and, as a
result, an increased level of nonperforming loans.
IMPAIRED LOANS
Management reviews loans on a case by case basis to determine which loans should
be classified as impaired. If management believes there is a high probability
of a loss of principal or interest, then such loans are determined to be
impaired. At March 31, 1996, the recorded investment in loans for which
impairment has been recognized
B-14
<PAGE>
in accordance with FASB Statement No. 114 totaled $1,251,000 compared to
$3,728,000 at December 31, 1995. The corresponding allocated reserves for these
loans was $304,000 for the period ended March 31, 1996. All loans classified as
impaired totaling $1,251,000 are also classified as nonperforming assets at
March 31, 1996, of which $626,000 are nonaccrual and $625,000 are troubled debt
restructures. All impaired loans were secured by real estate at March 31, 1996
and accounted for by the lower of the fair value of the collateral or amortized
loan value.
Impaired loans consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 70 $ 301
Commercial 1,181 3,427
Real estate construction loans - -
Commercial and industrial loans - -
Consumer and other loans - -
-------- --------
$ 1,251 $ 3,728
-------- --------
-------- -------
</TABLE>
REAL ESTATE OWNED ("REO")
At March 31, 1996, REO consisted of 8 commercial and residential real estate
properties equaling $2,081,000 and 5 repossessed assets equaling $83,000.
REO is initially recorded at the lower of cost or fair value (minus estimated
costs to sell) at the date the Bank acquires title to the property and any
difference is charged to the Allowance at the time the property is classified as
REO. Subsequently, the values of such properties are reviewed by management and
writedowns, if any, are charged to expense. Costs relating to the development
and improvement of properties are capitalized; holding costs are charged to
expense.
LIQUIDITY - COASTAL
Deposits totaled $126.7 million at March 31, 1996, an increase of $1.0 million
(or 0.9%) from the level of $125.7 million at December 31, 1995.
On April 26, 1996, the Bank consummated its sale of the Kezar Falls branch to
Maine Bank & Trust Company. Included in the sale were all of the branch
deposits totaling $9.9 million and certain of the furniture, fixtures and
equipment of the branch. The Bank recognized a premium paid on the deposits of
$403,000, which was offset by expenses relating to the sale of $37,000.
On April 20, 1996, the Bank implemented a new deposit program featuring seven
new checking account products. The new program will entail increased
expenditures in marketing and a new mix of deposit products, which the Bank
believes will help to facilitate its efforts to increase its market share and
its non-interest income and to decrease its cost of funds.
Coastal has the capability of borrowing additional funds from the Federal Home
Loan Bank ("FHLB") of Boston with three-day advance notice when adequately
secured by qualified collateral. Effective as of June 8, 1993, the FHLB of
Boston restricted new advances to maturities of six months or less as a result
of the cross guaranty claim. On May 1, 1995, the Bank received a letter from
the FHLB of Boston stating that it would lengthen the
B-15
<PAGE>
maturity restriction on new fixed term and fixed rate advances from six months
to one year. Coastal is also approved by the Federal Reserve Bank of Boston to
obtain liquidity from its "Discount Window" provided that assets are pledged to
the Federal Reserve Bank's satisfaction.
LIQUIDITY - PARENT
On a parent company only ("parent") basis, the Company conducts no separate
operations. Its business consists of the business of its banking subsidiary.
In addition to debt service relating to the FDIC Note in the principal amount of
$9.0 million issued by the Company to the FDIC on January 31, 1995 in connection
with the settlement of the cross guaranty claim, the Company's expenses consist
primarily of Delaware franchise taxes associated with the Company's authorized
capital stock, and certain legal and various other expenses. Expenses,
including certain audit and professional fees, insurance and other expenses, are
allocated between Coastal and the Company based upon the relative benefits
derived. At March 31, 1996 the parent's assets (other than its investment in
its subsidiary) consisted of $47,000 in cash.
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware
corporate law that dividends may be paid by the Company out of its surplus or,
in the event there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
The Amended and Restated Settlement Agreement, which was consummated on January
31, 1995 (the "Amended and Restated Settlement Agreement"), prohibits the
payment of dividends by the Company to its stockholders on any class of stock
(except for a dividend paid in shares of the Company's common stock, or in any
other stock of the Company) until the unpaid principal amount and interest under
the Note are paid in full in accordance with the terms thereof.
The principal source of cash for the parent company would normally be a dividend
from Coastal; however, certain restrictions also exist regarding the ability of
Coastal to transfer funds to the Company in the form of cash dividends, loans or
advances. The most significant of these are described below.
Maine corporate law generally provides that dividends may only be paid out of
unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. Maine banking law also imposes certain restrictions, including
the requirement that the Bank establish and maintain adequate levels of capital
as set forth in rules adopted by the Maine Bureau of Banking.
The Amended and Restated Settlement Agreement provides that the Bank may not
declare any dividends, except as necessary to pay the operating expenses of the
Company as approved from time to time by both the FDIC and the Maine Bureau of
Banking. The Amended and Restated Settlement Agreement further provides that
such operating expenses may not include any amounts for accrued interest on the
Note.
The Memorandum (effective November 22, 1994) provides that the Bank may not pay
or declare any dividends without the prior written consent of the FDIC and the
Maine Bureau of Banking.
On May 3, 1996, November 13, 1995 and November 30, 1994, following the receipt
of appropriate regulatory approvals, Coastal paid the Company cash dividends of
$200,000, $200,000 and $175,000, respectively, for certain current and
anticipated operating expenses of the Company and certain expenses related to
the Company's recapitalization, some of which are reimbursable expenses related
to the proposed equity offering by the Company.
B-16
<PAGE>
CAPITAL - COASTAL
The table below sets forth the regulatory capital requirements and capital
ratios for Coastal at March 31, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
Tier 1 capital (Leverage) to total assets ratio (1)
- ----------------------------------------------------
Qualifying capital $13,740
Actual % 9.45%
Minimum requirement % 6.00%
Average assets for first quarter $145,368
Tier 1 capital to risk-weighted assets
- --------------------------------------
Qualifying capital $13,740
Actual % 15.21%
Minimum requirement % 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- --------------------------------------
Qualifying capital $14,888
Actual % 16.48%
Minimum requirement % 8.00%
Gross risk-weighted assets $90,345
</TABLE>
________________________
(1) Calculated on an average quarterly basis
Note: As described in Note A to the Consolidated Financial Statements, the
Memorandum (effective November 22, 1994) among Coastal, the FDIC and the Maine
Bureau of Banking requires Coastal to maintain a Tier 1 capital to total assets
ratio of 6.0% or greater. Coastal's Tier 1 capital to total assets ratio at
March 31, 1996 was 9.45%.
CAPITAL - COMPANY
The Federal Reserve capital adequacy guidelines apply on a consolidated basis to
bank holding companies with consolidated assets of $150 million or more. For
bank holding companies which have less than $150 million in consolidated assets,
as did the Company for each of the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995, December 31, 1995 and March 31, 1996, the guidelines are
applied on a bank-only basis (as opposed to a consolidated basis) unless (i) the
parent bank holding company is engaged in nonbank activity involving significant
leverage or (ii) the parent company has a significant amount of debt that is
held by the general public. The Federal Reserve capital adequacy guidelines
provide that "debt held by the general public" is debt held by parties other
than financial institutions, officers, directors, and controlling stockholders
of the banking organization or their related interests. The FDIC Note is not
considered to be "debt held by the general public" for purposes of such capital
guidelines. As a result, applied on a bank-only basis, the Company's ratios of
tier 1 capital to total assets, tier 1 capital to risk-weighted
assets, and qualifying total capital to risk-weighted assets of 9.45%, 15.21%,
and 16.48%, respectively, at March 31, 1996 were in complaince with such
guidelines. If the Company were required to calculate its ratios of tier 1
capital to total assets, tier 1 capital to risk-weighted
B-17
<PAGE>
assets, and qualifying total capital to risk-weighted assets on a
consolidated basis, such ratios would be 2.90%, 4.68% and 5.95%,
respectively, at March 31, 1996.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time. Pursuant to the Amended and Restated Settlement Agreement, no
dividends may be paid to the Company's stockholders until the unpaid principal
and interest under the Note payable to the FDIC are paid in full.
RESULTS OF OPERATIONS
NET INCOME(LOSS)
The net income for the three months ended March 31, 1996 was $337,000, compared
with net income of $225,000 for the same period last year. The improvement in
earnings for 1996 is primarily attributable to no provision for loan loss
expense for the quarter ended March 31, 1996, as compared to $100,000 of
provision expense for the same period last year. Effective April 26, 1996, the
Company consummated the sale of its Kezar Falls branch to Maine Bank & Trust
Company and will recognize in the second quarter of 1996 a net gain of $366,000,
calculated by deducting $37,000 in expenses associated with the closing from the
gross deposit premium received of $403,000.
NET INTEREST INCOME
Net interest income remained relatively unchanged for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995, at $1.5
million. Included in the March 31, 1996 and March 31, 1995 net interest income
total is interest expense of $141,000 and $73,000, respectively, for the
Company's $9.0 million Note payable to the FDIC. Although net interest income
remained relatively unchanged, the Company's average earning assets and average
interest bearing liabilities declined $4.7 million and $6.0 million,
respectively, for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. This drop in average earning assets and
average interest bearing liabilities was largely offset in part by an increase
in the interest margin between earning assets and interest bearing liabilities.
The yield on average earning assets increased from 7.81% at March 31, 1995 to
8.26% at March 31, 1996, a gain of .45%, as compared to an increase in the cost
of average interest bearing liabilities from 3.75% for the quarter ended March
31, 1995 to 4.10% for the quarter ended March 31, 1996, or .35%.
PROVISION FOR LOAN LOSSES
There was no provision for loan loss expense for the three months ended March
31, 1996, versus $100,000 provision expense for the three months ended March 31,
1995. This is attributable to several factors, including the essentially
unchanged level of the Allowance, both in dollars ($2.6 million at March 31,
1996 versus $2.7 million at December 31, 1995) and as a percentage of total
loans (2.76% at March 31, 1996 versus 2.65% at December 31, 1995), the decline
in nonperforming loans, and management's review of the portfolio and its
determination of the adequacy of the Allowance as of March 31, 1996.
The Company's policy is to fund the Allowance by charging operations in the form
of provision for loan loss expense which represents estimated loss exposure
based on periodic evaluations of the loan portfolio and current economic trends.
The Company continues to hold a large concentration of commercial real estate
loans. The ultimate collectibility of the Company's commercial real estate loan
portfolio is particularly susceptible to changes in local real estate market
conditions. Deterioration in the local economy or real estate market, or upward
B-18
<PAGE>
movement in interest rates, could have an adverse impact on the loan portfolio
that could result in the need for increased provision for loan loss expense.
Management believes that the Allowance is adequate at March 31, 1996. However,
future additions to the Allowance may be necessary based on changes in the
financial condition of various borrowers, new information that becomes available
relative to various borrowers and loan real estate collateral, as well as
changes in local, regional or national economic conditions. In addition,
various regulatory authorities, as an integral part of their examination
process, periodically review the Company's Allowance. Such authorities may
require the Company to recognize additions to the Allowance based upon
information available to them and their judgments at the time of their
examination.
OTHER OPERATING INCOME
Other operating income for the three months ended March 31, 1996 was $131,000,
as compared to $168,000 for the same respective period in 1995. Other income
for the three months ended March 31, 1995 includes a realized gain on trading
accounts of $33,000.
OTHER OPERATING EXPENSES
Other operating expenses for the three months ended March 31, 1996 was $1.3
million, as compared to $1.4 million for the same respective period in 1995.
The $56,000 decline is primarily attributable to three items: (i) a reduction
in legal expenses of $89,000, (ii) a $36,000 reduction in FDIC insurance expense
on deposits resulting from a decrease in the Bank's assessment rate, (iii)
partially offset by an increase in the net cost of REO of $63,000 as a result of
increased expenditures on various properties. Additionally, as a result of the
implementation of the Bank's new deposit program, management believes that its
other operating expense category will increase in the future, mainly in the
marketing area, in order for the Bank to facilitate its efforts to increase the
Bank's market share of deposits As of March 31, 1996, the Bank had
approximately $50,000 in prepaid expenses associated with the new program which
are anticipated to be expensed during the second quarter of 1996.
B-19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information required by this Item is set forth under Note A - Certain
Regulatory Matters, under the caption "Settlement of the Cross Guaranty
Claim." As of March 31, 1996, there were various claims and lawsuits
pending against the Company incidental to the ordinary course of business.
In the opinion of management, after consultation with legal counsel,
resolution of these matters is not expected to have a material effect on
the consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during
the first quarter of 1996.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits that are filed with this Form 10-Q, or that are incorporated
herein by reference, are set forth below:
3.1(i) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) to
Annual Report on Form 10-K for the year ended December 31, 1995, File No.
0-14087 ("1995 Form 10-K"), and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1995
Form 10-K, and incorporated herein by reference).
10.1 Suffield Financial Corporation Stock Option Plan and Suffield
Bank Stock Option Plan (filed as Exhibits 4.5 and 4.6, respectively, to
the Company's Registration Statement on Form S-8, File No. 33-11400, and
incorporated herein by reference).
10.2 Coastal Savings Bank Stock Option Plan (filed as Exhibit 4.7 to Post-
Effective Amendment No. 1 on Form S-8 to Form S-4, File No. 33-10189, and
incorporated herein by reference).
10.3 First Coastal Corporation Director's Deferred Compensation Plan (filed
as Exhibit 10.13 to Annual Report on Form 10-K for the year ended December
31, 1993, File No. 0-14087, and incorporated herein by reference).
B-20
<PAGE>
10.4 Amended and Restated Settlement Agreement, dated as of November 23,
1994, among First Coastal Corporation, Coastal Savings Bank and the Federal
Deposit Insurance Corporation (filed as Exhibit 99a to Current Report on
Form 8-K, filed December 5, 1994, and incorporated herein by reference).
10.5 Promissory Note, dated January 31, 1995, by First Coastal Corporation
for the benefit of the Federal Deposit Insurance Corporation (filed as
Exhibit 99b to Current Report on Form 8-K, filed February 13, 1995 ("1995
Form 8-K"), and incorporated herein by reference).
10.6 Stock Pledge Agreement, dated as of January 31, 1995, between First
Coastal Corporation and the Federal Deposit Insurance Corporation (filed as
Exhibit 99c to 1995 Form 8-K, and incorporated herein by reference).
10.7 Memorandum of Understanding, among Coastal Savings Bank, the Federal
Deposit Insurance Corporation and the Maine Bureau of Banking, effective as
of November 22, 1994 (filed as Exhibit 10.16 to Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 0-14087 ("1994 Form 10-K"),
and incorporated herein by reference).
10.8 Employment Agreement, dated December 21, 1994, between Coastal Savings
Bank and James H. Whittaker (filed as Exhibit 10.17 to 1994 Form 10-K, and
incorporated herein by reference).
10.9 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Dennis D. Byrd (filed as Exhibit 10.18 to 1994
Form 10-K, and incorporated herein by reference).
10.10 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Gregory T. Caswell (filed as Exhibit 10.19 to 1994
Form 10-K, and incorporated herein by reference).
10.11 Purchase and Assumption Agreement, dated February 22, 1996,
between Coastal Savings Bank and Maine Bank & Trust Company (filed as
Exhibit 10.11 to 1995 Form 10-K, and incorporated herein by reference).
10.12 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as Exhibit
10.12 to 1995 Form 10-K, and incorporated herein by reference).
27 Financial Data Schedule
(b) No Form 8-K was filed by the Company during the first quarter of 1996.
B-21
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: June 4, 1996 By: /s/ Gregory T. Caswell
-----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: June 4, 1996 By: /s/ Gregory T. Caswell
-----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 4, 1996 By: /s/ Dennis D. Byrd
-----------------------------------------
Dennis D. Byrd
Treasurer
(Principal Financial and Accounting Officer)
B-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Placement Agent. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
-------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Market for Common Stock and Dividends. . . . . . . . . . . . . . . . . . . 28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Determination of Subscription Price. . . . . . . . . . . . . . . . . . . . 30
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Standby Purchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . 36
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 38
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Information of Certain Documents by Reference. . . . . . . . . . . . . . . 42
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
First Coastal Corporation Amendment No. 2 to Annual Report
on Form 10-K/A for the Year Ended December 31, 1995. . . . . . . . . . . A-1
First Coastal Corporation Amendment No. 1 to Quarterly Report
on Form 10-Q/A for the Quarter Ended March 31, 1996. . . . . . . . . . . B-1
</TABLE>
750,000 SHARES
FIRST
COASTAL
CORPORATION
COMMON STOCK
----------
PROSPECTUS
----------
FIRST ALBANY CORPORATION
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts except the SEC Registration
Fee and the NASD Filing Fee are estimated.
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . $1,229
NASD Filing Fee. . . . . . . . . . . . . . . . . . . . . . . . . 857
Nasdaq SmallCap Stock Market Listing Fee . . . . . . . . . . . . 6,351
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . 30,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 55,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 168,000
Printing and Engraving Expenses. . . . . . . . . . . . . . . . . 11,350
Registrar and Subscription Agent Fees. . . . . . . . . . . . . . 6,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $283,787
--------
--------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation' s request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware Law
provides, however, that such person must have acted in good faith and in a
manner such person reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful.
In addition, the Delaware Law does not permit indemnification in an action or
suit by or in the right of the corporation, where such person has been adjudged
liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Company's Amended and Restated Bylaws provide for mandatory
indemnification of directors and officers on generally the same terms as
permitted by the Delaware Law. Under the Amended and Restated Bylaws, the
Company is required to advance expenses incurred by an officer or director in
defending any such action if the director or officer undertakes to repay such
amount if it is determined that the director or officer is not entitled to
indemnification. The Company has obtained directors and officers liability
insurance.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibit
Number Exhibit Description
- ------ -------------------
3.1(i) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) to
Annual Report on Form 10-K for the year ended December 31, 1995, File
No. 0-14087 ("1995 Form 10-K"), and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1995
Form 10-K, and incorporated herein by reference).
5 Opinion of Morris, James, Hitchens & Williams.
10(a) First Coastal Corporation Stock Option Plan and Suffield Bank Stock
Option Plan. (Filed as Exhibits 4.5 and 4.6, respectively, to
Registration Statement on Form S-8, File No. 33-11400, and
incorporated herein by reference.)
10(b) Coastal Savings Bank Stock Option Plan. (Filed as Exhibit 4.7 to
Post-Effective Amendment No. 1 on Form S-8 to Form S-4, File No. 33-
10189, and incorporated herein by reference.)
10(c) First Coastal Corporation Director's Deferred Compensation Plan.
(Filed as Exhibit 10.13 to Annual Report on Form 10-K for the year
ended December 31, 1993, File No. 0-14087, and incorporated herein by
reference.)
10(d) Amended and Restated Settlement Agreement, dated as of November 23,
1994, by and among the Company, Coastal Savings Bank and the Federal
Deposit Insurance Corporation. (Filed as Exhibit 99a to Current
Report on Form 8-K, filed December 5, 1994, and incorporated herein by
reference.)
10(e) Promissory Note, dated January 31, 1995, by the Company for the
benefit of the Federal Deposit Insurance Corporation. (Filed as
Exhibit 99b to Current Report on Form 8-K, filed February 13, 1995
("1995 Form 8-K"), and incorporated herein by reference.)
10(f) Stock Pledge Agreement, dated as of January 31, 1995, by and between
the Company and the Federal Deposit Insurance Corporation. (Filed as
Exhibit 99c to 1995 Form 8-K, and incorporated herein by reference.)
10(g) Memorandum of Understanding, dated November 22, 1994, by and among the
Board of Directors of Coastal Savings Bank, the Superintendent of the
Maine Bureau of Banking and the Regional Director of the Boston Region
of the Federal Deposit Insurance Corporation. (Filed as Exhibit 10.16
to Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 0-14087 ("1994 Form 10-K"), and incorporated herein by
reference.)
10(h) Employment Agreement, dated as of December 21, 1994, by and between
Coastal Savings Bank and James H. Whittaker. (Filed as Exhibit 10.17
to 1994 Form 10-K, and incorporated herein by reference.)
10(i) Employment Protection Agreement, dated as of December 21, 1994, by and
between Coastal Savings Bank and Dennis D. Byrd. (Filed as Exhibit
10.18 to 1994 Form 10-K, and incorporated herein by reference.)
II-2
<PAGE>
10(j) Employment Protection Agreement, dated as of December 21, 1994, by and
between Coastal Savings Bank and Gregory T. Caswell. (Filed as
Exhibit 10.19 to 1994 Form 10-K, and incorporated herein by
reference.)
10(k) Purchase and Assumption Agreement, dated as of February 22, 1996,
between Coastal Savings Bank and Maine Bank & Trust Company. (Filed
as Exhibit 10.11 to 1995 Form 10-K, and incorporated herein by
reference.)
10(l) Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (Filed as
Exhibit 10.12 to 1995 Form 10-K, and incorporated herein by
reference.)
*10(m) Form of Loan Agreement, dated as of __________, 1996, among the
Company, as borrower, Androscoggin Savings Bank, Bangor Savings Bank,
Machias Savings Bank and Norway Savings Bank, as lenders, and Machias
Savings Bank, as agent.
*10(n) Form of Promissory Note, dated ___________, 1996, by the Company for
the benefit of __________________.
*10(o) Form of Stock Pledge Agreement, dated as of _____________, 1996,
between the Company and Machias Savings Bank, for itself and as agent
for the lenders.
10(p) First Coastal Corporation 1996 Stock Option and Equity Incentive Plan.
11 Statement regarding Computation of Per Share Earnings.
23(a) Consent of Coopers & Lybrand, L.L.P.
23(b) Consent of Morris, James, Hitchens & Williams (included in the legal
opinion filed as Exhibit 5 hereto).
**24 Powers of Attorney for the following individuals: Gregory T. Caswell,
Dennis D. Byrd, Normand E. Simard, Roger E. Klein, Edward K. Simensky
and Charles A. Stewart III.
99(a) Form of Standby Stock Purchase Agreement.
99(b) Form of First Coastal Corporation Rights Offering Order Form (and
accompanying instructions).
99(c) Form of First Coastal Corporation Community Offering Order Form (and
accompanying instructions).
99(d) Form of Notice of Guaranteed Delivery.
99(e) Form of Broker Assistance Agreement.
99(f) Form of Escrow Agreement.
99(g) Form of Subscription Agent Agreement.
- --------------------------
* To be filed by Amendment.
** Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the Placement Agent or selected broker-
deals during the subscription period, and the terms of any subsequent reoffering
thereof. If any public offering by the Placement Agent or selected broker-
dealers is to be made on terms differing from those set forth on the cover page
of the prospectus, a post-effective amendment will be filed to set forth the
terms of such offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Westbrook, State of Maine, on this 4th day of
June, 1996.
FIRST COASTAL CORPORATION
By: /s/ Gregory T. Caswell
----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on this 4th day of June, 1996.
Signature Title
- --------- -----
/s/ Gregory T. Caswell President and Chief Executive Officer
- -------------------------- (Principal executive officer)
Gregory T. Caswell
/s/ Dennis D. Byrd Treasurer (Principal financial officer
- -------------------------- and principal accounting officer)
Dennis D. Byrd
* Chairman of the Board
- --------------------------
Normand E. Simard
* Director
- --------------------------
Roger E. Klein
* Director
- --------------------------
Edward K. Simensky
* Director
- --------------------------
Charles A. Stewart III
*By:/s/ Gregory T. Caswell
- --------------------------
Gregory T. Caswell
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
3.1(i) Restated Certificate of Incorporation (filed as Exhibit
3.1(i) to Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14087 ("1995 Form 10-K"),
and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to
1995 Form 10-K, and incorporated herein by reference).
5 Opinion of Morris, James, Hitchens & Williams.
10(a) First Coastal Corporation Stock Option Plan and Suffield
Bank Stock Option Plan. (Filed as Exhibits 4.5 and 4.6,
respectively, to Registration Statement on Form S-8, File
No. 33-11400, and incorporated herein by reference.)
10(b) Coastal Savings Bank Stock Option Plan. (Filed as
Exhibit 4.7 to Post-Effective Amendment No. 1 on
Form S-8 to Form S-4, File No. 33-10189, and incorporated
herein by reference.)
10(c) First Coastal Corporation Director's Deferred Compensation
Plan. (Filed as Exhibit 10.13 to Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 0-14087, and
incorporated herein by reference.)
10(d) Amended and Restated Settlement Agreement, dated as of
November 23, 1994, by and among the Company, Coastal Savings
Bank and the Federal Deposit Insurance Corporation. (Filed
as Exhibit 99a to Current Report on Form 8-K, filed
December 5, 1994, and incorporated herein by reference.)
10(e) Promissory Note, dated January 31, 1995, by the Company for
the benefit of the Federal Deposit Insurance Corporation.
(Filed as Exhibit 99b to Current Report on Form 8-K, filed
February 13, 1995 ("1995 Form 8-K"), and incorporated herein
by reference.)
10(f) Stock Pledge Agreement, dated as of January 31, 1995, by and
between the Company and the Federal Deposit Insurance
Corporation. (Filed as Exhibit 99c to 1995 Form 8-K, and
incorporated herein by reference.)
10(g) Memorandum of Understanding, dated November 22, 1994, by
and among the Board of Directors of Coastal Savings Bank, the
Superintendent of the Maine Bureau of Banking and the Regional
Director of the Boston Region of the Federal Deposit Insurance
Corporation. (Filed as Exhibit 10.16 to Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 0-14087
("1994 Form 10-K"), and incorporated herein by reference.)
10(h) Employment Agreement, dated as of December 21, 1994, by and
between Coastal Savings Bank and James H. Whittaker. (Filed
as Exhibit 10.17 to 1994 Form 10-K, and incorporated herein
by reference.)
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
10(i) Employment Protection Agreement, dated as of December 21,
1994, by and between Coastal Savings Bank and Dennis D. Byrd.
(Filed as Exhibit 10.18 to 1994 Form 10-K, and incorporated
herein by reference.)
10(j) Employment Protection Agreement, dated as of December 21,
1994, by and between Coastal Savings Bank and
Gregory T. Caswell. (Filed as Exhibit 10.19 to 1994
Form 10-K, and incorporated herein by reference.)
10(k) Purchase and Assumption Agreement, dated as of February 22,
1996, between Coastal Savings Bank and Maine Bank & Trust
Company. (Filed as Exhibit 10.11 to 1995 Form 10-K, and
incorporated herein by reference.)
10(l) Agreement for Data Processing Services, dated February 28,
1996, between Coastal Savings Bank and Data Dimensions Inc.
(Filed as Exhibit 10.12 to 1995 Form 10-K, and incorporated
herein by reference.)
*10(m) Form of Loan Agreement, dated as of __________, 1996,
among the Company and, as borrower, Androscoggin Savings
Bank, Bangor Savings Bank, Machias Savings Bank and Norway
Savings Bank, as lenders, and Machias Savings Bank,
as agent.
*10(n) Form of Promissory Note, dated ___________, 1996, by the
Company for the benefit of __________________.
*10(o) Form of Stock Pledge Agreement, dated as of _____________,
1996, between the Company and Machias Savings Bank, for
itself and as agent for the lenders.
10(p) First Coastal Corporation 1996 Stock Option and Equity
Incentive Plan.
11 Statement regarding Computation of Per Share Earnings.
23(a) Consent of Coopers & Lybrand, L.L.P.
23(b) Consent of Morris, James, Hitchens & Williams (included
in the legal opinion filed as Exhibit 5 hereto).
**24 Powers of Attorney for the following individuals:
Gregory T. Caswell, Dennis D. Byrd, Normand E. Simard,
Roger E. Klein, Edward K. Simensky and Charles A.
Stewart III.
99(a) Form of Standby Stock Purchase Agreement.
99(b) Form of First Coastal Corporation Rights Offering
Order Form (and accompanying instructions).
99(c) Form of First Coastal Corporation Community Offering
Order Form (and accompanying instructions).
99(d) Form of Notice of Guaranteed Delivery.
99(e) Form of Broker Assistance Agreement.
-2-
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
99(f) Form of Escrow Agreement.
99(g) Form of Subscription Agent Agreement.
- ------------------------------
* To be filed by Amendment.
** Previously filed.
-3-
<PAGE>
EXHIBIT 5
[MORRIS, JAMES, HITCHENS & WILLIAMS - LETTERHEAD]
June 4, 1996
Board of Directors
First Coastal Corporation
36 Thomas Drive
Westbrook, ME 04092
Gentlemen:
We are acting as special Delaware counsel to First Coastal
Corporation, a Delaware corporation (the "Company"), in connection with the
matters of Delaware law set forth herein relating to the proposed public
offering of 750,000 shares of the Company's common stock, par value $1.00 per
share (the "Shares"), pursuant to the Company's registration statement on Form
S-2, as amended (the "Registration Statement"), filed with the Securities and
Exchange Commission. This opinion letter is furnished to you at your request to
enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17
C.F.R. Section 229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined and relied upon
copies furnished to us of the following documents:
1. The Registration Statement (excluding the exhibits thereto,
except as otherwise specifically set forth in paragraphs 4, 5, 6,
and 7 of this opinion letter).
2. The Restated Certificate of Incorporation of the Company and a
proposed amendment thereto, as certified by the Secretary of the
Company on the date hereof as being complete, accurate and (with
respect to the Restated Certificate of Incorporation only) in
effect (the "Charter").
3. The Amended and Restated Bylaws of the Company, as certified by
the Secretary of the Company on the date hereof as being
complete, accurate and in effect (the "Bylaws").
<PAGE>
MORRIS, JAMES, HITCHENS & WILLIAMS
Board of Directors
June 4, 1996
Page 2
- ------------------------------
4. The proposed form of the Standby Stock Purchase Agreement filed
as Exhibit 99(a) to the Registration Statement (the "Purchase
Agreement").
5. The proposed form of the Rights Offering Order Form filed as
Exhibit 99(b) to the Registration Statement (the "Rights Offering
Agreement").
6. The proposed form of the Community Offering Order Form filed as
Exhibit 99(c) to the Registration Statement (the "Community
Offering Agreement").
7. The proposed form of Notice of Guaranteed Delivery filed as
Exhibit 99(d) to the Registration Statement (the "Notice of
Guaranteed Delivery").
8. Resolutions of the Board of Directors of the Company (the
"Board") adopted on April 12, 1996, as certified by the Secretary
of the Company on the date hereof as being complete, accurate and
in effect, relating to the issuance and sale of the Shares to be
sold by the Company and arrangements in connection therewith (the
"Resolutions").
9. The Certificate of the Secretary of the Company, dated the date
hereof, certifying as to certain factual and other matters and
documents attached thereto.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
We have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) final action of the Board duly determining the price
to be paid for each of the Shares at a value not less than the par value thereof
(the "Price"), (ii) the
<PAGE>
MORRIS, JAMES, HITCHENS & WILLIAMS
Board of Directors
June 4, 1996
Page 3
- ------------------------------
due execution and delivery of each Purchase Agreement, Rights Offering
Agreement, Community Offering Agreement, and Notice of Guaranteed Delivery, as
the case may be, (iii) effectiveness of the Registration Statement, (iv) the
offer, sale and issuance of the Shares in accordance with and as described in
the Charter and the Registration Statement, and in accordance with and as
described in the Purchase Agreement, the Rights Offering Agreement, the
Community Offering Agreement, and the Notice of Guaranteed Delivery, as the case
may be, (v) the due acceptance by the Company of each subscription for Shares
pursuant to the Rights Offering Agreement, the Community Offering Agreement, and
the Notice of Guaranteed Delivery, as the case may be, and (vi) receipt by the
Company of the entire Price for each of the Shares to be sold by the Company,
the Shares to be sold by the Company will be validly issued, fully paid and
nonassessable under the General Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Securities Act"), or the rules and
regulations of the Securities and Exchange Commission under the Securities Act.
Very truly yours,
/s/ Morris, James, Hitchens & Williams
Morris, James, Hitchens & Williams
<PAGE>
EXHIBIT 10(p)
FIRST COASTAL CORPORATION
1996 STOCK OPTION AND EQUITY INCENTIVE PLAN
FIRST COASTAL CORPORATION (the "Corporation") sets forth herein the
terms of this 1996 Stock Option and Equity Incentive Plan (the "Plan") as
follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries, and will encourage
such eligible individuals to remain in the employ or service of the Corporation
or that of one or more of its subsidiaries. To this end, the Plan provides for
the grant of stock options and the issuance of shares of stock as a bonus,
including restricted stock, all as set out herein.
Each stock option granted under the Plan (an "Option") is intended to
be an "incentive stock option" within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended from time to time, or the corresponding
provision of any subsequently enacted tax statute (the "Code"), except (i) to
the extent that any such Option would exceed the limitations set forth in
Section 7 below; (ii) for Options specifically designated at the time of grant
as not being "incentive stock options" and (iii) for Options granted to
directors of the Corporation who are not officers or other salaried employees of
the Corporation or any of its subsidiaries ("Non-Employee Directors"). Shares
of stock may also be issued to employees pursuant to the Plan as a bonus or in
lieu of a cash bonus and such shares may be subject to vesting and transfer
restrictions, in accordance with the provisions of Section 6 below. Such grants
and awards are referred to collectively as "Incentive Awards." Each Incentive
Award shall be evidenced by a written agreement between the Corporation and the
recipient employee setting out the terms and conditions of the grant (an
"Agreement").
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of Directors
of the Corporation (the "Board"), which shall have the full power and authority
to take all actions, and to make all determinations required or provided for
under the Plan or any Incentive Award granted or Agreement entered into
hereunder and all such other actions and determinations not inconsistent with
the specific terms and provisions of the Plan deemed by the Board to be
necessary or appropriate to the administration of the Plan or any Incentive
Award granted or Agreement entered into hereunder. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting at which any issue relating to the Plan is
properly raised for consideration or by unanimous consent of the Board executed
in writing in accordance with the Corporation's Certificate of Incorporation and
By-Laws, and with applicable law. The interpretation and construction by the
Board of any provision of the Plan or of any Incentive Award granted or
Agreement entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint an Incentive
Compensation Committee (the "Committee") consisting of not less than three
members of the Board, none of whom shall be an officer or other salaried
employee of the Corporation or any of its subsidiaries, and each of whom shall
qualify in all respects as an "outside director" for purposes of Treasury
Regulations Section 1.162-27(e)(3) and, to the extent required to satisfy the
requirements of Rule
1
<PAGE>
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934 (the "Exchange Act"), as a "disinterested person". The Board, in
its sole discretion, may provide that the role of the Committee shall be limited
to making recommendations to the Board concerning any determinations to be made
and actions to be taken by the Board pursuant to or with respect to the Plan, or
the Board may delegate to the Committee such powers and authorities related to
the administration of the Plan, as set forth in Section 2(a) above, as the Board
shall determine, consistent with the Certificate of Incorporation and By-Laws of
the Corporation and applicable law. The Board may remove members, add members,
and fill vacancies on the Committee from time to time, all in accordance with
the Corporation's Certificate of Incorporation and By-Laws, and with applicable
law. The majority vote of the Committee, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Incentive Award granted or Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any
Incentive Award granted or Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and conclusive.
(e) ACTION BY THE BOARD. Except as indicated below, the Board may
act under the Plan other than by, or in accordance with the recommendations of,
the Committee, constituted as set forth in Section 2(b) above with respect to
Incentive Awards granted to individuals who are subject to Section 16 of the
Exchange Act, only if a majority of the members of the Board are "disinterested
persons" as defined in Rule 16b-3 of the Securities and Exchange Commission
under the Exchange Act. This restriction on the Board's actions under the Plan,
however, shall not apply in the event the restriction ceases to be a requirement
for reliance upon the exemption provided by Rule 16b-3.
3. STOCK
The stock that may be issued pursuant to Incentive Awards granted
under the Plan shall be shares of Common Stock, par value $1.00 per share, of
the Corporation (the "Stock"), which shares may be treasury shares or authorized
but unissued shares. The number of shares of Stock that may be issued pursuant
to Incentive Awards granted under the Plan shall not exceed in the aggregate
130,000 shares, which number of shares is subject to adjustment as hereinafter
provided in Section 17 below. If any Incentive Award expires, terminates, or is
terminated or forfeited for any reason prior to exercise or vesting in full, the
shares of Stock that were subject to the unexercised or forfeited portion of
such Incentive Award shall be available for future Incentive Awards granted
under the Plan.
4. ELIGIBILITY
(a) EMPLOYEES. Incentive Awards may be granted under the Plan to any
full-time employee of the Corporation or any "subsidiary corporation" thereof
within the meaning of Section 424(f) of the Code (a "Subsidiary") (including any
such employee who is an officer or director of the Corporation or any
Subsidiary) as the Board shall determine and designate from time to time prior
to expiration or termination of the Plan. The maximum number of shares of Stock
subject to Options that may be granted under the Plan to any officer or other
employee of the Corporation or any Subsidiary in any calendar year is 30,000
shares (subject to adjustment as provided in Section 17 hereof).
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(b) NON-EMPLOYEE DIRECTORS. Subject to the availability of shares
issued under Section 3 of the Plan, (i) on the date of the first public offering
of the Corporation's Stock occurring after the effective date (as defined in
Section 5(a) below) an Option to purchase up to 1,500 shares of Stock, at the
price at which the Stock is offered to the public in such offering and upon the
other terms and conditions specified in the Plan, shall be granted under the
Plan to each individual who is serving as a Non-Employee Director on that date,
except that such Options shall not be granted if no such offering occurs before
December 31, 1996 and (ii) as of each annual meeting of stockholders of the
Company occurring after December 31, 1996, an Option to purchase up to 500
shares of Stock, at the price and upon the other terms and conditions specified
in the Plan, shall be granted under the Plan to each Non-Employee Director who
is elected to the Board of Directors of the Corporation by the stockholders at
such meeting or whose term of office continues after such meeting.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of
adoption by the Board, subject to approval of the Plan within one year of such
effective date by a majority of the votes present, either in person or by proxy,
and entitled to vote at a duly held meeting of the stockholders at which a
quorum representing at least one-third of all the outstanding voting stock is
present, either in person or by proxy; PROVIDED, HOWEVER, that upon approval of
the Plan by the stockholders of the Corporation as set forth above, all
Incentive Awards granted under the Plan on or after the effective date shall be
fully effective as if the stockholders of the Corporation had approved the Plan
on the effective date. If the stockholders fail to approve the Plan within one
year of such effective date, any Incentive Awards granted hereunder shall be
null and void and of no effect.
(b) TERM. The Plan shall terminate on the date ten years from the
effective date.
6. GRANT OF INCENTIVE AWARDS
(a) OPTIONS. Subject to the terms and conditions of the Plan, the
Board may, at any time and from time to time, prior to the date of termination
of the Plan, grant to such eligible individuals as the Board may determine
("Optionees"), Options to purchase such number of shares of the Stock on such
terms and conditions as the Board may determine, including any terms or
conditions which may be necessary to qualify such Options as "incentive stock
options" under Section 422 of the Code.
(b) BONUS AND RESTRICTED STOCK AWARDS. Subject to the terms of the
Plan, the Board may, at any time and from time to time, prior to the date of
termination of the Plan, grant to such eligible individuals as the Board may
determine ("Holders"), shares of Stock, subject to the attainment of such
performance objectives, the completion of such service requirements (if any) and
the payment of such amount (if any) as the Board shall determine and specify as
a condition to making such grant. Each such grant shall be effected by the
execution of an Agreement setting out the terms and conditions applicable
thereto and by the issuance of shares of Stock or restricted Stock. Agreements
covering bonus or restricted Stock awards need not contain the same or similar
provisions, PROVIDED, that all such Agreements shall comply with the terms of
the Plan. Upon attainment of the specified objectives and requirements (or, to
the extent specified by the Board, partial attainment of such objectives and
requirements), the Holder shall be entitled to shares of Stock specified in the
grant (or the portion of such shares earned by partial attainment of the
objectives and requirements, as applicable) free of restrictions, except that
such shares of Stock shall continue to be subject to the restrictions set out in
Sections 10(d) and 15. Except as shall otherwise have been specified in the
Agreement at the time of grant or in any duly executed amendment thereto, the
shares of restricted Stock (or appropriate portion thereof) shall be forfeited
and shall again be available for regrant under the terms of the Plan upon
(i) the failure of the Holder to pay the price (if any) specified for the shares
within the time set by the Board at the time of the grant, (ii) upon the
expiration of the specified period for attaining performance objectives without
such
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objectives having been achieved or (iii) upon termination of the Holder's
employment without the Holder having satisfied the service requirement specified
at the time of grant. The Board may require that the certificates evidencing
the grant of shares of restricted Stock hereunder be held in escrow until such
restrictions have expired. The Board may also cause a legend to be placed on
such certificates making appropriate reference to the restrictions to which the
shares are subject.
(c) DATE OF GRANT. The date on which the Board approves the grant of
an Incentive Award shall be considered the date on which such Incentive Award is
granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than an Option described in exception (ii) or (iii)
of Section 1) shall constitute an Incentive Stock Option to the extent that the
aggregate fair market value (determined at the time the option is granted) of
the Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under the Plan and all
other plans of the Optionee's employer corporation and its parent and subsidiary
corporations within the meaning of Section 422(d)(1) of the Code) does not
exceed $100,000.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; PROVIDED, HOWEVER, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and shall be not less than the greater of par value or one hundred
percent of the fair market value of a share of the Stock on the date the Option
is granted (as determined in good faith by the Board); PROVIDED, HOWEVER, that
in the event the Optionee would otherwise be ineligible to receive an "incentive
stock option" by reason of the provisions of Sections 422(b)(6) and 424(d) of
the Code (relating to stock ownership of more than ten percent), the Option
Price of an Option which is intended to be an "incentive stock option" (within
the meaning of Section 422 of the Code) shall be not less than the greater of
par value or one hundred and ten percent of the fair market value of a share of
Stock at the time such Option is granted. In the event that the Stock is listed
on an established national or regional stock exchange, is admitted to quotation
on the National Association of Securities Dealers Automated Quotation System, or
is publicly traded in an established securities market, in determining the fair
market value of the Stock, the Board shall use the closing price of the Stock on
such exchange or System or in such market (the highest such closing price if
there is more than one such exchange or market) on the trading date immediately
before the Option is granted (or, if there is no such closing price, then the
Board shall use the mean between the highest bid and lowest asked prices or
between the high and low prices on such date), or, if no sale of the Stock has
been made on such day, on the next preceding day on which any such sale shall
have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) TERM. Each Option granted under the Plan shall terminate and all
rights to purchase shares thereunder shall cease upon the expiration of ten
years from the date such Option is granted, or, with respect to Options granted
to persons other than Non-Employee Directors, on such
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date prior thereto as may be fixed by the Board and stated in the Option
Agreement relating to such Option; PROVIDED, HOWEVER, that in the event the
Optionee would otherwise be ineligible to receive an "incentive stock option" by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to stock ownership of more than ten percent), an Option granted to such Optionee
which is intended to be an "incentive stock option" (within the meaning of
Section 422 of the Code) shall in no event be exercisable after the expiration
of five years from the date it is granted.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE. Each Option granted
under the Plan to persons other than Non-Employee Directors shall be
exercisable, in whole or in part, at any time and from time to time, over a
period commencing on or after the date of grant and ending upon the expiration
or termination of the Option, as the Board shall determine and set forth in the
Option Agreement relating to such Option. Without limiting the foregoing, the
Board, subject to the terms and conditions of the Plan, may in its sole
discretion provide that an Option may not be exercised in whole or in part for
any period or periods of time during which such Option is outstanding; PROVIDED,
HOWEVER, that any such limitation on the exercise of an Option contained in any
Option Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may be exercised. Each
Option granted to a Non-Employee Director shall be exercisable, in whole or in
part, at any time and from time to time, over a period commencing on the date of
grant and ending upon the expiration of the Option. Notwithstanding any other
provisions of the Plan, no Option granted to an Optionee under the Plan shall be
exercisable in whole or in part prior to the date the Plan is approved by the
stockholders of the Corporation as provided in Section 5 above.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may
be exercised by delivery to the Corporation on any business day, at its
principal office, addressed to the attention of the Committee, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of 100 shares or
the maximum number of shares available for purchase under the Option at the time
of exercise. Payment of the Option Price for the shares of Stock purchased
pursuant to the exercise of an Option shall be made (i) in cash or in cash
equivalents; (ii) through the tender to the Corporation of shares of Stock,
which shares shall be valued, for purposes of determining the extent to which
the Option Price has been paid thereby, at their fair market value (determined
in the manner described in Section 9 above) on the date of exercise; or (iii) by
a combination of the methods described in (i) and (ii). Notwithstanding the
preceding sentence, payment in full of the Option Price need not accompany the
written notice of exercise provided the notice of exercise directs that the
Stock certificate or certificates for the shares for which the Option is
exercised be delivered to a licensed broker acceptable to the Corporation as the
agent for the individual exercising the Option and, at the time such Stock
certificate or certificates are delivered, the broker tenders to the Corporation
cash (or cash equivalents acceptable to the Corporation) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or other taxes which the Corporation,
may, in its judgment, be required to withhold with respect to the exercise of
the Option. An attempt to exercise any Option granted hereunder other than as
set forth above shall be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Stock covered thereby, the individual exercising the Option shall be entitled
to the issuance of a Stock certificate or certificates evidencing his ownership
of such shares. A separate Stock certificate or certificates shall be issued
for any shares purchased pursuant to the exercise of an Option which is an
"incentive stock option" (within the meaning of Section 422 of the Code)
("Incentive Stock Option"), which certificate or certificates shall not include
any shares which were purchased pursuant to the exercise of an Option which is
not an Incentive Stock Option. An individual holding or exercising an Option
shall have none of the rights of a stockholder until the shares of Stock covered
thereby are fully paid and issued to him and, except as provided in Section 17
below, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
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(d) RESTRICTIONS ON TRANSFER OF STOCK AND RIGHTS OF CORPORATION TO
REPURCHASE SHARES. If an Option is exercised before the date that is six months
from the later of (i) the date of grant of the Option or (ii) the date of
stockholder approval of the Plan and the individual exercising the Option is a
reporting person under Section 16(a) of the Exchange Act, then such certificate
or certificates shall bear a legend, if necessary to qualify for an exemption
under Rule 16b-3 under the Exchange Act, restricting the transfer of the Stock
covered thereby until the expiration of six months from the later of the date
specified in clause (i) above or the date specified in clause (ii) above. The
Board may provide in the Agreement relating to an Incentive Award granted to an
employee or in a separate instrument for (a) restrictions and limitations on the
transferability of the shares of Stock issued or to be acquired upon exercise of
an Option granted as a part of such Incentive Award, (b) an agreement between
the Optionee and the Corporation for the sale of such shares by the Optionee and
their purchase by the Corporation upon the happening of such events, and at such
price and under such other terms and conditions as the Board shall determine and
(c) such other restrictions or limitations on such shares as it may deem
advisable, including restrictions pursuant to Section 15 hereof. All share
certificates issued to evidence shares of Stock issued hereunder (including
shares issued as a result of the exercise of an Option) shall bear such legends
and statements as the Board shall deem appropriate or advisable to reflect any
such restrictions, limitations or agreements.
11. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Option is granted, only
such Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or conservator, committee or other legal representative) may
exercise the Option, except that such restriction shall apply in the case of an
Option that is not an Incentive Stock Option only if such restriction is
required to satisfy the requirements of Rule 16b-3 under the Exchange Act. No
Incentive Stock Option shall be assignable or transferable by the Optionee to
whom it is granted, other than by will or the laws of descent and distribution.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) EMPLOYEES. Upon the termination of the employment of an Optionee
with the Corporation or a Subsidiary, other than by reason of the death or
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, any Option granted to an Optionee pursuant to the Plan
shall terminate three months after the date of such termination of employment,
unless earlier terminated pursuant to Section 10(a) above, and such Optionee
shall have no further right to purchase shares of Stock pursuant to such Option;
PROVIDED, HOWEVER, that the Board may provide, by inclusion of appropriate
language in any Option Agreement, that an Optionee may (subject to the general
limitations on exercise set forth in Section 10(b)), in the event of termination
of employment of the Optionee with the Corporation or a Subsidiary, exercise an
Option, in whole or in part, at any time after such termination of employment
and before termination of the Option as provided in Section 10(a) above, either
subject to or without regard to any installment limitation on exercise imposed
pursuant to Section 10(b) above. Upon the termination of the employment of a
Holder with the Corporation or a Subsidiary, other than by reason of the death
or "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) of such Holder, any shares of restricted Stock that have not become
vested shall be forfeited. Whether a leave of absence or leave on military or
government service shall constitute a termination of employment for purposes of
the Plan shall be determined by the Board, which determination shall be final
and conclusive. For purposes of the Plan, a termination of employment with the
Corporation or a Subsidiary shall not be deemed to occur if the Optionee or
Holder is immediately thereafter employed with the Corporation or any
Subsidiary.
(b) NON-EMPLOYEE DIRECTORS. Any Option granted to a Non-Employee
Director shall not terminate until the expiration of the ten-year term of the
Option regardless of whether the
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Non-Employee Director continues to serve as a director of the Corporation or any
subsidiary of the Corporation, as applicable.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) DEATH OF AN EMPLOYEE. If the Optionee dies while employed by the
Corporation or a Subsidiary or after termination of employment and during the
period in which an Option may be exercised hereunder, except as otherwise is
provided in the Option Agreement relating to such Option, the executors or
administrators or legatees or distributees of such Optionee's estate shall have
the right (subject to the general limitations on exercise set forth in Section
10(b) above), at any time within one year after the date of the Optionee's death
and prior to termination of the Option as provided in Section 10(a) above, to
exercise any Option held by such Optionee at the date of such Optionee's death,
whether or not such Option was exercisable immediately prior to such Optionee's
death; PROVIDED, HOWEVER, that the Board may provide, by inclusion of
appropriate language in any Option Agreement, that in the event of the death of
the Optionee, the holder of an Option may (subject to the general limitations on
exercise set forth in Section 10(b)), exercise an Option, in whole or in part,
at any time after the Optionee's death and before termination of the Option as
provided in Section 10(a) above, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10(b) above. The
extent to which shares of restricted Stock shall become vested as a result of
the Holder's death while employed by the Corporation or a Subsidiary shall be
specified in the Agreement with respect to such Incentive Award.
(b) DISABILITY OF AN EMPLOYEE. If the Optionee terminates employment
with the Corporation or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, then such Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above), at any time within
one year after such termination of employment and prior to termination of the
Option as provided in Section 10(a) above, to exercise, in whole or in part, any
Option held by such Optionee at the date of such termination of employment,
whether or not such Option was exercisable immediately prior to such termination
of employment; PROVIDED, HOWEVER, that the Board may provide, by inclusion of
appropriate language in the Option Agreement, that the Optionee may (subject to
the general limitations on exercise set forth in Section 10(b) above), in the
event of the termination of employment of the Optionee with the Corporation or a
Subsidiary by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Optionee, exercise an Option, in whole
or in part, at any time after such termination of employment and before
termination of the Option as provided in Section 10(a) above, either subject to
or without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. Whether a termination of employment is to be considered by
reason of "permanent and total disability" for purposes of this Plan shall be
determined by the Board, which determination shall be final and conclusive. The
extent to which shares of restricted Stock shall become vested as a result of
the Holder's disability while employed by the Corporation or a Subsidiary shall
be specified in the Agreement with respect to such Incentive Award.
(c) DEATH OR DISABILITY OF A NON-EMPLOYEE DIRECTOR. Any Option
granted to a Non-Employee Director shall continue to be exercisable following
the death or disability of the Non-Employee Director until the expiration of the
Option under Section 10(a) above.
14. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to Incentive Awards granted under the Plan shall constitute general
funds of the Corporation.
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15. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. The Corporation shall not be required to sell
or issue any shares of Stock under any Incentive Award if the sale or issuance
of such shares would constitute a violation by the individual receiving such
shares or exercising an Option or by the Corporation of any provisions of any
law or regulation of any governmental authority, including without limitation
any federal or state securities laws or regulations. Specifically in connection
with the Securities Act of 1933 (as now in effect or as hereafter amended), upon
exercise of any Option, unless a registration statement under such Act is in
effect with respect to the shares of Stock covered by such Option, the
Corporation shall not be required to sell or issue such shares unless the Board
has received evidence satisfactory to it that the holder of such Option may
acquire such shares pursuant to an exemption from registration under such Act.
Any determination in this connection by the Board shall be final, binding, and
conclusive. The Corporation may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act of 1933
(as now in effect or as hereafter amended). The Corporation shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that expressly
imposes the requirement that an Option shall not be exercisable unless and until
the shares of Stock covered by such Option are registered or are subject to an
available exemption from registration, the exercise of such Option (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
(b) COMPLIANCE WITH RULE 16B-3. The Plan is intended to comply with
Rule 16b-3 or its successor under the Exchange Act. With respect to persons
subject to Section 16 of the Exchange Act, any provision of the Plan or action
of the Plan administrators that is inconsistent with such Rule shall be deemed
null and void to the extent permitted by law and deemed advisable by the Plan
administrators.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Incentive Awards have
not been granted; PROVIDED, HOWEVER, that no amendment by the Board shall,
without approval by a majority of the votes present, either in person or by
proxy, and entitled to vote at a duly held meeting of stockholders at which a
quorum representing at least one-third of all the outstanding voting stock of
the Corporation is present, either in person or by proxy, (a) change the
requirements as to eligibility to receive Incentive Awards; (b) increase the
maximum number of shares of Stock in the aggregate that may be issued pursuant
to Incentive Awards granted under the Plan (except as permitted under Section 17
hereof); or (c) materially increase the benefits accruing to eligible
individuals under the Plan. Except as permitted under Section 17 hereof, no
amendment, suspension or termination of the Plan shall, without the consent of
the holder of the Incentive Award, alter or impair rights or obligations under
any Incentive Award theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective date of the
Plan, the number and kinds of shares for the issuance of which Incentive Awards
may be granted under the Plan shall be adjusted proportionately and
appropriately by the Corporation. In addition, the number and kind of shares
for which Options are outstanding shall be adjusted proportionately and
appropriately so that the proportionate interest of
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the holder of the Option immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate Option Price
payable with respect to shares subject to the unexercised portion of the Option
outstanding but shall include a corresponding proportionate adjustment in the
Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE SURVIVING
CORPORATION. Subject to Subsection (c) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger, or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.
(c) REORGANIZATION IN WHICH THE CORPORATION IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or liquidation of
the Corporation, or upon a merger, consolidation or reorganization of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or upon a sale of all or substantially all of the
assets of the Corporation to another corporation, or upon any transaction
(including, without limitation, a merger or reorganization in which the
Corporation is the surviving corporation) approved by the Board which results in
any person or entity owning eighty percent or more of the combined voting power
of all classes of stock of the Corporation, the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. Except as otherwise provided in the Option Agreement with respect to
an Option granted other than to a Non-Employee Director, in the event of any
such termination of the Plan, each individual holding an Option shall have the
right (subject to the general limitations on exercise set forth in Section 10(b)
above), immediately prior to the occurrence of such termination and during such
period occurring prior to such termination as the Board in its sole discretion
shall determine and designate, to exercise such Option in whole or in part,
whether or not such Option was otherwise exercisable at the time such
termination occurs and without regard to any installment limitation on exercise
imposed pursuant to Section 10(b) above. The Board shall send written notice of
an event that will result in such a termination to all individuals who hold
Options not later than the time at which the Corporation gives notice thereof to
its stockholders.
(d) ADJUSTMENTS. Adjustments under this Section 17 related to Stock
or securities of the Corporation shall be made by the Board, whose determination
in that respect shall be final, binding, and conclusive. No fractional shares
of Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION. The grant of an Incentive Award
pursuant to the Plan shall not affect or limit in any way the right or power of
the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Incentive Award granted or
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the
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employ or service of the Corporation or any Subsidiary, or to interfere in any
way with the right and authority of the Corporation or any Subsidiary either to
increase or decrease the compensation of any individual at any time, or to
terminate any employment or other relationship between any individual and the
Corporation or any Subsidiary.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
* * *
This Plan was duly adopted and approved by the Board of Directors of
the Corporation by resolution at a meeting held on the 2nd day of May, 1996.
/s/ Patricia Briand
----------------------------------------
Secretary of the Corporation
This Plan was duly approved by the stockholders of the Corporation at
a meeting held on the ____ day of ________, 1996.
----------------------------------------
Secretary of the Corporation
10
<PAGE>
Exhibit 11
First Coastal Corporation
Earnings Per Share Calculation
<TABLE>
<CAPTION>
Pro forma
Year Ended Year Ended Year Ended Year Ended
December 31, 1993 December 31, 1994 December 31, 1995 December 31, 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $747,851 ($8,901,655) $1,660,437 $1,993,000
Weighted average share outstanding 600,361 600,361 600,361 600,361
Shares issued in stock offering - - - 750,000
Restricted Stock issued (vested
over a three year period) - - - 7,500
-----------------------------------------------------------------------------
600,361 600,361 600,361 1,357,861
-----------------------------------------------------------------------------
Primary earnings per share 1.25 (14.83) 2.77 1.47
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23(a)
[COOPERS & LYBRAND - LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 (File No.
333-02609) of our report dated February 5, 1996, on our audits of the
consolidated financial statements of First Coastal Corporation and subsidiary as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Portland, Maine
June 4, 1996
<PAGE>
Exhibit 99(a)
FORM OF STANDBY STOCK PURCHASE AGREEMENT
THIS STANDBY STOCK PURCHASE AGREEMENT (the "Agreement"), made and entered
into as of this ________ day of ____, 1996, by and between First Coastal
Corporation, a Delaware corporation (the "Company"), and __________________, a
________________ corporation [if a partnership, insert ______ a (limited)
partnership organized under the laws of] [if a trust insert ________ as trustee
(the "Trustee") of the _______ Trust] [and if in an advisory capacity, insert
___________ as agent for ______________ and certain other of its advisory
clients (the "Purchaser")].
WITNESSETH
WHEREAS, the Company is offering for sale (the "Offering") 750,000 shares
(the "Shares") of its Common Stock, $1.00 par value per share (the "Common
Stock");
WHEREAS, a total of [____] of the Shares are being offered pursuant to a
rights offering to the Company's existing stockholders (the "Rights Offering");
WHEREAS, the Shares being offered in the Rights Offering are being offered
on a nontransferable, priority basis to holders of record ("Record Date
Holders") of the Common Stock as of the close of business on June ___, 1996 (the
"Record Date") in proportion to their respective ownership of Common Stock then
outstanding;
WHEREAS, concurrently with the Rights Offering, the Company is offering for
sale to the general public all shares not otherwise subscribed for in the Rights
Offering or purchased by Standby Purchasers (the "Community Offering"), as
described below.
WHEREAS, the Purchaser desires to, and by these presents hereby does, agree
to serve as a standby purchaser for a specified number of the Shares, if
available upon the expiration of the Rights Offering and the Community Offering,
and agrees to purchase a minimum number of the Shares, as set forth herein;
NOW, THEREFORE, for and in consideration of the premises, and other good
and valuable consideration the receipt and sufficiency of all of which is hereby
acknowledged, the parties hereto agree as follows:
1. OFFERING; REGISTRATION OF THE COMMON STOCK
A registration statement and amendments thereto on Form S-2 (the
"Registration Statement") with respect to the Offering have been filed with the
Securities and Exchange Commission (the "Commission"). The offer and sale of
the Shares proposed to be issued and sold to the Purchaser are being registered
pursuant to the Registration Statement. A copy of the ____ ______, 1996
Preliminary Prospectus, and the Prospectus included in the
<PAGE>
- 2 -
Registration Statement at the time the Registration Statement became effective,
have been furnished to the Purchaser.
2. PURCHASE AND DELIVERY OF SHARES
A. Subject to the terms, conditions and limitations herein set forth and
to the availability of Shares after the expiration of the Rights Offering and
the Community Offering, the Purchaser hereby agrees to purchase from the
Company, at the Subscription Price per share of $______ (the "Subscription
Price"), ______ Shares (the "Maximum Standby Purchase Commitment").
B. Subject to the terms and conditions herein set forth, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, at the Subscription Price, ______ Shares
irrespective of whether any Shares remain unsold after the expiration of the
Rights Offering and the Community Offering (the "Minimum Standby Purchase
Commitment").
C. The Purchaser and the Company hereby acknowledge and agree that the
Company has entered into, or contemplates entering into, one or more other
standby stock purchase agreements ("Standby Stock Purchase Agreements") with
certain other parties (collectively with the Purchaser, the "Standby
Purchasers") on terms substantially similar to this Agreement except that they
may provide for the purchase of a different Maximum Standby Purchase Commitment
and a different Minimum Standby Purchase Commitment.
D. In the event that the number of Shares remaining after the expiration
of the Rights Offering and the Community Offering is less than the aggregate
Maximum Standby Purchase Commitments of Standby Purchasers, such remaining
Shares will first be allocated among Standby Purchasers in satisfaction of any
Minimum Standby Purchase Commitments and any further remaining Shares will be
allocated pro rata among Standby Purchasers according to their respective
Maximum Standby Purchase Commitment. Subject to the terms and conditions herein
set forth, the Purchaser agrees to purchase such number of Shares as are
allocated to the Purchaser pursuant to this Agreement.
E. The rights and obligations of the Purchaser and the Company hereunder
are not contingent on the consummation of the transactions contemplated in any
other Standby Stock Purchase Agreement, PROVIDED HOWEVER that neither the
Purchaser nor the Company shall be obligated to consummate the transactions
contemplated by this Agreement unless all of the Shares are sold in the Offering
and the other transactions are consummated pursuant to the Recapitalization of
the Company as described in the Registration Statement.
3. THE CLOSING
As soon as practicable following its determination of the number of Shares
subscribed for pursuant to the Rights Offering and the Community Offering, the
Company shall notify the Purchaser of the number of Shares to be purchased by
the Purchaser pursuant to Section
<PAGE>
- 3 -
2. The delivery of the Shares against payment therefor in the manner
contemplated by Section 4, shall take place simultaneously with the closing of
the sale of Shares pursuant to the Rights Offering and the Community Offering,
such place, date and time to be not more than five business days after the
foregoing notification and to be specified therein (the "Closing Time", the date
of the Closing Time being referred to as the "Closing Date" and the consummation
of the transactions being referred to as the "Closing").
4. DELIVERY OF SHARES
At the Closing, the Shares to be purchased by the Purchaser hereunder,
registered in the name of the Purchaser or its nominee, as the Purchaser may
specify to the Company in writing at least four (4) business days prior to the
Closing Date, shall be delivered by or on behalf of the Company to the
Purchaser, for the Purchaser's account, against delivery by the Purchaser of the
Subscription Price therefor, in immediately available funds in the form of one
or more federal funds checks or a wire transfer to an account designated by the
Company to the Purchaser in writing prior to the Closing Date.
5. AGREEMENTS AND CONSENTS OF PURCHASERS
The Purchaser hereby agrees with the Company as follows:
A. The Purchaser acknowledges and agrees that, notwithstanding anything
to the contrary herein contained or implied, the Company shall not be obligated
to issue to the Purchaser any Shares in an amount which, when aggregated with
other shares of Common Stock beneficially owned by the Purchaser, would exceed
4.9% of the total issued and outstanding shares of Common Stock upon completion
of the Offering.
B. The Purchaser acknowledges and agrees that the Company may in its sole
discretion decline to issue any of the Shares to the Purchaser hereunder if, in
the opinion of the Company, the Purchaser is required to obtain prior clearance
or approval of such transaction from any state or federal bank regulatory
authority and if such approval or clearance has not been obtained or if
satisfactory evidence thereof has not been presented to the Company by the
Closing Date.
C. The Purchaser acknowledges that the Company will rely upon and
disclose the terms of this Agreement and Purchaser consents to the disclosure of
this Agreement in whole or in summary in the Prospectus and the Registration
Statement, or in any amendment or supplement thereto, and in any related filing
or disclosures of the Company.
6. REPRESENTATION AND WARRANTIES
A. The Company hereby represents and warrants to the Purchaser as
follows:
<PAGE>
- 4 -
(i) The Company has filed the Registration Statement with the
Commission with respect to the Shares.
(ii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the state of
Delaware, with the corporate power and authority to perform its
obligations under this Agreement.
(iii) The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action of the Company, and this
Agreement, when duly executed and delivered by the Purchaser,
will constitute a valid and legally binding agreement of the
Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity
principles.
(iv) The Shares, when issued and delivered by the Company against
payment therefor as contemplated hereby, will be validly
issued, fully paid and nonassessable.
(v) The aggregate number of shares of the Company's Common Stock
that will be outstanding upon the consummation of the Offering
shall not exceed 1,357,861 shares, subject to the exercise of
any Company stock options and the grant of any restricted
shares of the Company's Common Stock pursuant to the First
Coastal Corporation 1996 Stock Option and Equity Incentive
Plan.
(vi) The execution and delivery of this Agreement, the consummation
by the Company of the transactions contemplated hereby and the
compliance by the Company with the terms hereof do not violate
the Certificate of Incorporation or Bylaws of the Company, or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the
Company is bound, with such exceptions as would not have a
material adverse effect on the financial condition of the
Company, or any applicable statute or any order, judgment,
decree, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its
properties or assets; and no consent, approval, authorization,
order, registration or qualification of or with any such court
or governmental agency or body is required for the valid
authorization, execution, delivery and performance by the
Company of this Agreement, the issuance of the Shares, or the
consummation by the
<PAGE>
- 5 -
Company of the other transactions contemplated by this
Agreement, except such as may be required and have been
obtained from the Federal Deposit Insurance Corporation, the
Maine Bureau of Banking, the National Association of Securities
Dealers, Inc. ("NASD") and under the Securities Act of 1933, as
amended, and such consents, approvals, authorizations,
registrations or qualifications as have been obtained under
federal and state banking, securities or "blue sky" laws;
subject for the purposes of this Section 6A(vi) to the
satisfaction or fulfillment by the Company or its wholly owned
subsidiary, Coastal Savings Bank, of any conditions precedent
to the validity, grant or effectiveness of any such consents,
approvals, authorizations, orders, registrations or
qualifications.
B. The Purchaser hereby represents and warrants to the Company as
follows:
(i) As of the date of this Agreement, the Purchaser [and its
advisory clients] beneficially own(s) ____ shares of Common
Stock and do(es) not have any short positions in the Common
Stock.
(ii) [If the Purchaser is a Corporation, insert - The Purchaser is a
corporation duly incorporated, validly existing and in good
standing under the laws of _________, with the power and
authority to perform its obligations under this Agreement.]
(iii) The execution, delivery and performance of this Agreement by
the Purchaser [or the Trustee] and the consummation by the
Purchaser of the transactions contemplated hereby have been
duly authorized by all necessary [corporate] action of the
Purchaser; and this Agreement, when duly executed and delivered
by the Company, will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability now or
hereinafter in effect relating to or affecting creditors'
rights and to general equity principles.
(iv) The Purchaser is not insolvent and has sufficient cash funds on
hand to purchase the Shares on the terms and conditions
contained in this Agreement and will have such funds on the
Closing Date. The Purchaser has simultaneously with the
execution and delivery of this Agreement or prior thereto
provided the Company with evidence or substantiated that such
Purchaser has the financial means to satisfy its financial
obligations under this Agreement and the foregoing evidence and
substantiation is a true and accurate representation of such
means.
<PAGE>
- 6 -
(v) [The Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act of 1933.]
(vi) No state, federal or foreign regulatory approvals, permits,
licenses or consents or other contractual or legal obligations
are required in order for the Purchaser [and its advisory
clients] to enter into this Agreement or otherwise purchase the
shares of Common Stock which are the subject of this Agreement.
(vii) The execution and delivery of this Agreement, the consummation
by the Purchaser [or any of its advisory clients] of the
transactions herein contemplated hereby and the compliance by
the Purchaser [and its advisory clients] with the terms hereof
do not violate, the constituent documents of the Purchaser [or
any of its advisory clients] or result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Purchaser [or any
of its advisory clients] is a party or by which the Purchaser
[or any of its advisory clients] are bound, or any applicable
law or any order, judgment, decree, rule or regulation of any
court or governmental agency or body , having jurisdiction over
the Purchaser [or any of its advisory clients] or any of its
[or their] properties or assets; and no consent, approval,
authorization, order, registration or qualification of or with
any court or governmental agency or body, is required for the
valid authorization, execution, and delivery by the Purchaser
of this Agreement or the consummation by the Purchaser [or any
of its advisory clients] of the transactions contemplated by
this Agreement.
(viii) The Purchaser [and its advisory clients] has not entered into
any contracts, arrangements, understandings or relationships
(legal or otherwise) with any other person or persons with
respect to the securities of the Company, including but not
limited to transfer or voting any of the securities, finder's
fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of profits, division of profits or loss, or
the giving or withholding of proxies; and the Purchaser does
not own any securities of the Company which are pledged or
otherwise subject to a contingency, the occurrence of which
would give another person voting power or investment power over
such securities.
(ix) Any shares to be purchased pursuant to the terms hereof will be
purchased as a passive investment in the ordinary course of the
Purchaser's business, and the Purchaser does not have the
intent to exercise a controlling influence over the management
or policies of the Company.
<PAGE>
- 7 -
7. CLOSING CONDITIONS
The respective obligations of the Purchaser [, its advisory clients] and
the Company to consummate the purchase and sale of the Shares shall be subject,
in the discretion of the Company or the Purchaser, as the case may be, to the
condition that all representations and warranties and other statements of the
other party are, at and as of the Closing Time, true and correct in all material
respects, the condition that the party shall have performed all of its
obligations hereunder theretofore to be performed in all material respects, to
the condition that all of the shares be sold in the Offering at the Closing, to
the condition that the other transactions are consummated pursuant to the
Recapitalization of the Company as described in the Registration Statement and
to the additional condition that no stop order suspending the effectiveness of
the Registration Statement or any amendment or supplement thereto shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission.
8. TERMINATION
A. This Agreement shall terminate upon mutual consent of the parties
hereto. In addition, the Company may terminate this Agreement if it is not in
material breach of its obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Purchaser. Either of the parties hereto
may terminate this Agreement (i) if the transactions contemplated hereby are not
consummated by _____________, 1996, unless such nonconsummation is a result of
a breach of this Agreement by the party seeking to terminate; or (ii) in the
event the Company is unable to obtain required federal (including, without
limitation, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or the Department of Justice) or state approvals for the transactions
contemplated hereby on conditions reasonably satisfactory to it despite its
reasonable efforts to obtain such approvals.
B. The Company and the Purchaser hereby agree that any termination of
this Agreement pursuant to Section 8A (other than, in either case, termination
in the event of a breach of this Agreement by the Purchaser or misrepresentation
of any of the statements made herein by the Purchaser) shall be without
liability to the Company or the Purchaser.
9. FUTURE ACQUISITION AND DISPOSITION OF SHARES
The Purchaser agrees with the Company that during the period beginning
on the date hereof and continuing until the Closing Date, it will not offer,
sell, contract to sell or otherwise dispose of, or bid for, purchase, contract
to purchase or otherwise acquire, any shares of Common Stock without the prior
written consent of the Company. In addition, for the three (3) year period
commencing on Closing Date, the Purchaser agrees with the Company that it will
not become or make any offer to become the beneficial owner of more than 4.9% of
the issued and outstanding shares of Common Stock of the Company without prior
approval of the Company's Board of Directors.
<PAGE>
- 8 -
10. NOTICES
All communications hereunder will be in writing and, if to the Company,
will be mailed, delivered or telecopied and confirmed to it, at the offices of
the Company at 36 Thomas Drive, Westbrook, Maine 04092, Attention: Gregory T.
Caswell, Facsimile: 207-828-4680; and if to the Purchaser, will be mailed,
delivered or telecopied and confirmed to it at the offices of_____________,
Attention:________________,
Facsimile:_________________.
11. BINDING EFFECT
This Agreement shall be binding upon, and shall inure solely to the benefit
of, each of the parties hereto, and each of their respective heirs, executors,
administrators, successors and permitted assign, and no other person shall
acquire or have any right under or by virtue of this Agreement. No party may
assign any of its rights or obligations hereunder to any other person or entity
without the prior written consent of the other party.
12. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware (excluding principles of conflicts of laws) in
effect at the time of the execution hereof.
13. EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
counterparts when so executed shall be deemed to be an original, but all such
respective counterparts shall together constitute but one and the same
instrument.
14. ENTIRE AGREEMENT
This Agreement represents the entire understanding of the parties with
respect to the matters addressed herein and supersedes all prior written and
oral understanding concerning the subject matter herein.
- 8 -
<PAGE>
- 9 -
IN WITNESS WHEREOF, and intending to be legally bound thereby, each of the
Purchaser, [as agent for ____________________ and certain other of its advisory
clients], and the Company has signed or caused to be signed its name, all as of
the day and year first above written.
FIRST COASTAL CORPORATION
By:__________________________
Name: Gregory T. Caswell
Title: President and Chief Executive
Officer
PURCHASER
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
EXHIBIT 99(b)
FORM OF
FIRST COASTAL CORPORATION
RIGHTS OFFERING ORDER FORM
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING (THE "RIGHTS OFFERING") ARE
SET FORTH IN THE PROSPECTUS RELATING TO THE OFFERING (THE "OFFERING") OF 750,000
SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "SHARES"), OF FIRST
COASTAL CORPORATION (THE "COMPANY") DATED JUNE __, 1996 (THE "PROSPECTUS"), AND
ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE
UPON REQUEST FROM THE COMPANY OR FIRST ALBANY CORPORATION (AS DISCUSSED BELOW).
CAPITALIZED TERMS USED HEREIN, AND NOT OTHERWISE DEFINED, SHALL HAVE THEIR
RESPECTIVE DEFINED MEANINGS AS SET FORTH IN THE PROSPECTUS. ALL RECORD DATE
HOLDERS ARE URGED TO READ THE PROSPECTUS CAREFULLY.
THIS RIGHTS OFFERING ORDER FORM MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED
BELOW, WITH PAYMENT IN FULL ON OR BEFORE 5:00 P.M., EASTERN TIME, ON JULY __,
1996, UNLESS EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME
TO A DATE NOT LATER THAN 5:00 P.M., EASTERN TIME, ON AUGUST __, 1996 (THE
"EXPIRATION DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY PURPORTED
EXERCISE OF RIGHTS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE,
REGARDLESS OF WHEN THE DOCUMENTS RELATING TO THAT EXERCISE WERE SENT. AFTER THE
EXPIRATION DATE, THE RIGHTS WILL NO LONGER BE EXERCISABLE.
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION
AGENT FROM RECORD DATE HOLDERS MAY NOT BE REVOKED.
The registered Record Date Holder whose name is inscribed hereon is
entitled to subscribe for the number of Shares for each right evidenced above
upon the terms and subject to the conditions set forth in the Prospectus and the
instructions relating hereto.
THE METHOD OF DELIVERY OF RIGHTS OFFERING ORDER FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
RECORD DATE HOLDERS. IF RIGHTS OFFERING ORDER FORMS AND PAYMENTS ARE SENT BY
MAIL, RECORD DATE HOLDERS ARE URGED TO SEND SUCH MATERIALS BY CERTIFIED MAIL AND
ARE URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE
SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN THE
OFFERING IN WHOLE OR IN PART AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF
THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY AUTHORITIES.
Certificates or order confirmations representing Shares purchased will be
delivered to Record Date Holders as soon as practicable after the Expiration
Date and after all prorations and reductions contemplated by the terms of the
Offering have been effected. IF THE OFFERING HAS NOT BEEN CONSUMMATED WITHIN 30
DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE TERMINATED BY THE
COMPANY AND ALL AMOUNTS SUBMITTED BY RECORD DATE HOLDERS WILL BE RETURNED
WITHOUT INTEREST.
<PAGE>
Purchases of shares of Common Stock of the Company, including purchases
pursuant to the Rights Offering, are subject to certain limitations. See the
Prospectus under "The Offering -- Limitations on Purchase of Stock" and
"Description of Capital Stock."
Subscriptions to purchase Shares in the Rights Offering may be made by
properly completing and executing this Rights Offering Order Form and by
delivering it to the Subscription Agent with payment in full on or before the
Expiration Date. Any questions or requests for assistance concerning the method
of exercising rights, submissions of Rights Offering Order Forms or requests for
additional copies of the Prospectus should be directed to Dennis D. Byrd,
Treasurer of the Company, at (207) 774-5000, or John H. Howland, Vice President
of First Albany Corporation, at (617) 228-3076.
IMPORTANT: Complete the appropriate sections of this Rights Offering Order Form
and, if applicable, delivery instructions, and SIGN AND DATE.
SUBSCRIPTION PRICE: $______ PER SHARE
The instructions accompanying this Rights Offering Order Form should be
read carefully and followed in detail. RIGHTS OFFERING ORDER FORMS SHOULD BE
SENT WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS OFFERING ORDER
FORMS TO THE COMPANY.
PART 1 -- EXERCISES AND SUBSCRIPTION FOR SHARES IN THE RIGHTS OFFERING.
The undersigned hereby irrevocably exercises one or more whole rights to
subscribe for Shares as indicated below, on the terms and subject to the
conditions specified in the Prospectus, receipt of which hereby is acknowledged.
No fractional rights have been issued and no fractional rights may be exercised.
(a) Number of Shares subscribed for pursuant
to Stockholder Subscription Privilege:
------------------
(b) Aggregate Subscription Price (number of
Shares on line (a) multiplied by the
Subscription Price of $______): 1 $
------------------
- -------------
1 If an exercising Record Date Holder does not indicate the number of rights
being exercised, or does not forward full payment of the aggregate
Subscription Price for the number of rights that the Record Date Holder
indicates are being exercised, then the Record Date Holder will be deemed
to have exercised the Stockholder Subscription Privilege with respect to
the maximum number of rights exercisable by the Record Date Holder that may
be exercised for the aggregate payment delivered by the Record Date Holder
(subject to reduction to comply with certain limitations on the purchase of
the Company's Common Stock or the conditions of the Offering). Any amount
remaining after application of the foregoing procedures will be returned to
the Record Date Holder promptly by mail without interest or deduction.
PART 2 -- METHOD OF PAYMENT.
Payment may be made to the Subscription Agent only (i) by check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, L.L.C., as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of receiving subscriptions at Mellon
Bank, N.A., Pittsburgh, Pennsylvania, ABA Number 043000261, Account Number 100-
2331 (Reorganization Account), Attn.: Evelyn O'Connor, Re: First Coastal
Offering. The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check,
(ii) receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the account designated above. FUNDS PAID BY
UNCERTIFIED PERSONAL CHECK MAY TAKE AT
- 2 -
<PAGE>
LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, RECORD DATE HOLDERS WHO WISH TO
PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO
MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN THE
ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be deposited
by the Subscription Agent in a noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent, as directed by the Company. The account in
which such funds will be held may not be insured by the FDIC. No interest will
be earned on such funds and no interest will be paid to Record Date Holders, or
otherwise applied to their purchase of Shares.
THIS RIGHTS OFFERING ORDER FORM, TOGETHER WITH THE PAYMENT OF THE
SUBSCRIPTION PRICE, MUST BE DELIVERED TO THE SUBSCRIPTION AGENT AS FOLLOWS:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
If a Record Date Holder wishes to exercise rights, but time will not permit
such Record Date Holder to cause the Rights Offering Order Form to reach the
Subscription Agent prior to the Expiration Date, such rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) the Record Date Holder has caused payment in full in good funds of the
Subscription Price for each Share being subscribed for to be received (in the
manner set forth above) by the Subscription Agent at or prior to the Expiration
Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
provided with the Instructions as to Use of Rights Offering Order Form
distributed with this Rights Offering Order Form, from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States, stating the name of the
exercising Record Date Holder, the number of Shares being subscribed for by the
Record Date Holder, and guaranteeing the delivery to the Subscription Agent of a
Rights Offering Order Form within five (5) business days of the Subscription
Agent's receipt of such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Rights
Offering Order Form within five (5) business days of the Subscription Agent's
receipt of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may
- 3 -
<PAGE>
be delivered to the Subscription Agent in the same manner as Rights Offering
Order Forms at the addresses set forth above, or may be transmitted to the
Subscription Agent by facsimile transmission (telecopier no. (201) 296-4293).
Additional copies of the form of Notice of Guaranteed Delivery are available
upon request from Dennis D. Byrd, Treasurer of the Company, at (207) 774-5000,
or from John H. Howland, Vice President of First Albany Corporation, at
(617) 228-3076.
PART 3 - SPECIAL DELIVERY INSTRUCTIONS.
To be completed ONLY if certificate representing the common stock is to be
sent to an address other than that of the registered holder.
Mail and deliver to:
Name:
------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(Include Zip Code)
---------------------------------------------------------
(Social Security Number or Tax Identification Number)
- 4 -
<PAGE>
PART 4 -- SIGNATURE AND ACKNOWLEDGMENT.
IMPORTANT: SIGN HERE
The undersigned represents and warrants that the exercise of Rights by the
Record Date Holder shall not result in such Record Date Holder becoming a
Beneficial Owner of 5% or more of the outstanding Common Stock of the Company,
unless the Board of Directors has previously approved such exercise of Rights by
such Record Date Holder pursuant to the terms and conditions of the Offering
described in the Prospectus. For purposes of the immediately preceding
sentence, a Beneficial Owner of stock includes any individual, corporation,
partnership, association, joint stock company, trust, unincorporated
organization, or government or political subdivision thereof who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares (i) voting power (which includes the power to vote, or
to direct the voting of, such stock) and/or (ii) investment power (which
includes the power to dispose, or to direct the disposition of, such stock).
THE UNDERSIGNED HEREBY IRREVOCABLY SUBSCRIBES FOR SHARES IN THE RIGHTS
OFFERING AS INDICATED HEREIN, ON THE TERMS AND SUBJECT TO THE CONDITIONS
SPECIFIED IN THE PROSPECTUS, RECEIPT OF WHICH HEREBY IS ACKNOWLEDGED.
- ------------------------------------ ------------------------------------
(Print Name) (Print Name)
- ------------------------------------ ------------------------------------
(Signature(s) of Subscriber(s)) (Signature(s) of Subscriber(s))
Dated: _________________________, 1996
(If signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary or representative capacity, please provide the following
information.)
Name(s)
------------------------------------------------------------------------
(Please Print)
Capacity (Full Title)
----------------------------------------------------------
Address
------------------------------------------------------------------------
(Including Zip Code)
Social Security Number or Tax Identification Number
----------------------------
- 5 -
<PAGE>
INSTRUCTIONS AS TO USE OF
RIGHTS OFFERING ORDER FORMS
------------------------
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
OR IF YOU REQUIRE ASSISTANCE OR ADDITIONAL COPIES
OF THE PROSPECTUS, PLEASE CONTACT DENNIS D. BYRD,
TREASURER OF THE COMPANY, AT (207) 774-5000, OR JOHN H. HOWLAND,
VICE PRESIDENT OF FIRST ALBANY CORPORATION, AT (617) 228-3076.
The following instructions relate to the Rights Offering (the "Rights
Offering") by First Coastal Corporation, a Delaware corporation (the "Company"),
to the holders of its Common Stock, par value $1.00 per share, as described in
the Company's Prospectus dated June __, 1996 (the "Prospectus"). The shares
being offered in the Rights Offering (the "Shares") are being offered to holders
of record ("Record Date Holders") of Common Stock of the Company at the close of
business on June __, 1996 (the "Record Date") in proportion to their respective
ownership of Common Stock of the Company then outstanding. Each Record Date
Holder has received one nontransferable right (the "Right" or "Rights") for each
____ shares of Common Stock of the Company held of record on the Record Date
(the "Stockholder Subscription Privilege"), and each Right entitles the holder
thereof to subscribe for one share of Common Stock of the Company at a price of
$______ per Share (the "Subscription Price"). The Stockholder Subscription
Privilege is not transferable. The Subscription Price is payable as described
below. See "The Offering" in the Prospectus.
RIGHTS OFFERING ORDER FORMS MUST BE RECEIVED BY CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED BELOW, WITH
PAYMENT IN FULL ON OR BEFORE 5:00 P.M., EASTERN TIME, ON JULY __, 1996, UNLESS
EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME TO A DATE NOT
LATER THAN 5:00 P.M., EASTERN TIME, ON AUGUST __, 1996 (THE "EXPIRATION DATE").
THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY PURPORTED EXERCISE OF RIGHTS
RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE, REGARDLESS OF WHEN
THE DOCUMENTS RELATING TO THAT EXERCISE WERE SENT. AFTER THE EXPIRATION DATE,
THE RIGHTS WILL NO LONGER BE EXERCISABLE.
The number of Rights to which you are entitled is printed on your Rights
Offering Order Form. You may exercise your Rights by properly completing and
signing the Rights Offering Order Form and by delivering it to the Subscription
Agent with payment in full on or before the Expiration Date.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN THE
OFFERING IN WHOLE OR IN PART AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF
THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY AUTHORITIES.
1. SUBSCRIPTION PRIVILEGES.
TO EXERCISE RIGHTS. To exercise your Rights, properly complete and sign
your Rights Offering Order Form and send it to the Subscription Agent with
payment in full of the Subscription Price for each Share subscribed for pursuant
to the Stockholder Subscription Privilege.
PAYMENT. Payment may be made to the Subscription Agent only (i) by check
or cashier's check drawn upon a U.S. bank, or postal, telegraphic or express
money order, in each case, payable to Chemical Mellon Shareholder Services,
L.L.C., as Subscription Agent, or (ii) by wire transfer of funds to the account
maintained by the Subscription Agent for the purpose of receiving
I-1
<PAGE>
subscriptions at Mellon Bank, N.A., Pittsburgh, Pennsylvania, ABA Number
043000261, Account Number 100-2331 (Reorganization Account), Attn.: Evelyn
O'Connor, Re: First Coastal Offering. The Subscription Price will be
deemed to have been received by the Subscription Agent only upon (i)
clearance of any uncertified check, (ii) receipt by the Subscription Agent of
any certified check or cashier's check drawn upon a U.S. bank or of any
postal, telegraphic or express money order or (iii) receipt of collected
funds in the account designated above. FUNDS PAID BY UNCERTIFIED PERSONAL
CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, RECORD
DATE HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED
PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE, PAYMENT BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be deposited
by the Subscription Agent in a noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent, as directed by the Company. The account in
which such funds will be held may not be insured by the Federal Deposit
Insurance Corporation. No interest will be earned on such funds and no interest
will be paid to Record Date Holders, or otherwise applied to their purchase of
Shares.
If an exercising Record Date Holder does not indicate the number of Rights
being exercised, or does not forward full payment of the aggregate Subscription
Price for the number of Rights that the Record Date Holder indicates are being
exercised, then the Record Date Holder will be deemed to have exercised the
Stockholder Subscription Privilege with respect to the maximum number of Rights
exercisable by the Record Date Holder that may be exercised for the aggregate
payment delivered by the Record Date Holder (subject to reduction to comply with
certain limitations on the purchase of the Company's Common Stock or the
conditions of the Offering). Any amount remaining after application of the
foregoing procedures will be returned to the Record Date Holder promptly by mail
without interest or deduction.
If a Record Date Holder wishes to exercise Rights, but time will not permit
such Record Date Holder to cause the Rights Offering Order Form to reach the
Subscription Agent prior to the Expiration Date, such Rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) the Record Date Holder has caused payment in full in good funds of the
Subscription Price for each Share being subscribed for to be received (in the
manner set forth above) by the Subscription Agent at or prior to the Expiration
Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
provided with these Instructions as to Use of Rights Offering Order Forms
distributed with the Rights Offering Order Form, from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States, stating the name of the
exercising Record Date Holder, the number of Shares being subscribed for by the
Record Date Holder, and guaranteeing the delivery to the Subscription Agent of
the Rights Offering Order Form within five (5) business days of the Subscription
Agent's receipt of such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Rights
Offering Order Form within five (5) business days of the Subscription Agent's
receipt of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the same
manner as Rights Offering Order Forms at the addresses set forth below, or may
be transmitted to the Subscription Agent by
I-2
<PAGE>
facsimile transmission (telecopier no. (201) 296-4293). Additional copies of
the form of Notice of Guaranteed Delivery are available upon request from Dennis
D. Byrd, Treasurer of the Company, at (207) 774-5000, or from John H. Howland,
Vice President of First Albany Corporation, at (617) 228-3076.
LIMITATION ON STOCKHOLDER SUBSCRIPTION PRIVILEGE. Purchases of shares of
Common Stock of the Company, including purchases pursuant to the Rights
Offering, are subject to certain limitations. See the Prospectus under "The
Offering -- Limitations on Purchase of Stock" and "Description of Capital
Stock."
2. THE SUBSCRIPTION AGENT.
The addresses and telephone number of the Subscription Agent are as
follows:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
3. ISSUANCE AND DELIVERY OF STOCK CERTIFICATE(S), ETC.
Certificates or order confirmations representing Shares purchased will be
delivered to Record Date Holders as soon as practicable after the Expiration
Date and after all prorations and reductions contemplated by the terms of the
Offering have been effected. IF THE OFFERING HAS NOT BEEN CONSUMMATED WITHIN
30 DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE TERMINATED BY THE
COMPANY AND ALL AMOUNTS SUBMITTED BY RECORD DATE HOLDERS WILL BE RETURNED
WITHOUT INTEREST.
4. SIGNATURES.
EXECUTION BY RECORD DATE HOLDER. The signature on the Rights Offering
Order Form must correspond with the name of the Record Date Holder exactly as it
appears on the face of the Rights Offering Order Form without any alteration or
change whatsoever.
EXECUTION BY PERSON OTHER THAN RECORD DATE HOLDER. Persons who sign the
Rights Offering Order Form in a representative or other fiduciary capacity must
indicate their capacity when signing and, unless waived by the Company in its
sole and absolute discretion, must present to the Subscription Agent
satisfactory evidence of their authority to so act. Any other persons who sign
the Rights Offering Order Form must present to the Subscription Agent
satisfactory evidence of their authority to execute the Rights Offering Order
Form unless, for good cause, the Company dispenses with proof of authority.
I-3
<PAGE>
5. METHOD OF DELIVERY.
The method of delivery of Rights Offering Order Forms and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
Record Date Holders. If Rights Offering Order Forms and payments are sent by
mail, Record Date Holders are urged to send such materials by certified mail and
are urged to allow a sufficient number of days to ensure delivery to the
Subscription Agent and clearance of payment prior to the Expiration Date.
6. IRREGULARITIES.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Rights Offering Order Forms will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Company determines, in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Rights Offering Order Forms or
incur any liability for failure to give such notification. The Company reserves
the right to reject subscriptions received in the Offering in whole or in part
at the sole discretion of the Board of Directors of the Company or at the
request or discretion of regulatory authorities. See the Prospectus under "The
Offering -- Limitations on Purchase of Stock."
I-4
<PAGE>
Exhibit 99(c)
FORM OF
FIRST COASTAL CORPORATION
COMMUNITY OFFERING ORDER FORM
THE TERMS AND CONDITIONS OF THE COMMUNITY OFFERING (THE "COMMUNITY
OFFERING") ARE SET FORTH IN THE PROSPECTUS RELATING TO THE OFFERING (THE
"OFFERING") OF 750,000 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE
"SHARES"), OF FIRST COASTAL CORPORATION (THE "COMPANY") DATED JUNE __, 1996 (THE
"PROSPECTUS"), AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY OR FIRST ALBANY
CORPORATION (AS DISCUSSED BELOW). CAPITALIZED TERMS USED HEREIN, AND NOT
OTHERWISE DEFINED, SHALL HAVE THEIR RESPECTIVE DEFINED MEANINGS AS SET FORTH IN
THE PROSPECTUS. ALL COMMUNITY OFFERING PARTICIPANTS ARE URGED TO READ THE
PROSPECTUS CAREFULLY.
THE COMMUNITY OFFERING ORDER FORM MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED
BELOW, WITH PAYMENT IN FULL ON OR BEFORE 5:00 P.M., EASTERN TIME, ON JULY __,
1996, UNLESS EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME
TO A DATE NOT LATER THAN 5:00 P.M., EASTERN TIME, ON AUGUST __, 1996 (THE
"EXPIRATION DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY COMMUNITY
OFFERING ORDER FORMS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION
DATE, REGARDLESS OF WHEN THE DOCUMENTS RELATING TO THAT SUBSCRIPTION WERE SENT.
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION AGENT
FROM COMMUNITY OFFERING PARTICIPANTS MAY NOT BE REVOKED.
Community Offering Participants should be aware that the Community Offering
is subject to the prior rights of Record Date Holders in the Rights Offering and
the prior rights of Standby Purchasers with respect to the Minimum Standby
Purchase Commitment. If the Shares not subscribed for in the Rights Offering
and not purchased by Standby Purchasers are not sufficient to satisfy all orders
received from Community Offering Participants, the Company reserves the right to
allocate such Shares among the Community Offering Participants. Orders will be
deemed received only upon receipt of both a properly completed Community
Offering Order Form and full payment for the Shares for which a Community
Offering Participant has subscribed. Any excess funds paid by persons as the
Subscription Price for Shares not issued will be returned without interest or
deduction as soon as practicable following the Expiration Date. There can be no
assurance that any Shares will be available to persons desiring to participate
in the Community Offering. To subscribe for Shares in the Community Offering,
the Community Offering Order Form must be completed and payment in full of the
Subscription Price for all Shares subscribed for must accompany the Community
Offering Order Form.
THE METHOD OF DELIVERY OF COMMUNITY OFFERING ORDER FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
COMMUNITY OFFERING PARTICIPANTS. IF COMMUNITY OFFERING ORDER FORMS AND PAYMENTS
ARE SENT BY MAIL, COMMUNITY OFFERING PARTICIPANTS ARE URGED TO SEND SUCH
MATERIALS BY CERTIFIED MAIL AND ARE URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS
TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
THE EXPIRATION DATE.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN THE
OFFERING IN WHOLE OR IN PART AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF
THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY AUTHORITIES.
Certificates or order confirmations representing Shares purchased will be
delivered to Community Offering Participants as soon as practicable after the
Expiration Date and after all prorations and reductions contemplated by the
terms of the Offering have been effected. IF THE OFFERING HAS NOT BEEN
CONSUMMATED WITHIN 30 DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE
TERMINATED BY THE COMPANY AND ALL AMOUNTS SUBMITTED BY COMMUNITY OFFERING
PARTICIPANTS WILL BE RETURNED WITHOUT INTEREST.
<PAGE>
Purchases of shares of Common Stock of the Company, including purchases
pursuant to the Community Offering, are subject to certain limitations. See the
Prospectus under "The Offering -- Limitations on Purchase of Stock" and
"Description of Capital Stock."
Any questions or requests for assistance concerning submissions of
Community Offering Order Forms or requests for additional copies of the
Prospectus should be directed to Dennis D. Byrd, Treasurer of the Company, at
(207) 774-5000, or John H. Howland, Vice President of First Albany Corporation,
at (617) 228-3076.
IMPORTANT: Complete the appropriate sections of the Community Offering Order
Form and, if applicable, delivery instructions, and SIGN AND DATE.
SUBSCRIPTION PRICE: $______ PER SHARE
The instructions accompanying this Community Offering Order Form should be
read carefully and followed in detail. COMMUNITY OFFERING ORDER FORMS SHOULD BE
SENT WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND COMMUNITY OFFERING
ORDER FORMS TO THE COMPANY.
PART 1 - SUBSCRIPTION FOR SHARES IN THE COMMUNITY OFFERING.
(a) Number of Shares subscribed
for in the
Community Offering: ___________________________
(b) Aggregate Subscription Price (number
of Shares on line (a) multiplied by the
Subscription Price of $_____): (1) ___________________________
______________
(1) If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community
Offering Participant does not specify the number of Shares subscribed
for, then the Community Offering Participant will be deemed to have
subscribed for the number of Shares which may be purchased by the full
amount of the payment tendered (subject to reduction to comply with
certain limitations on the purchase of the Company's Common Stock or
the conditions of the Offering). If the aggregate Subscription Price
paid by a Community Offering Participant exceeds the amount necessary
to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant
will be deemed to have subscribed for the number of Shares which may
be purchased by the full amount of the payment tendered (subject to
reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering).
PART 2 - METHOD OF PAYMENT.
Payment may be made to the Subscription Agent only (i) by check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, L.L.C., as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of receiving subscriptions at Mellon
Bank, N.A., Pittsburgh, Pennsylvania, ABA Number 043000261, Account Number 100-
2331 (Reorganization Account), Attn.: Evelyn O'Connor, Re: First Coastal
Offering. The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the account designated above. FUNDS PAID BY
UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR.
ACCORDINGLY, COMMUNITY OFFERING PARTICIPANTS WHO WISH TO PAY THE SUBSCRIPTION
PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT
SUFFICIENTLY IN
-2-
<PAGE>
ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND
CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE, PAYMENT BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be deposited
by the Subscription Agent in a noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent, as directed by the Company. The account in
which such funds will be held may not be insured by the FDIC. No interest will
be earned on such funds and no interest will be paid to Community Offering
Participants, or otherwise applied to their purchase of Shares.
THIS COMMUNITY OFFERING ORDER FORM, TOGETHER WITH THE PAYMENT OF THE
SUBSCRIPTION PRICE, MUST BE DELIVERED TO THE SUBSCRIPTION AGENT AS FOLLOWS:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
If a Community Offering Participant wishes to subscribe for Shares, but
time will not permit such Community Offering Participant to cause the Community
Offering Order Form to reach the Subscription Agent prior to the Expiration
Date, such Shares may nevertheless be subscribed for if all of the following
conditions (the "Guaranteed Delivery Procedures") are met:
(i) the Community Offering Participant has caused payment in full in good
funds of the Subscription Price for each Share being subscribed for to be
received (in the manner set forth above) by the Subscription Agent at or prior
to the Expiration Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
provided with the Instructions as to Use of Community Offering Order Forms
distributed with this Community Offering Order Form, from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States, stating the name of the
subscribing Community Offering Participant, the number of Shares being
subscribed for by the Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Community Offering Order Form within
five (5) business days of the Subscription Agent's receipt of such Notice of
Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Community
Offering Order Form within five (5) business days of the Subscription Agent's
receipt of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the same
manner as Community Offering Order Forms at the addresses set forth above, or
may be transmitted to the Subscription Agent by facsimile transmission
(telecopier no. (201) 296-4293). Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from Dennis D. Byrd, Treasurer of
the Company, at (207) 774-5000, or from John H. Howland, Vice President of First
Albany Corporation, at (617) 228-3076.
-3-
<PAGE>
PART 3 - STOCK REGISTRATION.
- ----------------------------------------------------------------------
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number
-------------------
- ----------------------------------------------------------------------
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number
-------------------
- ----------------------------------------------------------------------
Address
- ----------------------------------------------------------------------
City State Zip Code
Indicate below the manner in which you wish to take ownership by checking
the appropriate box. If necessary, check "other" and write in such ownership,
such as, for example, corporate, trust or estate. If stock is purchased for a
trust, the date of the trust agreement and trust title must be included.
_____ Individual _____ Uniform Gifts to Minors
_____ Tenants in Common _____ Joint Tenants
_____ Other _______________________________________
PART 4 - SPECIAL DELIVERY INSTRUCTIONS.
To be completed ONLY if certificate representing the Common Stock is to be
sent to someone other than the registered holder or to an address other than
that shown above.
Mail and deliver to:
Name:
----------------------------------------------------------------
(Please Print)
Address:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(Include Zip Code)
--------------------------------------------------------------
(Social Security Number or Tax Identification Number)
PART 5 - SPECIAL ISSUANCE INSTRUCTIONS.
To be completed ONLY if the name in which any certificate representing the
Common Stock is to be issued is that of someone other than the registered holder
as indicated herein.
Name(s) in which stock is to be registered.
Name:
--------------------------------------------------------------
(Please Print)
Address:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(Include Zip Code)
--------------------------------------------------------------
(Social Security Number or Tax Identification Number)
-4-
<PAGE>
PART 6 - SIGNATURE AND ACKNOWLEDGMENT.
IMPORTANT: SIGN HERE
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE SUBSCRIPTION FOR SHARES BY
THE COMMUNITY OFFERING PARTICIPANT SHALL NOT RESULT IN SUCH COMMUNITY OFFERING
PARTICIPANT BECOMING A BENEFICIAL OWNER OF 5% OR MORE OF THE OUTSTANDING COMMON
STOCK OF THE COMPANY, UNLESS THE BOARD OF DIRECTORS HAS PREVIOUSLY APPROVED SUCH
SUBSCRIPTION FOR SHARES BY SUCH COMMUNITY OFFERING PARTICIPANT PURSUANT TO THE
TERMS AND CONDITIONS OF THE OFFERING DESCRIBED IN THE PROSPECTUS. FOR PURPOSES
OF THE IMMEDIATELY PRECEDING SENTENCE, A BENEFICIAL OWNER OF STOCK INCLUDES ANY
INDIVIDUAL, CORPORATION, PARTNERSHIP, ASSOCIATION, JOINT STOCK COMPANY, TRUST,
UNINCORPORATED ORGANIZATION, OR GOVERNMENT OR POLITICAL SUBDIVISION THEREOF WHO,
DIRECTLY OR INDIRECTLY, THROUGH ANY CONTRACT, ARRANGEMENT, UNDERSTANDING,
RELATIONSHIP OR OTHERWISE, HAS OR SHARES (I) VOTING POWER (WHICH INCLUDES THE
POWER TO VOTE, OR TO DIRECT THE VOTING OF, SUCH STOCK) AND/OR (II) INVESTMENT
POWER (WHICH INCLUDES THE POWER TO DISPOSE, OR TO DIRECT THE DISPOSITION OF,
SUCH STOCK).
THE UNDERSIGNED HEREBY IRREVOCABLY SUBSCRIBES FOR SHARES IN THE COMMUNITY
OFFERING AS INDICATED HEREIN, ON THE TERMS AND SUBJECT TO THE CONDITIONS
SPECIFIED IN THE PROSPECTUS, RECEIPT OF WHICH HEREBY IS ACKNOWLEDGED.
- ----------------------------------- -----------------------------------
(Print Name) (Print Name)
- ----------------------------------- -----------------------------------
(Signature(s) of Subscriber(s)) (Signature(s) of Subscriber(s))
Dated: ________________, 1996
(If signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary or representative capacity, please provide the following
information.)
Name(s)
-------------------------------------------------------------------------
(Please Print)
Capacity (Full Title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
(Including Zip Code)
Social Security Number or Tax Identification Number
-----------------------------
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<PAGE>
INSTRUCTIONS AS TO USE OF
COMMUNITY OFFERING ORDER FORMS
-------------------------
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
OR IF YOU REQUIRE ASSISTANCE OR ADDITIONAL COPIES
OF THE PROSPECTUS, PLEASE CONTACT DENNIS D. BYRD,
TREASURER OF THE COMPANY, AT (207) 774-5000, OR JOHN H. HOWLAND,
VICE PRESIDENT OF FIRST ALBANY CORPORATION, AT (617) 228-3076.
The following instructions relate to the Community Offering (the "Community
Offering") by First Coastal Corporation, a Delaware corporation (the "Company").
The terms and conditions of the Community Offering are described in the
Company's Prospectus dated June __, 1996 (the "Prospectus") and are incorporated
herein by reference. Capitalized terms used herein and not otherwise defined
shall have their respective defined meanings as set forth in the Prospectus.
Community Offering participants ("Community Offering Participants") should be
aware that the Community Offering is subject to the prior rights of Record Date
Holders in the Rights Offering and the prior rights of Standby Purchasers with
respect to the Minimum Standby Purchase Commitment. If the Shares not
subscribed for in the Rights Offering and not purchased by Standby Purchasers
are not sufficient to satisfy all orders received from Community Offering
Participants, the Company reserves the right to allocate such Shares among the
Community Offering Participants. Orders will be deemed received only upon
receipt of both a properly completed Community Offering Order Form and full
payment for the Shares for which a Community Offering Participant has
subscribed. Any excess funds paid by persons as the Subscription Price for
Shares not issued will be returned without interest or deduction as soon as
practicable following the Expiration Date. There can be no assurance that any
Shares will be available to persons desiring to participate in the Community
Offering. The Subscription Price is payable as described below. See "The
Offering" in the Prospectus.
COMMUNITY OFFERING ORDER FORMS MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED
BELOW, WITH PAYMENT IN FULL ON OR BEFORE 5:00 P.M., EASTERN TIME, ON JULY __,
1996, UNLESS EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME
TO A DATE NOT LATER THAN 5:00 P.M., EASTERN TIME, ON AUGUST __, 1996 (THE
"EXPIRATION DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY COMMUNITY
OFFERING ORDER FORMS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION
DATE, REGARDLESS OF WHEN THE DOCUMENTS RELATING TO THAT SUBSCRIPTION WERE SENT.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN THE
OFFERING IN WHOLE OR IN PART AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF
THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY AUTHORITIES.
1. SUBSCRIPTION.
TO SUBSCRIBE FOR SHARES. To subscribe for Shares, properly complete and
sign your Community Offering Order Form and send it to the Subscription Agent
with payment in full of the Subscription Price for each Share for which you have
subscribed.
PAYMENT. Payment may be made to the Subscription Agent only (i) by check
or cashier's check drawn upon a U.S. bank, or postal, telegraphic or express
money order, in each case, payable to Chemical Mellon Shareholder Services,
L.L.C., as Subscription Agent, or (ii) by wire transfer of funds to the account
maintained by the Subscription Agent for the purpose of receiving subscriptions
at Mellon Bank, N.A., Pittsburgh, Pennsylvania, ABA Number 043000261. Account
I-1
<PAGE>
Number 100-2331 (Reorganization Account), Attn.: Evelyn O'Connor, Re: First
Coastal Offering. The Subscription Price will be deemed to have been received
by the Subscription Agent only upon (i) clearance of any uncertified check,
(ii) receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the account designated above. FUNDS PAID BY
UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR.
ACCORDINGLY, COMMUNITY OFFERING PARTICIPANTS WHO WISH TO PAY THE SUBSCRIPTION
PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS
RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE,
PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
All funds received in payment of the Subscription Price will be deposited
by the Subscription Agent in a noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent, as directed by the Company. The account in
which such funds will be held may not be insured by the Federal Deposit
Insurance Corporation. No interest will be earned on such funds and no interest
will be paid to Community Offering Participants, or otherwise applied to their
purchase of Shares.
If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community Offering
Participant does not specify the number of Shares subscribed for, then the
Community Offering Participant will be deemed to have subscribed for the number
of Shares which may be purchased by the full amount of the payment tendered
(subject to reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering). If the aggregate
Subscription Price paid by a Community Offering Participant exceeds the amount
necessary to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant will be
deemed to have subscribed for the number of Shares which may be purchased by the
full amount of the payment tendered (subject to reduction to comply with certain
limitations on the purchase of the Company's Common Stock or the conditions of
the Offering).
If a Community Offering Participant wishes to subscribe for Shares, but
time will not permit such Community Offering Participant to cause the Community
Offering Order Form to reach the Subscription Agent prior to the Expiration
Date, such Shares may nevertheless be subscribed for if all of the following
conditions (the "Guaranteed Delivery Procedures") are met:
(i) the Community Offering Participant has caused payment in full in good
funds of the Subscription Price for each Share being subscribed for to be
received (in the manner set forth above) by the Subscription Agent at or prior
to the Expiration Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
provided with the Instructions as to Use of Community Offering Order Forms
distributed with this Community Offering Order Form, from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States, stating the name of the
subscribing Community Offering Participant, the number of Shares being
subscribed for by the Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Community Offering Order Form within
five (5) business days of the Subscription Agent's receipt of such Notice of
Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Community
Offering Order Form within five (5) business days of the Subscription Agent's
receipt of the Notice of Guaranteed
I-2
<PAGE>
Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered
to the Subscription Agent in the same manner as Community Offering Order Forms
at the addresses set forth below, or may be transmitted to the Subscription
Agent by facsimile transmission (telecopier no. (201) 296-4293). Additional
copies of the form of Notice of Guaranteed Delivery are available upon request
from Dennis D. Byrd, Treasurer of the Company, at (207) 774-5000, or from John
H. Howland, Vice President of First Albany Corporation, at (617) 228-3076.
LIMITATIONS ON SUBSCRIPTION. Purchases of shares of Common Stock of the
Company, including purchases pursuant to the Community Offering, are subject to
certain limitations. See the Prospectus under "The Offering -- Limitations on
Purchase of Stock" and "Description of Capital Stock."
2. THE SUBSCRIPTION AGENT.
The addresses and telephone number of the Subscription Agent are as
follows:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
3. ISSUANCE AND DELIVERY OF STOCK CERTIFICATE(S), ETC.
Certificates or order confirmations representing Shares purchased will be
delivered to Community Offering Participants as soon as practicable after the
Expiration Date and after all prorations and reductions contemplated by the
terms of the Offering have been effected. IF THE OFFERING HAS NOT BEEN
CONSUMMATED WITHIN 30 DAYS FOLLOWING THE EXPIRATION DATE, THE OFFERING WILL BE
TERMINATED BY THE COMPANY AND ALL AMOUNTS SUBMITTED BY COMMUNITY OFFERING
PARTICIPANTS WILL BE RETURNED WITHOUT INTEREST.
4. SIGNATURES.
EXECUTION BY COMMUNITY OFFERING PARTICIPANT. The signature on the
Community Offering Order Form must correspond with the name of the Community
Offering Participant exactly as it is printed above the signature.
EXECUTION BY PERSON OTHER THAN COMMUNITY OFFERING PARTICIPANT. Persons who
sign the Community Offering Order Form in a representative or other fiduciary
capacity must indicate their capacity when signing and, unless waived by the
Company in its sole and absolute discretion, must present to the Subscription
Agent satisfactory evidence of their authority to so act.
I-3
<PAGE>
5. METHOD OF DELIVERY.
The method of delivery of Community Offering Order Forms and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
Community Offering Participants. If Community Offering Order Forms and payments
are sent by mail, Community Offering Participants are urged to send such
materials by certified mail and are urged to allow a sufficient number of days
to ensure delivery to the Subscription Agent and clearance of payment prior to
the Expiration Date.
6. IRREGULARITIES.
All questions concerning the timeliness, validity, form and eligibility of
any submission of Community Offering Order Forms will be determined by the
Company, whose determinations will be final and binding. The Company, in its
sole discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
submission of any Community Offering Order Form. Community Offering Order Forms
will not be deemed to have been received or accepted until all irregularities
have been waived or cured within such time as the Company determines, in its
sole discretion. Neither the Company nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection with
the submission of Community Offering Order Forms or incur any liability for
failure to give such notification. The Company reserves the right to reject
subscriptions received in the Offering in whole or in part at the sole
discretion of the Board of Directors of the Company or at the request or
discretion of regulatory authorities. See the Prospectus under "The Offering --
Limitations on Purchase of Stock."
I-4
<PAGE>
Exhibit 99(d)
FORM OF
NOTICE OF GUARANTEED DELIVERY
FOR SHARES OF
FIRST COASTAL CORPORATION
SUBSCRIBED FOR UNDER THE RIGHTS OFFERING
AND/OR THE
COMMUNITY OFFERING
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING (THE "RIGHTS OFFERING") AND
THE COMMUNITY OFFERING (THE "COMMUNITY OFFERING") ARE SET FORTH IN THE
PROSPECTUS RELATING TO THE OFFERING (THE "OFFERING") OF 750,000 SHARES OF COMMON
STOCK, PAR VALUE $1.00 PER SHARE (THE "SHARES"), OF FIRST COASTAL CORPORATION
(THE "COMPANY") DATED JUNE __, 1996 (THE "PROSPECTUS"), AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY OR FIRST ALBANY CORPORATION (DISCUSSED BELOW). CAPITALIZED TERMS
USED HEREIN, AND NOT OTHERWISE DEFINED, SHALL HAVE THEIR RESPECTIVE DEFINED
MEANINGS AS SET FORTH IN THE PROSPECTUS. ALL RECORD DATE HOLDERS AND COMMUNITY
OFFERING PARTICIPANTS ARE URGED TO READ THE PROSPECTUS CAREFULLY.
As set forth in the Prospectus under "The Offering -- Subscription
Procedure," this form or one substantially equivalent hereto may be used as a
means of effecting subscription for all Shares purchased. Such form may be
delivered by hand or sent by regular mail, overnight courier, by hand or
facsimile transmission to the Subscription Agent as set forth below.
THE SUBSCRIPTION AGENT IS:
Chemical Mellon Shareholder Services, L.L.C.
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
If by facsimile: telecopier no. (201) 296-4293
The Subscription Agent's toll free telephone number is (800) 777-3674.
NOTICES OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE SUBSCRIPTION AGENT
ON OR BEFORE 5:00 P.M. EASTERN TIME, ON JULY __, 1996, UNLESS EXTENDED BY THE
COMPANY, IN ITS SOLE DISCRETION, TO A DATE NOT LATER THAN 5:00 P.M. EASTERN TIME
ON AUGUST __, 1996 (THE "EXPIRATION DATE"). DELIVERY TO AN ADDRESS, OR
TRANSMISSION BY FACSIMILE TO A TELECOPIER NUMBER OTHER THAN AS SET FORTH ABOVE
SHALL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
GUARANTEED DELIVERY PROCEDURES.
If a Record Date Holder wishes to exercise Rights or a Community Offering
Participant wishes to subscribe for Shares, but time will not permit such Record
Date Holder or Community Offering Participant to cause the Rights Offering Order
Form or Community Offering Order Form to reach the Subscription Agent prior to
the Expiration Date, such Rights may nevertheless be exercised and such Shares
may nevertheless be subscribed for if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) the Record Date Holder or Community Offering Participant has caused
payment in full in good funds of the Subscription Price for each Share being
subscribed for to be received (at an address set forth above) by the
Subscription Agent at or prior to the Expiration Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date,
this guarantee notice or one substantially equivalent hereto (a "Notice of
Guaranteed Delivery") from a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
("NASD") or from a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Record
Date Holder or the name of the subscribing Community Offering Participant, the
number of Shares being subscribed for by the Record Date Holder or Community
Offering Participant, and guaranteeing the delivery to the Subscription Agent of
the Rights Offering Order Form or Community Offering Order Form within five (5)
business days of the Subscription Agent's receipt of such Notice of Guaranteed
Delivery; and
(iii) the Subscription Agent receives a properly completed Rights Offering
Order Form or Community Offering Order Form within five (5) business days of the
Subscription Agent's receipt of the Notice of Guaranteed Delivery relating
thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription
Agent in the same manner as Rights Offering Order Forms or Community Offering
Order Forms at the addresses set forth above, or may be transmitted to the
Subscription Agent by facsimile transmission as set forth above. Additional
copies of this form of Notice of Guaranteed Delivery are available upon request
from Dennis D. Byrd, Treasurer of the Company, at (207) 774-5000, or from John
H. Howland, Vice President of First Albany Corporation, at (617) 228-3076.
IMPORTANT. The member firm of a registered national securities exchange or
member of the NASD or commercial bank or trust company having an office or
correspondent in the United States that completes this Notice of Guaranteed
Delivery must communicate the guarantee and the number of Shares subscribed for
(under the Rights Offering and/or the Community Offering) to the Subscription
Agent and must deliver this Notice of Guaranteed Delivery, or one substantially
equivalent hereto, guaranteeing delivery to the Subscription Agent of the Rights
Offering Order Form (for the Rights Offering) and/or the Community Offering
Order Form (for the Community Offering) within five (5) business days of the
Subscription Agent's receipt of such Notice of Guaranteed Delivery.
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<PAGE>
GUARANTEE
The undersigned, a member firm of a national securities exchange or member
of the NASD or a commercial bank or trust company having an office or
correspondent in the United States, guarantees delivery to the Subscription
Agent by the close of business on ____________________, 1996, of a properly
completed and executed Rights Offering Order Form and/or Community Offering
Order Form.
Number of Shares for which you are
guaranteeing delivery of a Rights Offering
Order Form (Rights Offering):
--------------------------------
AND/OR
Number of Shares for which you are
guaranteeing delivery of a Community
Offering Order Form (Community Offering): --------------------------------
- -------------------------------- --------------------------------
Name of Firm Authorized Signature
- -------------------------------- --------------------------------
Address Title
- -------------------------------- Name:
Zip Code ---------------------------
(Please Type or Print)
- -------------------------------- --------------------------------
Contact Name Phone Number
- 3 -
<PAGE>
Exhibit 99(e)
FORM OF BROKER ASSISTANCE AGREEMENT
FIRST COASTAL CORPORATION
(THE HOLDING COMPANY FOR COASTAL SAVINGS BANK)
750,000 SHARES
(PAR VALUE $1.00 PER SHARE)
June __, 1996
Ladies and Gentlemen:
First Coastal Corporation (the "Company"), the holding company for Coastal
Savings Bank, a Maine chartered stock savings bank, will be effecting a
recapitalization (the "Recapitalization"), by means of which the Company intends
to satisfy its obligations to the Federal Deposit Insurance Corporation ("FDIC")
under a $9.0 million principal amount non-recourse promissory note, in part
through the offer and sale (the "Offering") of 750,000 shares (the "Shares") of
the Company's common stock, $1.00 par value (the "Common Stock"), at a price of
$____ per Share (the "Subscription Price"). The Shares, the number of Shares to
be issued, and certain of the terms on which they are being offered, are more
fully described in the enclosed prospectus, dated June __, 1996 (the
"Prospectus").
1. THE OFFERING.
The Offering consists of three parts. First, the Company is offering, in a
rights offering (the "Rights Offering"), up to _______ Shares to existing
stockholders. Second, the Company is concurrently offering Shares not
subscribed for in the Rights Offering to members of the general public to whom a
copy of the Prospectus is delivered (the "Community Offering"), subject to the
prior rights of existing stockholders in the Rights Offering and the prior
rights of certain standby purchasers (the "Standby Purchasers") who have agreed
to purchase, and to whom the Company has agreed to sell, a minimum of _______
Shares (the "Minimum Standby Purchase Commitment"). Third, the Company has
entered into certain standby purchase agreements (the "Standby Purchase
Agreements") pursuant to which, subject to certain conditions, the Standby
Purchasers have agreed to acquire from the Company, at the Subscription Price,
up to _______ Shares (the "Standby Offering"), if available, after the Rights
Offering and the Community Offering. The Standby Purchasers will purchase not
less than the Minimum Standby Purchase Commitment.
2. BROKER ASSISTANCE FEE.
The Company is offering the Assisting Brokers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Shares in
the Community Offering, and, subject to the conditions of this letter, the
Company will pay you a fee (the "Broker Assistance Fee") in the amount of three
percent (3.0%) of the aggregate dollar amount of the Shares sold on behalf of
the Company by you in the Community Offering, as evidenced by the authorized
designation of your firm on the order form or forms for such Shares accompanying
the funds
<PAGE>
transmitted for payment therefor to the special account established for the
purpose of holding such funds. You understand and agree that payment of your
fee will be made only for the Shares sold on behalf of the Company by you in the
Community Offering, as evidenced in accordance with the preceding sentence, and
that payment of such fees is also subject to all required clearances by the
National Association of Securities Dealers, Inc. (the "NASD"). As soon as
practicable after the closing date of the Recapitalization, but in no event
later than 10 days following such date, the Company will remit to you the Broker
Assistance Fee to which you are entitled hereunder.
3. COMMUNITY OFFERING ORDER FORM.
Each order form for the purchase of Shares in the Community Offering (a
"Community Offering Order Form") shall be in or substantially in the form
attached hereto as Exhibit A. Each Community Offering Order Form must be
received by Chemical Mellon Shareholder Services, L.L.C. (the "Subscription
Agent"), at the address specified on the Community Offering Order Form, with
payment in full, on or before 5:00 p.m., Eastern Time, on July __, 1996, subject
to extension by the Company, in its sole discretion, from time to time through
August __, 1996 (the "Expiration Date"). Each Community Offering Order Form
shall be properly completed in its entirety and shall clearly identify your
firm. Subscriptions for Shares which are received by the Subscription Agent may
not be revoked.
4. METHOD OF PAYMENT.
You shall instruct any subscriber who elects to send his or her Community
Offering Order Form to you to make payment to the Subscription Agent only (i) by
check or cashier's check drawn upon a U.S. bank, or postal, telegraphic or
express money order, in each case, payable to Chemical Mellon Shareholder
Services, L.L.C. as Subscription Agent, or (ii) by wire transfer of funds to the
account maintained by the Subscription Agent for the purpose of receiving
subscriptions at Mellon Bank, N.A., Pittsburgh, Pennsylvania, ABA Number
043000261, Account Number 100-2331 (Reorganization Account), Attn.: Evelyn
O'Connor, Re: First Coastal Offering. The required payment for the Shares to
be purchased (the "Subscription Payment") will be deemed to have been received
by the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified or cashier's check drawn upon
a U.S. bank or of any postal, telegraphic or express money order or (iii)
receipt of collected funds in the account designated above.
You further agree upon receipt of an executed Community Offering Order Form
or direction to execute a Community Offering Order Form on behalf of a customer,
to forward to the Subscription Agent the completed Community Offering Order Form
and payment for the Shares ordered on or before twelve noon of the business day
following your receipt of a Community Offering Order Form or execution of a
Community Offering Order Form by you. Payments for the Shares shall be
deposited by the Subscription Agent on behalf of the Company with the Escrow
Agent (as defined below) in a segregated noninterest bearing account in
accordance with Rule 15c2-4 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). You agree that no method of payment other
than as set forth in this Section 4 will be employed for Shares sold pursuant to
this Agreement. Notwithstanding the foregoing, and except with respect to a
Notice of Guaranteed Delivery
- 2 -
<PAGE>
(defined hereinafter), you acknowledge that, unless properly completed Community
Offering Order Forms, accompanied by collected funds representing the full
required Subscription Payment, are actually received by the Subscription Agent
on or prior to the Expiration Date, such orders may not be accepted by the
Company.
If the aggregate Subscription Price paid by a customer is insufficient to
purchase the number of Shares that the customer indicates are being subscribed
for, or if such customer does not specify the number of Shares subscribed for,
then the customer will be deemed to have subscribed for the number of Shares
which may be purchased by the full amount of the payment tendered (subject to
reduction to comply with certain limitations on the purchase of the Company's
Common Stock or the conditions of the Offering). If the aggregate Subscription
Payment paid by a customer exceeds the amount necessary to purchase the number
of Shares for which the customer has subscribed, then the customer will be
deemed to have subscribed for the number of Shares which may be purchased by the
full amount of the payment tendered (subject to reduction to comply with certain
limitations on the purchase of the Company's Common Stock or the conditions of
the Offering).
All funds received in payment of the Subscription Payment will be deposited
by the Subscription Agent in a noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent (the "Escrow Agent"), as directed by the
Company. The account in which such funds will be held may not be insured by the
FDIC. No interest will be earned on such funds and no interest will be paid to
customers or otherwise applied to their purchase of Shares.
Community Offering Order Forms, together with Subscription Payments, must
be delivered to the Subscription Agent as follows:
If by regular mail: c/o Chemical Mellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
The Subscription Agent's toll free telephone number is (800) 777-3674.
If a customer wishes to subscribe for Shares, but time will not permit an
Assisting Broker to cause the Community Offering Order Form for such customer to
reach the Subscription Agent prior to the Expiration Date, such Shares may
nevertheless be subscribed for if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
- 3 -
<PAGE>
(i) the customer has caused payment in full in good funds of the
Subscription Price for each Share being subscribed for to be received (in the
manner set forth above) by the Subscription Agent at or prior to the Expiration
Date; and
(ii) the Subscription Agent receives, at or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
provided with the Instructions as to Use of Community Offering Order Form
distributed with the Community Offering Order Form attached hereto as Exhibit A,
from a member firm of a registered national securities exchange or a member of
the NASD, or from a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the subscribing
customer, the number of Shares being subscribed for by the customer, and
guaranteeing the delivery to the Subscription Agent of the Community Offering
Order Form within five (5) business days of the Subscription Agent's receipt of
such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed Community
Offering Order Form within five (5) business days of the Subscription Agent's
receipt of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the same
manner as Community Offering Order Forms at the addresses set forth above, or
may be transmitted to the Subscription Agent by facsimile transmission
(telecopier no. (201) 296-4293). Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from Dennis D. Byrd, Treasurer of
the Company, at (207) 744-5000, or from John H. Howland, Vice President of First
Albany Corporation, at (617) 228-3060.
5. ASSISTING BROKERS.
This offer is made subject to the terms and conditions herein set forth and
is made only to Assisting Brokers which are members in good standing of the
NASD, which have at least $25,000 net capital and which agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice. By executing this Agreement,
(i) you represent and warrant that you satisfy the standards set forth in this
paragraph for participation in the solicitation of offers to buy the Shares and
(ii) you confirm that you will continue to comply with the requirements of this
paragraph until termination of this Agreement.
6. ACCEPTANCE OF ORDERS.
Orders for Shares will be strictly subject to confirmation, and the Company
reserves the right in its sole discretion, to reject any order in whole or in
part, to accept or reject orders in the order of their receipt or otherwise, and
to allot, in each case subject to the terms of the Prospectus. Neither you nor
any person is authorized by the Company to give any information or make any
representations other than those contained in the Prospectus in connection with
the sale of the Shares. No Assisting Broker is authorized to act as agent for
the Company when soliciting offers to buy the Shares from the public or
otherwise. No Assisting Broker
- 4 -
<PAGE>
shall engage in any stabilizing (as defined in Rule 10b-7 promulgated under the
1934 Act) with respect to the Shares during the Community Offering.
You acknowledge and agree that, notwithstanding anything to the contrary
herein contained or implied, the Company shall not be obligated to issue to any
customer any Shares in an amount which, when aggregated with other shares of the
Company's Common Stock beneficially owned by such customer, would exceed 4.9% of
the total issued and outstanding shares of the Company's Common Stock upon
completion of the Offering, subject to certain exceptions with respect to
existing holders of 5% or more of the Company's issued and outstanding Common
Stock.
7. TERMINATION.
Unless earlier terminated by the Company, this Agreement shall terminate
upon the closing date of the Recapitalization. The Company may terminate this
Agreement or any provisions hereof at any time by written, fax or telegraphic
notice to you. The Company's obligations hereunder are conditioned on the
successful completion of the Recapitalization.
8. ISSUANCE AND DELIVERY OF STOCK CERTIFICATES.
Certificates or order confirmations representing Shares purchased will be
delivered to customers or to nominee holders designated by customers, as the
case may be, as soon as practicable after the Expiration Date and after all
prorations and reductions contemplated by the terms of the Offering have been
effected. If the Offering has not been consummated within 30 days following the
Expiration Date, the Offering will be terminated and all amounts submitted by
customers will be returned without interest.
9. SIGNATURES.
The signature on the Community Offering Order Form must correspond with the
name of the customer exactly as it is printed above the signature. Persons who
sign the Community Offering Order Form in a representative or other fiduciary
capacity must indicate their capacity when signing, must indicate the name of
the customer on whose behalf they are signing and, unless waived by the Company
in its sole and absolute discretion, must present to the Subscription Agent
satisfactory evidence of their authority to so act.
10. IRREGULARITIES.
All questions concerning the timeliness, validity, form and eligibility of
any submission of Community Offering Order Forms will be determined by the
Company, whose determinations will be final and binding. The Company, in its
sole discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
submission of any Community Offering Order Form. Community Offering Order Forms
will not be deemed to have been received or accepted until all irregularities
have been waived or cured within such time as the Company determines, in its
sole discretion. Neither the Company nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection with
the submission of Community
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<PAGE>
Offering Order Forms or incur any liability for failure to give such
notification. The Company reserves the right to reject subscriptions received
in the Offering in whole or in part at the sole discretion of the Board of
Directors of the Company or at the request or direction of regulatory
authorities. See the Prospectus under "The Offering -- Limitations on Purchase
of Stock."
11. METHOD OF DELIVERY.
The method of delivery of Community Offering Order Forms and payment of the
Subscription Payment to the Subscription Agent will be at the election and risk
of Broker Assistants or their customers, as the case may be.
12. GENERAL.
You agree to comply with the applicable requirements of the 1934 Act and
applicable state rules and regulations. You also acknowledge that the Company
has agreed to sell the Minimum Standby Purchase Commitment to the Standby
Purchasers and is thereafter offering the Shares in the Rights Offering on a
first priority basis to persons who owned shares of Common Stock held of record
at the close of business on June __, 1996.
You agree that at any time or times prior to the termination of this
Agreement you will, promptly upon the Company's request, report to the Company
the number of Shares sold on behalf of the Company by you under this Agreement.
The Company shall have full authority to take such actions as the Company
may deem advisable in respect of all matters pertaining to the Offering. The
Company shall be under no liability to you except for obligations expressly
assumed by the Company in this Agreement.
Upon application by the Company, the Company will inform you as to the
states in which the Company believes the Shares have been qualified for sale
under, or are exempt from the requirements of, the respective blue sky laws of
such states. However, the Company assumes no responsibility with respect to
your right to sell securities in any jurisdiction.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from the Company to you shall be deemed to have been duly given
if mailed, telephoned, faxed or telegraphed to you at the address to which this
Agreement is mailed.
This Agreement shall be construed in accordance with the laws of the State
of Maine (but not including the choice of law rules thereof).
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<PAGE>
Please confirm your agreement hereto by signing and promptly returning a
copy of this letter containing the confirmation set forth below to First Coastal
Corporation, 36 Thomas Drive, Westbrook, Maine 04092, Attention: Gregory T.
Caswell, President and Chief Executive Officer.
FIRST COASTAL CORPORATION
By:
---------------------------------
President
We hereby confirm our agreement to all the terms and conditions stated in
the foregoing letter. We acknowledge receipt of the Prospectus relating to the
Shares and we further state that in agreeing hereto we have relied upon the
Prospectus and no other statement whatsoever, written or oral. We confirm that
we are securities brokers registered as such under the Securities Exchange Act
of 1934, as amended, and applicable state securities laws, we are not purchasing
Shares for our own account, and we will not sell any of the Shares to any
account over which we have discretionary authority.
In addition, we hereby confirm our agreement to comply with the provisions
of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, as well as Article III of the Rules of Fair
Practice of the NASD, including, to the extent applicable, the provisions of
Sections 24, 25 and 36 thereof. We represent that neither we or any of our
directors, officers, partners or "persons associated with" us (as defined in the
by-laws of the NASD) nor, to our knowledge, any "related person" (as defined by
the NASD in its Interpretation with respect to Review of Corporate Financing)
have participated or intend to participate in any transaction or dealing as to
which documents or information are required to be filed with the NASD pursuant
to such Interpretation.
(Please print or type below
the address of the firm)
--------------------------------------
(Please print or type name of firm)
- ---------------------------
- ---------------------------
By:
- --------------------------- ------------------------------
(Authorized Representative)
Dated: June __, 1996
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<PAGE>
Exhibit A
COMMUNITY OFFERING ORDER FORM
<PAGE>
Exhibit 99(f)
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT, between First Coastal Corporation (the "Company") and
Mellon Bank, N.A. (the "Escrow Agent"), dated as of June __, 1996.
WHEREAS, the Company has entered into a Subscription Agent Agreement (the
"Subscription Agent Agreement") with Chemical Mellon Shareholder Services,
L.L.C. (the "Subscription Agent"), pursuant to which the Subscription Agent will
perform certain services for the Company in connection with the proposed
offering (the "Offering") by the Company of 750,000 shares of common stock, par
value $1.00 per share, of the Company; and
WHEREAS, pursuant to the Subscription Agent Agreement, the Company and the
Subscription Agent have agreed to establish an escrow account on behalf of the
Company with the Escrow Agent;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS. Capitalized terms used herein, and not otherwise
defined, shall have their respective defined meanings as set forth in the
Prospectus, dated June __, 1996, relating to the Offering.
2. ESCROW AGENT. The Escrow Agent agrees to maintain an escrow account
on behalf of the Company entitled the "Rights Offering and the Community
Offering Escrow Account" (the "Escrow Account"). The Subscription Agent shall
promptly deposit payments (by wire transfer) with the Escrow Agent which are
submitted to and received by the Subscription Agent in connection with the
Rights Offering and the Community Offering.
3. NONINTEREST BEARING ACCOUNT. All funds received by the Escrow Agent
from the Subscription Agent (the "Escrow Funds") shall be held by the Escrow
Agent in accordance with the terms hereof in a noninterest bearing account
maintained by the Escrow Agent as directed by the Company.
4. DELIVERY OF ESCROW FUNDS. Upon written instructions received by the
Escrow Agent from the Company, the Escrow Agent shall mail or wire the Escrow
Funds as directed by the Company.
5. DISCHARGE OF ESCROW AGENT/NO THIRD PARTY BENEFICIARIES. Upon
completion by the Escrow Agent of the performance of its duties hereunder, the
Escrow Agent shall be discharged of all duties and obligations hereunder. This
Agreement shall not operate to create any right or benefit to any third party.
This Agreement will terminate on October 1, 1996, unless otherwise earlier
terminated by the Company or by the mutual agreement of the parties.
6. FEES. The Company agrees to pay the Escrow Agent a fee of $1,000.00
for all services rendered in accordance with the terms hereof. The Company also
agrees to reimburse the Escrow Agent for any reasonable out-of-pocket expenses,
including reasonable attorneys' fees and expenses, incurred in the
administration and performance of its duties.
7. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Escrow Agent from any and all claims, suits, actions, proceedings,
judgments, damages, liabilities, losses and other expenses (including reasonable
attorneys' fees and expenses) arising out of or based upon any act or omission
by the Escrow Agent in connection with the acceptance of or performance of its
duties hereunder, except to the extent any claims, suits, actions, proceedings,
judgments, damages,
<PAGE>
liabilities, losses and other expenses are found in a final judgment by a court
to have resulted from the Escrow Agent's gross negligence or willful misconduct.
The Escrow Agent shall be fully protected in acting in reliance upon any written
notice, statement or letter from the Company or the Subscription Agent believed
by the Escrow Agent in good faith to be genuine. The Escrow Agent shall have no
duties except those expressly set forth herein.
8. NOTICES. Notices shall be given by first class mail, postage prepaid
or by telecopy, confirmed as to transmission, as follows: (a) to the Escrow
Agent at Mellon Bank, N.A., Two Mellon Bank Center, Room 325, Pittsburgh,
Pennsylvania 15259, attention: Claire Seidener; telecopy number (412) 234-9196,
and (b) to the Company at First Coastal Corporation, 36 Thomas Drive, Westbrook,
Maine 04092, attention: Gregory T. Caswell; telecopy number (207) 828-4680.
9. ENTIRE AGREEMENT; AMENDMENT; ASSIGNMENT; HEADINGS. This Agreement
sets forth the entire understanding of the parties with respect to the subject
matter hereof and shall not be amended, altered or modified except by an
instrument in writing duly executed by the parties hereto. This Agreement shall
not be assignable by either party without the prior written consent of the other
party hereto. Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
10. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maine applicable to contracts executed
in and to be performed in that State (but not including the choice of law rules
thereof).
11. COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature of or on behalf of each party appears on each counterpart, but it
shall be sufficient that the signature of or on behalf of each party appears on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of or on behalf of all of the parties.
12. BINDING EFFECT. Subject to the provisions hereof restricting
assignment, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date above written.
FIRST COASTAL CORPORATION
By:
------------------------------------
Title: President and Chief Executive Officer
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<PAGE>
MELLON BANK, N.A.
By:
---------------------------
Title:
------------------------
ACKNOWLEDGED:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By:
---------------------------------------
Title:
-------------------------------------
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<PAGE>
Exhibit 99(g)
FORM OF SUBSCRIPTION AGENT AGREEMENT
June __, 1996
Chemical Mellon Shareholder Services, L.L.C.
111 Founders Plaza, 11th Floor
East Hartford, Connecticut 06108
Attn: Lynore A. LeConche
RE: SUBSCRIPTION AGENT AGREEMENT
Ladies and Gentlemen:
The following will confirm our agreement ("Agreement") as more fully
described below, in which Chemical Mellon Shareholder Services, L.L.C.
("Chemical Mellon" or the "Subscription Agent") has agreed to serve as
Subscription Agent in connection with a proposed registered public offering (the
"Offering") by First Coastal Corporation (the "Company") of 750,000 shares (the
"Shares") of common stock, par value $1.00 per share, of the Company (the
"Common Stock"). The duties of Chemical Mellon, as Subscription Agent, will be
separate from, and in addition to, its continuing duties as transfer agent and
registrar for the Company's Common Stock (in which capacity Chemical Mellon is
herein referred to as the "Transfer Agent and Registrar").
Section 1. RIGHTS OFFERING AND COMMUNITY OFFERING. Pursuant to the terms
and conditions of the proposed rights offering (the "Rights Offering"), each
stockholder of the Company will receive one nontransferable right (the "Right")
for each ____ shares of Common Stock held of record at the close of business on
June __, 1996 (the "Record Date", and each such stockholder hereinafter referred
to as the "Record Date Holder"). Each Right will entitle the holder thereof to
purchase from the Company one share of Common Stock (the "Stockholder
Subscription Privilege") for a price of $____ per share (the "Subscription
Price"). The number of Rights issued by the Company to each Record Date Holder
will be rounded up to the nearest whole number. Record Date Holders may
subscribe for fewer Shares in the Rights Offering than they have Rights to
purchase. Record Date Holders may also subscribe for additional shares in the
Community Offering as described below, subject to certain limitations. The
Rights Offering is made as part of the Offering, which also will include
purchases by Standby Purchasers and a Community Offering of any shares not
otherwise subscribed for in the Rights Offering or purchased by Standby
Purchasers as described below.
The Offering will expire at 5:00 p.m., Eastern time, on July __, 1996,
subject to the extension by the Company, in its sole discretion, from time to
time through August __, 1996 (the "Expiration Date"). After the Expiration
Date, the Rights will no longer be exercisable. If the Offering has not been
consummated within 30 days following the Expiration Date, the Offering will be
terminated by the Company and all amounts submitted by Record Date Holders and
participants in the Community Offering (the "Community Offering Participants")
will be returned without interest.
The Stockholder Subscription Privilege may be exercised by properly
completing the Rights Offering order form (the "Rights Offering Order Form") and
forwarding it (or following the Guaranteed Delivery Procedures described in the
Prospectus, dated June __, 1996, relating to the Offering (the "Prospectus")),
with payment of the Subscription Price for each Share subscribed for pursuant to
the Stockholder Subscription Privilege, to the Subscription Agent, which must
receive such Rights Offering Order Form and payment at or prior to the
Expiration Date. Once a Record Date Holder has exercised the Stockholder
Subscription Privilege, such exercise may not be revoked. Rights Offering Order
Forms should be sent with the payment to the Subscription Agent and not to the
Company. The Company reserves the right to reject subscriptions received in
whole or in part at the sole discretion of the Company or at the request or
direction of regulatory authorities.
<PAGE>
Persons holding shares of Common Stock beneficially, and receiving the
Rights with respect thereto, through a broker, dealer, commercial bank, trust
company or other nominee, should contact the appropriate institution or nominee
and request it to effect such transactions for them.
The Company is concurrently offering Shares not subscribed for in the
Rights Offering to members of the general public to whom a copy of the
Prospectus is delivered (the "Community Offering"), subject to the prior rights
of Record Date Holders in the Rights Offering and the prior rights of Standby
Purchasers with respect to the Minimum Standby Purchase Commitment (as defined
below) and the other purchase limitations described in the Prospectus. It is
anticipated that Shares offered in the Community Offering will be offered
through broker-dealers engaged by the Company pursuant to certain broker
assistance agreements entered into with the Company. If there is an
insufficient number of Shares available to satisfy all subscriptions received in
the Community Offering, the Company reserves the right to allot such Shares
among the Community Offering Participants. There can be no assurance that any
Shares will be available to satisfy in whole or in part a Community Offering
Participant's subscription.
Persons who desire to participate in the Community Offering must properly
complete the Community Offering order form (the "Community Offering Order Form")
which accompanies the Prospectus and forward it (or follow the Guaranteed
Delivery Procedures described in the Prospectus), with payment of the aggregate
Subscription Price to the Subscription Agent, which must receive such Community
Offering Order Form and payment at or prior to the Expiration Date.
Subscriptions for Shares which are received by the Subscription Agent from
Community Offering Participants may not be revoked. Community Offering Order
Forms should be sent with the payment to the Subscription Agent and not to the
Company. The Company reserves the right to reject subscriptions received in
whole or in part at the sole discretion of the Company.
Payments will be held in a segregated noninterest bearing account
maintained with Mellon Bank, N.A., as escrow agent, pending the issuance of
certificates representing the Shares purchased or the return of the payment
which will be made without interest.
The sale of Shares upon the exercise of Rights and the sale of Shares in
the Community Offering are conditioned upon all of the Shares being sold and to
the consummation of the other transactions pursuant to the Recapitalization (as
defined in the Prospectus).
The Company has entered into standby purchase agreements (the "Standby
Purchase Agreements"), pursuant to which, subject to certain conditions, standby
purchasers (the "Standby Purchasers") have severally agreed to acquire from the
Company, at the Subscription Price, up to _______ Shares, if available after the
Rights Offering and the Community Offering. Pursuant to such agreements, the
Company has agreed to sell, and the Standby Purchasers have agreed to purchase,
a minimum of __________ Shares (the "Minimum Standby Purchase Commitment") at
the Subscription Price.
The Company does not anticipate accepting any purchases of five percent or
more of the Common Stock in the Offering, but reserves the right to do so. The
Company's Restated Certificate of Incorporation includes certain other
restrictions and limitations with respect to the acquisition of the Company's
securities.
Separate certificates representing Shares purchased are expected to be
delivered as soon as practicable after the Expiration Date.
THE FOREGOING SUMMARY OF THE OFFERING IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION SET FORTH IN THE PROSPECTUS, A COPY OF WHICH IS
ATTACHED HERETO AS EXHIBIT A AND INCORPORATED HEREIN BY REFERENCE.
Section 2. APPOINTMENT OF SUBSCRIPTION AGENT. The Company hereby appoints
Chemical Mellon as Subscription Agent for the Rights Offering and the Community
Offering. The Company
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<PAGE>
has previously appointed Chemical Mellon as Transfer Agent and Registrar of the
Company for its Common Stock, which appointment includes serving in such
capacities for the Common Stock to be issued pursuant to the Offering. The
Subscription Agent confirms that except as otherwise contemplated by this
Agreement, it is not authorized by the Company to give any information or make
any representations in connection with the sale of the Shares.
Section 3. CERTAIN DUTIES OF THE SUBSCRIPTION AGENT. In its capacity as
Subscription Agent, Chemical Mellon is authorized and directed to:
(a) Mail by first class mail to each Record Date Holder: (i) the
Rights Offering Order Form designating the name(s) of the Record Date Holder and
the total number of Rights which may be exercised by each such Record Date
Holder, (ii) the Instructions as to Use of Rights Offering Order Forms, (iii)
the Notice of Guaranteed Delivery, (iv) the Prospectus and (v) a return envelope
addressed to the Subscription Agent (collectively, the "Rights Offering
Distribution").
(b) Mail by first class mail to each prospective Community Offering
Participant as directed by the Company: (i) the Community Offering Order Form,
(ii) the Instructions as to Use of Community Offering Order Forms, (iii) the
Notice of Guaranteed Delivery, (iv) the Prospectus and (v) a return envelope
addressed to the Subscription Agent (collectively, the "Community Offering
Distribution").
(c) Prepare and maintain copies of such records and such other
documents with respect to the Record Date Holders, the Rights Offering
Distribution, the Community Offering Distribution and such other matters as may
be necessary for Chemical Mellon to carry out its responsibilities as
Subscription Agent.
(d) Subject to Section 4 hereof and to the terms and conditions of
the Offering as set forth in the Prospectus, (i) accept properly completed
Rights Offering Order Forms in connection with the exercise of Rights by Record
Date Holders and Community Offering Order Forms in connection with the
subscription for Shares by Community Offering Participants in accordance with
the terms of the Rights Offering Order Form and the Community Offering Order
Form, (ii) accept properly completed Notice of Guaranteed Delivery pursuant to
the Guaranteed Delivery Procedures (as described in the Prospectus) and (iii)
accept subscriptions executed as agent for the Record Date Holder or Community
Offering Participant, by a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc., or
from a commercial bank or trust company having an office or correspondent in the
United States.
(e) Promptly consult with the Company for specific instructions as to
acceptance or rejection of Rights Offering Order Forms, Community Offering Order
Forms, Notice of Guaranteed Delivery or other purported exercise of Rights by
Record Date Holders or purported subscription for Shares by Community Offering
Participants where questions concerning timeliness, validity, form or
eligibility or questions concerning any other failure to comply in all respects
with the terms of the Offering as set forth in the Prospectus exist or may
exist.
(f) Promptly return to Record Date Holders and Community Offering
Participants, without interest or deduction, any payment tendered to the
Subscription Agent pursuant to the exercise of Rights by such Record Date Holder
or the subscription for Shares by such Community Offering Participant to the
extent that (i) such exercise or subscription is rejected for any reason, in
whole or in part or (ii) the Offering is terminated by the Company.
4. ACCEPTANCE OF ORDERS. Orders for Shares will be strictly subject
to confirmation by the Company, and the Company reserves the right in its sole
discretion, to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot, in each case subject
to the terms of the Prospectus. All questions concerning the timeliness,
validity, form and eligibility of any exercise of Rights and submission of
Community Offering Order Forms will be determined by the Company, whose
determinations will be final and binding. The
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<PAGE>
Company, in its sole discretion, may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine,
or reject the purported exercise of any Right and submission of any Community
Offering Order Form. Rights Offering Order Forms and Community Offering Order
Forms will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines, in its sole discretion.
5. PAYMENT OF FUNDS. The Company and the Subscription Agent shall
establish a noninterest bearing escrow account (the "Escrow Account") on behalf
of the Company with Mellon Bank, N.A. (the "Escrow Agent"). The Subscription
Agent shall within one (1) business day of receipt of funds received by the
Subscription Agent in connection with the Rights Offering and the Community
Offering in payment of subscriptions deposit such payments (by wire transfer)
with the Escrow Agent, who will hold such funds pursuant to the Escrow
Agreement. For the purpose of Sections 5 and 7 of this Agreement, "business
day" shall be a day other than a Saturday or a Sunday on which the Escrow Agent
is open for the purpose of conducting business. A copy of the Escrow Agreement
between the Company and the Escrow Agent is attached hereto as EXHIBIT B.
6. DAILY REPORTING. The Subscription Agent shall advise the Company
daily by telecopy and confirmed by letter delivered by overnight courier, as to
the total number of shares of Common Stock subscribed for in the Rights Offering
and the Community Offering and the amount of funds received with respect to each
such subscription and the total amount of funds received with respect to all
such subscriptions. In addition, the Subscription Agent shall furnish to the
Company from time to time such other reports or information as the Company shall
request.
7. CLOSING OF THE OFFERING.
(a) No later than two (2) business days following the Expiration
Date, the Subscription Agent shall advise the Company consistent with the
requirements of Section 6 hereof as to: (i) the total number of shares of
Common Stock subscribed for in the Rights Offering, including a break down, by
Record Date Holder, of the number of shares subscribed for, (b) the total number
of shares of Common Stock unsubscribed for in the Rights Offering, including a
break down, by Record Date Holder, of the number of shares not subscribed for,
and (c) the total number of shares of Common Stock subscribed for in the
Community Offering, including a break down, by Community Offering Participant,
of the number of shares subscribed for.
(b) As Transfer Agent and Registrar and pursuant to written
instructions from the Company, Chemical Mellon shall issue certificates for
shares of Common Stock, registered in the names of the Record Date Holders, the
Community Offering Participants or the Standby Purchasers, as the case may be,
or as otherwise directed by the Community Offering Participants or Standby
Purchasers, and mail or deliver such certificates as instructed as soon as
practicable after the Closing, in accordance with the Prospectus and all
applicable laws, rules and regulations.
(c) The Subscription Agent shall provide such other information and
such other services and assistance to the Company as the Company may reasonably
request in connection with the Offering and the closing thereof.
Section 8. SUBSCRIPTION AGENT COMPENSATION. The Company shall pay to
the Subscription Agent for its services hereunder certain fees in accordance
with the Schedule of Fees attached hereto as EXHIBIT C. The Company further
agrees that it will reimburse the Subscription Agent for its necessary and
reasonable expenses incurred in the performance of its duties hereunder,
including without limitation postage, stationery and supplies and attorney's
fees. The Subscription Agent agrees that it will not incur any attorney's fees
with respect to this Agreement or its duties hereunder without prior notice to,
and the consent of, the Company, which consent will not be unreasonably
withheld.
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<PAGE>
Section 9. INDEMNIFICATION. The Company agrees to indemnify, protect
and hold harmless the Subscription Agent and its directors, officers, employees
and agents from and against any claims, losses or expenses, including attorney's
fees, (collectively, "Losses") arising from the Subscription Agent's performance
of services under this Agreement; provided, however, that the Company shall not
be obligated to indemnify the Subscription Agent for Losses resulting from the
Subscription Agent's negligence, bad faith, willful misconduct or material
breach of this Agreement.
The Subscription Agent shall not be responsible for any statements in the
Prospectus, the Rights Offering Order Form, the Instructions as to Use of Rights
Offering Order Forms, the Community Offering Order Form, the Instructions as to
Use of Community Offering Order Forms, the Notice of Guaranteed Delivery, or any
other materials authorized by the Company to be distributed to Record Date
Holders or Community Offering Participants, nor shall the Subscription Agent be
deemed to make any representation as to whether any shares of Common Stock are
validly issued, fully paid, non-assessable or free of preemptive rights.
Subject to its obligations under this Agreement, the Subscription Agent
shall not be responsible for any action taken in reliance upon any signature,
endorsement, assignment, certificate, order, request, notice, instruction or
other instrument or document believed by it in good faith to be valid, genuine
and sufficient in carrying out its duties hereunder.
Section 10. MISCELLANEOUS. This Agreement constitutes the full and
integrated agreement of the parties hereto with respect to the subject matter
hereof, and may be amended, supplemented or otherwise modified only by a written
instrument executed and delivered by each of the Company and the Subscription
Agent. Upon completion by the Subscription Agent of the performance of its
duties hereunder, the Subscription Agent shall be discharged of all duties and
obligations hereunder. This Agreement shall not operate to create any right or
benefit to any third party. This Agreement will terminate on October 1, 1996,
unless otherwise earlier terminated by the Company or by the mutual agreement of
the parties. This Agreement shall not be assignable by either party without the
prior written consent of the other party hereto. No waiver by either party
hereto of the other party's breach of or failure to comply with any condition or
provision of this Agreement to be performed by such other party shall operate as
a waiver of or estoppel with respect to any subsequent or other breach or
failure to comply. Section headings contained in this Agreement are inserted
for convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 11. NOTICES. Except as otherwise contemplated by Sections 6
and 7 hereof, all notices, demands, requests or other communications which may
be or are required to be given, served or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be mailed by first-
class, registered or certified mail, return receipt requested, postage prepaid,
or transmitted by hand delivery (including delivery by courier), or facsimile
transmission, addressed as follows:
(i) If to the Company:
First Coastal Corporation
36 Thomas Drive
Westbrook, Maine 04092
Facsimile No. (207) 828-4680
Attention: Gregory T. Caswell
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<PAGE>
(ii) If to the Subscription Agent:
Chemical Mellon Shareholder Services, L.L.C.
111 Founders Plaza, 11th Floor
East Hartford, Connecticut 06108
Facsimile No.: (203) 528-6472
Attn: Lynore A. LeConche
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication which shall be mailed,
delivered or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt,
the affidavit of messenger or (with respect to a facsimile) the answerback being
deemed conclusive (but not exclusive) evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
Section 12. GOVERNING LAW. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Maine
applicable to contracts executed in and to be performed in that State (but not
including the choice of law rules thereof).
Section 13. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which counterparts shall be
deemed an original and all of which counterparts taken together shall be deemed
to constitute one and the same instrument.
If the foregoing is acceptable to you, please indicate Chemical Mellon's
acceptance of its appointment as Subscription Agent for the Rights Offering and
the Community Offering upon the terms set forth above by signing and returning
the copy of this letter enclosed for that purpose.
Very truly yours,
FIRST COASTAL CORPORATION
By:
------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Accepted and agreed to as of
the ____ day of June, 1996
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By:
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Title:
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<PAGE>
EXHIBIT A
PROSPECTUS
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
<PAGE>
EXHIBIT C
SCHEDULE OF FEES
