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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 0-20880
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FRANKLIN BANCORPORATION, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1632361
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1722 I (Eye) Street, N.W., Washington, D.C. 20006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 429-9888
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered under section 12(g) of the Act:
Common stock, par value $0.10
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(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. [ ]
The aggregate market value as of February 28, 1997 of voting stock
held by non-affiliates of the registrant was $77,446,847. The number of shares
outstanding of the registrant's common stock, par value $0.10, was 6,487,694
shares as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement furnished to stockholders in
connection with the Annual Meeting of Stockholders scheduled for May 28, 1997
are incorporated by reference in Part III of this report.
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TABLE OF CONTENTS
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Page
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PART I
Item 1 - Business 3
Item 2 - Properties 9
Item 3 - Legal Proceedings 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 10
Item 6 - Selected Consolidated Financial Data 11
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 8 - Financial Statements and Supplementary Data 28
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59
PART III
Item 10 - Directors and Executive Officers of the Registrant (1) 59
Item 11 - Executive Compensation (1) 59
Item 12 - Security Ownership of Certain Beneficial Owners and Management (1) 59
Item 13 - Certain Relationships and Related Transactions (1) 59
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 59
Signatures 62
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(1) Incorporated by reference to portions of the Registrant's Proxy Statement.
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PART I
ITEM 1 - BUSINESS
Franklin Bancorporation, Inc. ("Franklin") is a Delaware corporation
incorporated on October 31, 1988 and is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"). At December 31, 1996, Franklin had consolidated total assets of
$498 million, total deposits of $363 million and total stockholders' equity of
$32 million. Franklin is headquartered in Washington, D.C. and owns all of the
outstanding stock of its sole subsidiary, Franklin National Bank of Washington,
D.C. (the "Bank").
The Bank is a national banking association chartered under the laws of
the United States. It was incorporated in 1983 as National Enterprise Bank,
became First Interstate Bank of Washington, D.C. in 1987 under a franchise
agreement and was acquired by Franklin in 1989, changing its name to Franklin
National Bank of Washington, D.C. at that time.
In April, 1995, Franklin acquired The George Washington Banking
Corporation ("GWBC"), the holding company of The George Washington National
Bank of Alexandria, Virginia, which was re-named Franklin National Bank of
Virginia. In August, 1996, Franklin received regulatory approval to merge
Franklin National Bank of Virginia with and into Franklin National Bank of
Washington, D.C.
MARKET AREA
The Bank was formed to service the financial needs of the small to
medium sized businesses and professionals in the metropolitan Washington D. C.
community while providing a limited array of quality services to consumers
within its primary service area.
The Bank's primary service area includes the District of Columbia and
suburban Virginia and Maryland, with a focus on the cities of Arlington and
Alexandria and portions of Fairfax and Montgomery Counties.
The Bank operates nine full service branch offices; six in the
District of Columbia, two in Northern Virginia and one in Bethesda, Maryland.
The Bank offers six 24-hour automated teller machines ("ATMs") which are
linked with other automated teller machines regionally through MOST and
nationally through PLUS and CIRRUS. The Bank also offers 24-hour telephone
banking, with inquiry and transfer capabilities.
BANKING SERVICES
The Bank provides a wide variety of commercial banking services to its
commercial customers. In the commercial lending area, the Bank offers short
and medium term loans, including lines of credit, inventory and accounts
receivable financing and real estate loans. The Bank also provides Small
Business Administration ("SBA") loans when applicable. In addition, the Bank
makes loans designed to assist in the development of economically disadvantaged
and under-served neighborhoods in the District of Columbia, Northern Virginia
and portions of southern Maryland. In the commercial depository area, the Bank
offers business checking accounts, tiered money market accounts, certificates
of deposit and customer repurchase
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agreements. Cash management services are offered which include sweep accounts,
balance reporting, account reconciliation, wire transfers, payroll processing,
credit card depository and Automated Clearing House origination.
The Bank also offers a range of consumer banking services as an
accommodation to its existing customers, including checking accounts, savings
and certificates of deposit programs, Individual Retirement Accounts, lending
services including auto and other installment and term loans, overdraft lines
of credit, sales of travelers' checks, safe deposit box rentals, night
depository and ATM services. Deposits with the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") up to prescribed limits and the Bank
is a member of the Federal Reserve System and the Federal Home Loan Bank of
Atlanta.
In 1996, the Bank opened an International Private Banking department
providing products and services to support the needs of individuals from
foreign countries and those in the metropolitan Washington area who frequently
travel internationally. Products offered include depository accounts, direct
loans and letters of credit. In conjunction with this department, the Bank
offers foreign currency exchange services facilitating the buying and selling
of foreign currencies and drafts and negotiating foreign transfers to and from
most countries.
LENDING ACTIVITIES
The Bank's loan portfolio is distributed into several categories, each
with different risk factors and underwriting criteria. As of December 31,
1996, the portfolio distribution was real estate loans, 34%; commercial loans,
60%; and consumer loans, 6% (including home equity loans). The following
discussion briefly outlines the risk and underwriting criteria that the Bank
uses to evaluate the individual portfolios.
Real Estate Loans: The Bank's underwriting criteria is such that very
few speculative properties have been underwritten. Also, because of the Bank's
size, real estate loans involve smaller properties, with loan size generally
between $300 thousand and $3 million. Tenants and rent rolls are analyzed, and
loan amortizations range from 7 years to 20 years. These loans generally carry
personal guarantees of individuals whose ability to support the loan, if
needed, have been evaluated. The types of real estate in this portfolio are
small office buildings, retail shopping centers, and multi-family residential
properties; and, in a few cases, warehouse/industrial properties and hotels.
The Bank also finances a limited number of residential construction projects.
Only a few projects are funded at any one time, starts ahead of sales are
severely restricted, and in some cases pre-sold units are required. The
borrowers are well-known and experienced, with low loan-to-value ratios.
Commercial Loans: This category comprises the bulk of the Bank's loan
portfolio, reflecting its market niche among small businesses and
professionals. The loans are to a variety of firms operating in the
metropolitan area. Collateral typically consists of accounts receivable,
inventory and equipment; in many instances it is supplemented by junior liens
on residences of the principals.
The Bank's underwriting criteria generally require full amortization
in the 3 to 7 year range; adequate business and personal collateral to support
the credit; minimal lending to start-up operations; lending primarily to
established and experienced business people, many of whom have a long and
satisfactory banking history; lending only to companies within the metropolitan
Washington area where borrowers can be monitored; and requiring personal
guarantees and secondary sources of repayment in virtually all relationships.
Unsecured lending is controlled and limited to the most creditworthy borrowers.
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Consumer Loans: Home equity loans constitute a small percentage of
the Bank's loan portfolio. These loans are secured by first or second trusts
on the borrower's primary residence. Home equity loans are offered to existing
customers, but since the Bank does not specialize in consumer lending, this is
not likely to be a major product segment. Similarly, since the Bank is not a
long-term residential mortgage lender, there are a limited number of first
trust mortgages. These tend to be short amortization and balloon maturity
loans to customers wishing to fully retire the debt in a shorter time frame.
There also are a number of mortgages generated as part of the Bank's Community
Reinvestment Act ("CRA") initiatives. Consumer loans are a small segment of the
lending activities and include auto loans, debt consolidation, and overdraft
protection.
Risk of Non-Payment: The risk of non-payment (or deferred payment) of
loans is inherent in commercial banking. The Bank's marketing focus on
professionals, small to medium-sized businesses, trade associations, and
nonprofit organizations theoretically could result in the assumption by the
Bank of certain risks that are somewhat greater than those associated with
loans to larger business entities which may have more resources or assets
available and whose liquidity may be greater. However, management believes
that the theoretical possibility of such risks is more than offset by the
greater diversity of borrowers resulting from a lower average loan amount per
borrower and the Bank's loan underwriting procedures. While management
attempts to minimize the credit risk exposure through loan application
evaluation and approval and monitoring procedures, there can be no assurance
that such procedures can significantly reduce such lending risks. Franklin's
gross loans outstanding increased from $182 million at December 31, 1995 to
$233 million at December 31, 1996, an increase of $51 million, or 28%.
Management believes that the risks associated with the small business segment
of the market are offset by a higher asset quality resulting from the
underwriting, approval, and monitoring procedures put into place over the past
five years. Management believes that, based on existing information, the
allowance for possible loan losses of $3.8 million as of December 31, 1996, is
sufficient to provide for losses which may be sustained on the current loan
portfolio. Management believes that, through its specific reserves and its
general portfolio allocations, the current loan portfolio has adequate
reserves.
COMPETITION
The market for banking and bank-related services, particularly within
Franklin's service area of greater metropolitan Washington, D.C., is highly
competitive. The Bank competes for deposits and loans with other providers of
financial services such as commercial and savings banks, credit unions, money
market and other mutual fund providers and other financial institutions.
Numerous mergers and acquisitions involving Washington, D.C., Virginia and
Maryland banks have recently occurred, intensifying competition in Franklin's
geographic market. Many of the Bank's competitors possess greater financial
resources or have significantly higher lending limits.
Interstate banking laws enacted in 1994 added to the competitive
pressure. Federal law now provides that: (1) effective September, 1995, bank
holding companies are permitted, subject to certain conditions, to acquire
banks and bank holding companies across state lines without regard to whether
such acquisition is prohibited by state law; and (2) effective June 1, 1997,
sooner if both states opt-in to interstate branching, banks will be permitted
to merge across state lines provided neither state has opted-out of interstate
branching. Maryland and Virginia opted-in to allow mergers across state lines
and legislation in the District of Columbia is still pending.
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The Bank competes by focusing on a defined segment of the market,
small to mid-size local businesses, and providing high quality service that
meets or exceeds our customers' expectations.
SUPERVISION AND REGULATION
The information contained in this section summarizes portions of the
applicable laws and regulations governing the supervision and regulation of
Franklin and the Bank. These summaries do not purport to be complete, and they
are qualified in their entirety by reference to the particular statues and
regulations described.
Bank Holding Company Regulations
Franklin, as a bank holding company registered under the Bank Holding
Company Act (the "BHCA"), is required to file with the Federal Reserve Board
("FRB") quarterly and annual reports, and such additional information as the
FRB may require, and is subject to regular examinations by the staff of the FRB
of Richmond.
The BHCA requires that a bank holding company obtain the prior
approval of the FRB before it may merge or consolidate with any other bank
holding company, or acquire substantially all of the assets of any bank, or
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 shares of such bank.
The BHCA also generally prohibits a bank holding company from engaging
in, or from acquiring direct or indirect control of voting shares of any
company engaged in activities other than banking and the management of banking
organizations, and any non-banking activities which the FRB may find, by order
or regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. The approval of the FRB is generally
required prior to engaging in permissible non-banking activities.
The Bank
As a national bank chartered under the laws of the United States, the
Bank is a member of the Federal Reserve System and is subject to certain
provisions of the Federal Reserve Act and regulations issued by the Board of
Governors. The Bank is subject to regulation, supervision and regular
examination by its primary regulator, the Office of the Comptroller of the
Currency (the "OCC"). Deposits, reserves, investments, loans, consumer law
compliance, issuance of securities, payment of dividends, mergers and
consolidations, electronic funds transfers, management practices and other
aspects of the Bank's operations are subject to regulation. The approval of
the appropriate bank regulatory agency is required for the establishment of
additional branch offices by the Bank.
The deposits of the Bank are insured by the FDIC. Some of the aspects
of the lending and deposit business of the Bank which are subject to regulation
by the FRB or the FDIC include disclosure requirements in connection with
personal and mortgage loans, interest on deposits and reserve requirements. In
addition, the Bank is subject to numerous federal, state and local laws which
set forth specific restrictions and requirements with respect to extensions of
credit, credit practices, disclosure of credit terms and discrimination in
credit transactions.
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The Bank is subject to restrictions under federal law which limit the
transfer of funds by the Bank to Franklin, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such
transfers by the Bank to Franklin are limited in amount to 10% of the Bank's
capital and surplus and, with respect to Franklin, to an aggregate of 20% of
the Bank's capital and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts.
As a result of the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (1) the default of a commonly controlled FDIC-insured
depository institution or (2) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default.
As a consequence of the extensive regulation of the commercial banking
industry, the business of the Bank is particularly susceptible to changes in
Federal and state legislation and regulations which may increase the cost of
doing business.
DIVIDENDS
Franklin is a legal entity separate from the Bank. Various federal
laws and regulations limit the amount of dividends the Bank can pay to Franklin
without regulatory approval.
The approval of the OCC is required for any dividend by a national
bank if the total of all dividends declared by such bank in any calendar year
would exceed the total of its net profits, as defined by the OCC, for that year
combined with its retained net profits for the preceding two years less any
required transfers to surplus or a fund for the retirement of any preferred
stock. Additionally, national bank subsidiaries may not declare dividends in
excess of net profits on hand, after deducting the amount by which the
principal amount of all loans on which interest is past due for a period of six
months or more exceeds the reserve for credit losses. In addition, the "prompt
corrective action" provisions of FDICIA (see discussion entitled "FDIC
Improvement Act" below) prohibit the payment of dividends by a bank if the
payment would cause the bank to become "undercapitalized."
The FRB and OCC have issued guidelines that require bank holding
companies and national banks to evaluate continuously the level of cash
dividends in relation to the organization's net income, capital needs, asset
quality and overall financial condition. The Bank could pay dividends to
Franklin as of December 31, 1996, however, to date, no dividends have been paid
to or by Franklin to ensure the availability of adequate capital for future
expansion.
FDIC IMPROVEMENT ACT
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA
provides increased funding for the Bank Insurance Fund ("BIF") of the FDIC and
provides for expanded regulation of depository institutions and their
affiliates, including parent holding companies. The following is a brief
summary of certain provisions of FDICIA.
Pursuant to FDICIA, the FRB, the OCC and the FDIC have adopted
regulations, effective December 19, 1992, setting forth a five-tier scheme for
measuring the capital adequacy of the financial institutions they supervise.
Under the regulations, an institution is placed in one
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of the following capital categories: (1) well capitalized (an institution that
has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based
capital ratio of at least 6% and a leverage ratio of at least 5%); (2)
adequately capitalized (a total risk-based capital ratio of at least 8%, a Tier
1 risk-based capital ratio of at least 4%, and a leverage ratio of at least
4%); (3) undercapitalized (a total risk-based capital ratio of under 8% or a
Tier 1 risk-based capital ratio under 4% or a leverage ratio under 4%); (4)
significantly undercapitalized (a total risk-based capital ratio of under 6% or
a Tier 1 risk-based capital ratio under 3% or a leverage ratio under 3%); and
(5) critically undercapitalized (a ratio of tangible equity to total assets of
2% or less). The regulations permit the appropriate Federal banking regulator
to downgrade an institution to the next lower category if the regulator
determines: (1) after notice and opportunity for hearing or response, that the
institution is in an unsafe or unsound condition or (2) that the institution
has received (and not corrected) a less-than-satisfactory rating for any of the
categories of asset quality, management, earnings or liquidity in its most
recent exam. All institutions are generally prohibited from declaring a
dividend, making any other capital distribution or paying a management fee to a
controlling person, if such payment would cause the institution to become
undercapitalized. As of December 31, 1996, the Bank met the requirements of a
"well-capitalized" institution.
The FDIC issued a rule, effective June 16, 1992, regarding the ability
of depository institutions to accept brokered deposits. Under the rule, (1) an
undercapitalized institution is prohibited from accepting, renewing or rolling
over brokered deposits, (2) an adequately capitalized institution must obtain a
waiver from the FDIC before accepting, renewing or rolling over brokered
deposits and (3) a well capitalized institution may accept, renew or roll over
brokered deposits without restrictions. In addition, both undercapitalized and
adequately capitalized institutions are subject to restrictions on the rates
of interest they may pay on any deposits.
The FDIC has also issued regulations implementing, effective for the
semi-annual assessment period which commenced January 1, 1993, a system of
risk-based FDIC insurance premiums. Under this system, each depository
institution is assigned to one of nine risk classifications based upon certain
capital and supervisory measures and, depending upon its classification is
assessed premiums per $100 of domestic deposits. The FDIC originally set
premiums ranging from 23 basis points to 31 basis points per $100 of domestic
deposits and lowered the range to 4 basis points to 23 basis points effective
June 30, 1995. Effective January 1, 1996, the FDIC further reduced premiums to
0 basis points to 27 basis points per $100 of deposits with a minimum
assessment payment for a 6 month period of $1,000 per institution. The Bank
carries the lowest risk rating and therefore benefitted from the reduced
premium assessments in 1996.
For the first six months of 1997, the FDIC is maintaining the premium
ranges in effect during 1996 and eliminating the minimum assessment payment.
The Deposit Insurance Funds Act of 1996 authorizes the Financing Corporation
(FIC0) to levy assessments on BIF-assessable deposits. The FICO premium
assessment is not based on the FDIC risk classification. For the first six
months of 1997, the FICO premium assessment is 1.296 basis points per $100 of
domestic deposits. This additional assessment will not have a material effect
on Franklin's results of operations.
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MONETARY POLICY
The Bank and therefore Franklin is affected by monetary policies of
regulatory authorities, including the FRB, which regulate the national money
supply in order to mitigate recessionary and inflationary pressures. Among the
techniques available to the FRB are engaging in open market transactions in
U.S. Government securities, changing the discount rate on bank borrowings, and
changing reserve requirements against bank deposits. These techniques are used
in varying combinations to influence the overall growth and distribution of
bank loans, investments, and deposits. Their use may also affect interest
rates charged on loans or paid on deposits. The effect of governmental
monetary policies on the earnings of Franklin cannot be predicted.
EMPLOYEES
As of December 31, 1996, the Bank employed 131 full-time equivalent
employees. Management of the Bank considers relations with its employees to be
satisfactory.
ITEM 2 - PROPERTIES
The principal office of Franklin and the Bank is located at 1722 I
(Eye) Street, N.W., Washington, D.C. The Bank leases the space occupied at
this location, as well as the space for the Bank's administrative offices and
five additional branches located in the District of Columbia. The Bank also
leases the space for the branches located in Alexandria and Tysons Corner,
Virginia and Bethesda, Maryland. The Bank's internal Operations, Accounting,
Credit Administration and Audit departments are housed at Franklin's principal
office in the District of Columbia. Additional information regarding the
Bank's operating leases can be found in Note 12 to the consolidated financial
statements.
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings pending against Franklin or
the Bank.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of stockholders during the
fourth quarter of 1996.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Franklin's common stock trades on The Nasdaq SmallCap Market Tier of
The Nasdaq Stock Market under the symbol FNBC. As of February 28, 1997, there
were approximately 550 registered holders of the common stock.
The high and low sales price for Franklin's common stock traded during
the last two years were as follows:
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Sales Prices - 1996 High Low
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Fourth Quarter $10.750 $7.750
Third Quarter 8.125 7.125
Second Quarter 8.375 7.500
First Quarter 8.250 7.500
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Sales Prices - 1995 High Low
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Fourth Quarter $8.125 $6.625
Third Quarter 6.875 5.375
Second Quarter 6.500 5.125
First Quarter 5.500 4.375
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Franklin has not paid any dividends to date. The current policy of
management and the Board of Directors is to retain earnings to finance future
growth. Any future payment of dividends will depend upon Franklin's earnings,
operating and financial condition, growth and capital needs and regulatory
requirements and general business conditions.
While Franklin has never declared a dividend and has no current plans
to declare a dividend in the near term, it is Franklin's policy to review this
matter on an ongoing basis.
Recent Sales of Unregistered Securities
On December 27, 1996, Franklin completed a private placement of
125,000 shares of Common Stock to Rock Creek Corporation, a Delaware
corporation (the "Private Placement"). The Common Stock issued in the Private
Placement was sold at $8.00 per share for aggregate gross proceeds of
$1,000,000. The Common Stock issuance was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
and Regulation D promulgated thereunder. The Private Placement did not
involve the use of an underwriter and no commissions were paid in connection
with such sale.
On January 31, 1996, pursuant to the Nondiscretionary Stock Option
Plan, Franklin granted options to purchase up to 10,000 shares of Common Stock
to certain members of the Board of Directors of Franklin (the "Director's
Grants"). The options issued in the Director's Grants were granted at an
exercise price of $7.813 and may be exercised, in whole or in part, by the
recipient of the grant at any time prior to the earliest of (i) ten years after
the date of the grant, (ii) three months after the death of the recipient, by
the recipient's estate, (iii) upon the merger or consolidation of Franklin
whereby there is a change of ownership of more than 50% of Franklin's voting
securities, (iv) a transaction or series of transactions resulting in the
acquisition of a majority of the outstanding shares of Common Stock, (v) a
transfer of all or substantially all of the assets of Franklin or (vi) a
liquidation or dissolution of Franklin. The Director's Grants were exempt from
registration under Section 4(2) of the Securities Act. The issuance of such
options did not involve the use of an underwriter and no commissions were paid
in connection with such grant.
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ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the
audited financial statements of Franklin. It should be read in conjunction
with the detailed information and financial statements of Franklin included
elsewhere herein.
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(Dollars in thousands, except per share data) YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
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CONDENSED INCOME STATEMENT
Interest income $ 29,340 $ 22,464 $ 15,652 $ 12,525 $ 10,615
Interest expense 11,050 8,181 5,168 4,245 4,466
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Net interest income 18,290 14,283 10,484 8,280 6,149
Provision for loan losses 27 181 365 1,081 2,002
Non-interest income 1,770 1,461 1,050 771 403
Non-interest expense 12,652 9,856 7,682 6,910 4,473
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Income before income tax expense 7,381 5,707 3,487 1,060 77
Income tax expense (benefit) 2,858 2,324 1,056 (166) (175)
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NET INCOME $ 4,523 $ 3,383 $ 2,431 $ 1,226 $ 252
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PER SHARE OF COMMON STOCK
Net income $ 0.68 $ 0.54 $ 0.43 $ 0.28 $ 0.07
Book value 4.92 4.20 3.52 3.34 2.94
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SELECTED BALANCES
Total assets $497,817 $367,031 $263,995 $231,126 $192,344
Loans, net of unearned income 232,581 181,650 125,695 91,801 91,262
Securities 164,116 109,140 106,602 95,673 63,931
Non-interest bearing deposits 123,197 90,454 69,415 47,585 45,852
Total deposits 363,427 302,435 212,533 167,333 159,285
Interest bearing liabilities 339,323 247,850 174,094 163,926 133,702
Stockholders' equity 31,893 26,385 19,745 18,743 12,347
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SELECTED RATIOS
Return on average assets 1.12% 1.16% 1.01% 0.60% 0.15%
Return on average equity 16.03% 14.36% 12.53% 9.22% 2.33%
Average equity to average assets 7.00% 8.11% 8.09% 6.47% 6.45%
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of Franklin's financial condition and results
of operations as of and for the years ended December 31, 1996, 1995 and 1994
should be read in conjunction with the Consolidated Financial Statements of
Franklin and statistical data presented elsewhere in this report.
OVERVIEW
Franklin, a bank holding company headquartered in Washington, D.C.,
currently operates one banking subsidiary, Franklin National Bank of
Washington, D.C., which conducts business from nine banking offices in the
District of Columbia, Northern Virginia and suburban Maryland. Through the
Bank, Franklin offers a full range of commercial banking services to its
business and professional customers, as well as a limited array of customary
consumer banking services within the greater metropolitan Washington, D.C.
community. Services include various types of deposit accounts and instruments;
commercial, commercial real estate, SBA and consumer loans; cash management;
foreign currency exchange; and access to ATM networks.
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MERGER ACTIVITY
Since the 1995 merger with the George Washington Banking Corporation
("GWBC"), located in Alexandria, Virginia, Franklin has expanded its presence
in Northern Virginia with the opening of its Tysons Corner office. In June,
1996, Franklin achieved its goal of having locations in all three jurisdictions
in the metropolitan area with the opening of its Bethesda, Maryland branch.
The addition of the Northern Virginia and Maryland locations allow Franklin to
more effectively service its existing customers' needs as well as develop new
business relationships.
In August, 1996, Franklin received regulatory approval to merge its
two banking subsidiaries, Franklin-DC and Franklin-VA, into Franklin National
Bank. This consolidation allows our customers to have all of their banking
needs met at any Franklin location within the metropolitan Washington area.
FINANCIAL SUMMARY
Franklin recorded net income of $4.5 million for the year ended
December 31, 1996, compared to $3.4 million for the year ended December 31,
1995. This 34% increase represents Franklin's fifth consecutive year of record
earnings. Earnings per share increased 26% to $0.68 per share for 1996,
compared to $0.54 per share in 1995. Franklin's return on average assets and
return on average equity for 1996 were 1.12% and 16.03% respectively, compared
to 1.16% and 14.36% for 1995. The increase in earnings from 1995 to 1996 is
primarily the result of significant deposit growth, which allowed Franklin to
increase its investments in loans and securities. During 1996, Franklin
increased net interest income, reduced the provision for loan losses and grew
service charge and fee income. The improvement in earnings was partially
offset by increases in employee related expenses, other overhead costs and
income tax expenses.
Total assets at December 31, 1996 were $498 million, an increase of
$131 million, or 36%, from 1995 year end assets of $367 million. This increase
in total assets occurred almost equally between Franklin's loan and securities
portfolios. Loans, net of unearned income, increased $51 million, or 28%, to
$233 million at December 31, 1996 from $182 million one year ago. Securities
increased $55 million, or 50%, to $164 million at December 31, 1996 from $109
million one year ago.
This significant increase in total assets was possible due to the
outstanding growth in deposits and customer repurchase agreements which
increased $124 million, or 37%, to $462 million at December 31, 1996 from $338
million one year ago. Non-interest bearing demand deposits grew $33 million to
$123 million at December 31, 1996, a 36% increase over year end 1995. As of
December 31, 1996, non-interest bearing deposits represent 27% of total
deposits and customer repurchase agreements.
EARNING ASSETS
Over the last five fiscal years, Franklin has experienced significant
growth in average earning assets. During 1996, Franklin's average earning
assets grew $103 million, or 37%, to $378 million for the year ended December
31, 1996. This compares to average balances of $275 million and $226 million
and growth rates of 22% and 16%, respectively, for the years ended December 31,
1995 and 1994. The average Statements of Condition, along with interest income
and expense and related yields and rates, for each of the last three fiscal
years are set forth in Table 1.
12
<PAGE> 13
TABLE 1
CONSOLIDATED AVERAGE STATEMENTS OF CONDITION
INTEREST INCOME/EXPENSE AND YIELDS/RATES
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS BALANCES EXPENSE RATE BALANCES EXPENSE RATE BALANCES EXPENSE RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Commercial loans $120,031 $11,328 9.44% $ 92,620 $ 9,615 10.38% $ 68,721 $ 5,956 8.67%
Real estate loans 63,285 6,300 9.96% 45,580 4,840 10.62% 33,050 3,049 9.22%
Consumer loans 12,736 1,210 9.50% 12,163 853 7.01% 5,887 527 8.96%
Securities available-for-sale* 73,722 4,716 6.40% 41,599 2,657 6.39% 32,817 1,967 5.99%
Securities held-to-maturity 63,508 3,397 5.35% 66,208 3,525 5.32% 69,174 3,468 5.01%
Federal funds sold and securities
with resale agreements 44,339 2,389 5.39% 16,799 974 5.80% 16,087 685 4.26%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS 377,621 $29,340 7.77% 274,969 $22,464 8.17% 225,736 $15,652 6.93%
Cash and due from banks 19,232 12,924 10,618
Other assets* 10,893 8,065 5,991
Allowance for loan losses (3,847) (3,218) (2,393)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVERAGE ASSETS $403,899 $292,740 $239,952
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
DEPOSITS
NOW accounts $ 28,161 $ 614 2.18% $ 22,446 $ 524 2.33% $ 21,074 $ 507 2.41%
Money market accounts 108,674 3,966 3.65% 81,719 3,016 3.69% 87,842 2,686 3.06%
Savings accounts 3,658 98 2.69% 3,952 114 2.88% 4,480 119 2.67%
Certificates less than $100,000 15,605 785 5.03% 15,031 798 5.31% 9,517 361 3.80%
Certificates of $100,000 and over 60,961 3,133 5.14% 45,394 2,511 5.53% 22,992 898 3.90%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 217,059 8,596 3.96% 168,542 6,963 4.13% 145,905 4,571 3.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase
agreements 58,040 2,454 4.23% 31,682 1,218 3.85% 22,542 597 2.65%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 275,099 11,050 4.02% 200,224 8,181 4.09% 168,447 5,168 3.07%
Non-interest bearing deposits 97,045 66,941 52,005
Other liabilities 3,258 1,839 95
Stockholders' equity* 28,497 23,736 19,405
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVERAGE LIABILITIES AND
STOCKHOLDERS' EQUITY $403,899 $292,740 $239,952
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME/SPREAD $18,290 3.75% $14,283 4.08% $10,484 3.86%
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN ON EARNING ASSETS 4.84% 5.19% 4.64%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*excludes adjustments for unrealized gains (losses) on securities
available-for-sale
13
<PAGE> 14
While Franklin's loan growth in 1996 was significant at 28%, it could
not absorb all of the funding provided by Franklin's deposit growth. Franklin's
loan portfolio, which represented 55% of average earning assets in 1995,
declined to 52% of average earning assets in 1996. Excess funds were added to
the securities portfolio and Federal funds sold, Franklin's lower yielding
assets, to provide liquidity for future loan growth or deposit customer demand.
Accordingly, Franklin's net interest margin declined to 4.84% in 1996 from
5.19% in 1995.
LOANS
Management monitors the mix of earning assets on a continuous basis in
order to react to interest rate movements and to maximize return on earning
assets. Management's focus in 1996 was to achieve growth in Franklin's loan
portfolio and maintain or improve the credit quality of the portfolio while
meeting the credit needs of the local business community. Franklin's loan
origination volume increased significantly in 1996; it not only offset loan
repayment activity, but also increased average loan balances by $46 million, or
30%, compared to 1995 levels.
The commercial loan portfolio increased $29 million, or 26%, during
1996, while the commercial real estate loan portfolio, including construction
and development loans, experienced the largest rate of growth at 64%, or $23
million. The real estate loan portfolio is Franklin's highest yielding asset
at 9.96% for 1996. Table 2 details Franklin's loan portfolio distribution at
the end of each of the last five years.
TABLE 2
LOANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REAL ESTATE
Commercial $ 44,136 $26,818 $24,255 $ 8,166 $ 6,353
Construction and development 15,243 9,394 4,799 4,142 1,868
Residential mortgage 18,768 20,638 3,025 1,622 2,445
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 78,147 56,850 32,079 13,930 10,666
COMMERCIAL AND INDUSTRIAL 140,544 111,110 88,759 71,841 73,740
CONSUMER 14,326 14,083 5,074 6,131 6,957
- ------------------------------------------------------------------------------------------------------------------------------------
233,017 182,043 125,912 91,902 91,363
Unearned income (436) (393) (217) (101) (101)
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS, NET OF UNEARNED INCOME $232,581 $181,650 $125,695 $ 91,801 $ 91,262
====================================================================================================================================
</TABLE>
14
<PAGE> 15
In an effort to mitigate the impact of changes in interest rates,
management's strategic plan focuses on funding adjustable rate loans.
Adjustable rate loans increased $40 million, from $135 million at December 31,
1995 to $175 million at December 31, 1996 while fixed rate loans increased $11
million, from $47 million at December 31, 1995 to $58 million at December 31,
1996. Management's focus during 1996 on originating adjustable rate loans,
which comprised 74% of Franklin's total average loan portfolio in 1996, will
protect the Bank from being adversely impacted by fluctuating interest rate
environments.
1995 was also a year of significant loan growth for Franklin. Loans
outstanding at December 31, 1995 were $182 million, an increase of $56 million,
or 44%, over year end 1994 loan balances of $126 million. Discounting the
$18.7 million in loans acquired through the merger, loan growth was $37
million, or 30%.
Management's focus in 1995 was to achieve asset growth through the
loan portfolio while meeting the credit needs of Franklin's expanding
community. The internal controls, systems and procedures put in place to
insure support for growth are continuously monitored and strengthened where
necessary. It is on this foundation that management achieved its loan growth
in 1995 and 1996. Management intends to continue to enhance and strengthen
this foundation to provide the support for future expansion and growth.
SECURITIES
Franklin purchases securities from time to time to serve as a source
of liquidity, to assist in the management of interest rate sensitivity and to
augment net interest income. Securities, consisting of U.S. treasuries and
agencies and states and political subdivisions, were $164 million at December
31, 1996 compared to $109 million at year end 1995. Securities of states and
political subdivisions were added to the portfolio in the latter part of 1996
to alleviate some of the impact of income tax expenses on net earnings.
The security additions were made primarily in the securities
available-for-sale portfolio to insure adequate liquidity for future loan
growth. The average maturity of the total securities portfolio increased
slightly to 47 months at December 31, 1996 from 41 months at December 31, 1995.
Franklin maintains a securities available-for-sale portfolio,
comprising 59% of total securities as of December 31, 1996, which may be used
to meet liquidity or asset/liability management needs. These securities are
carried at fair value with unrealized gains or losses, net of tax, recorded as
a separate component of stockholders' equity. At December 31, 1996, securities
available-for-sale had an aggregate amortized cost of $97.6 million and a fair
value of $97.2 million. At December 31, 1995, securities available-for-sale
had an aggregate amortized cost of $44.6 million and a fair value of $44.9
million.
The balance of Franklin's securities have been designated securities
held-to-maturity and are recorded at amortized cost which at December 31, 1996
was $67 million with a fair value of $65.4 million. At December 31, 1995,
securities held-to-maturity had an aggregate amortized cost of $64.3 million
and a fair value of $63.4 million. All securities have fixed maturities,
exhibit no permanent impairments and management has the positive intent and
ability to continue to hold the securities designated held-to-maturity to their
maturity dates.
Table 4 details the maturities of the portfolios as of December 31,
1996.
15
<PAGE> 16
LIQUIDITY MANAGEMENT AND FUNDING
Liquidity is a company's ability to maintain sufficient cash flows to
fund operations and meet existing and future obligations, including loan
commitments, maturing liabilities and depositors' withdrawals. The asset
portion of the balance sheet provides liquidity through Federal funds sold,
resale agreements and maturities and repayments of loans and securities.
Liability liquidity is provided through Franklin's ability to attract and
maintain sufficient deposits and to access available funding markets. Franklin
maintains levels of liquidity that it considers adequate to meet its current
needs and has structured loan and security maturities to cover projected future
needs. Loan and security maturities as of December 31, 1996 are set forth in
Tables 3 and 4.
TABLE 3
LOAN MATURITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 WITHIN 1 YEAR 1 - 5 YEARS AFTER 5 YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate $ 25,736 $ 47,846 $ 4,565 $ 78,147
Commerical 73,553 61,841 5,150 140,544
Consumer 6,695 7,559 72 14,326
- -------------------------------------------------------------------------------------------------------------
TOTAL $105,984 $117,246 $9,787 $233,017
=============================================================================================================
</TABLE>
<TABLE>
<S> <C> <C> <C>
SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
LOANS DUE AFTER ONE YEAR
Fixed interest rate $ 36,993 $ 1,841 $ 38,834
Adjustable interest rate 80,253 7,946 88,199
- -------------------------------------------------------------------------------------------------------------
TOTAL $117,246 $ 9,787 $127,033
=============================================================================================================
</TABLE>
16
<PAGE> 17
TABLE 4
SECURITIES MATURITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 WITHIN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. treasury securities $ 1,000 4.98% $18,707 6.46% $ 5 8.24% $------ -----
U.S. government agencies 1,998 6.65% 51,767 6.51% 13,628 6.24% ------ -----
Step-up and structured notes ------ ----- 5,928 5.62% ------ ----- ------ -----
Mortgage-backed securities ------ ----- 1,181 5.54% ------ ----- 1,462 6.53%
- ------------------------------------------------------------------------------------------------------------------------
$ 2,998 6.09% $77,583 6.41% $13,633 6.24% $ 1,462 6.53%
HELD-TO-MATURITY
U.S. treasury securities $------ ----- $12,975 5.08% $----- ----- $------ -----
U.S. government agencies ------ ----- 2,991 5.62% 1,992 6.27% ------ -----
States and political
subdivisions(2) ------ ----- 5,793 6.52% 5,957 6.56% ------ -----
Mortgage-backed securities ------ ----- 21,541 5.26% ----- ----- 15,707 5.97%
- ------------------------------------------------------------------------------------------------------------------------
$------ ----- $43,300 5.40% $7,949 6.49% $15,707 5.97%
========================================================================================================================
</TABLE>
(1) Yields are based on amortized cost
(2) Yields are included on a taxable-equivalent basis using a 34% tax rate
Franklin's liquidity needs have been met primarily through growth of
stable deposit relationships. Franklin's deposit base grew 37% in 1996, with
total deposits and customer repurchase agreements at $462 million at December
31, 1996 compared to $338 million one year previously. Franklin experienced a
large surge in deposits during December 1996, with total customer deposits
increasing by approximately $69 million. That increase accounts for the
significant holdings of cash and cash equivalents at year-end of approximately
$94 million. Franklin has experienced this type of year-end growth in prior
years and management has deemed it prudent to assure sufficient liquidity for
withdrawals by investing these funds in short-term investments until the
stability of these funds is assured.
Average customer deposits and customer repurchase agreements have
grown steadily over the last three years; from $220 million during 1994, to
$267 million during 1995, to $372 million during 1996, exhibiting growth rates
of 21% and 39%, respectively. This continued rate of deposit growth has
provided the funding for Franklin's asset growth without requiring Franklin to
access its available borrowing capabilities. Franklin maintains borrowing lines
with the Federal Home Loan Bank of Atlanta and a number of larger regional
banking institutions.
Management attributes Franklin's dramatic increase in total funding
primarily to the local corporate community's desire to bank with a
locally-owned, independent bank. Franklin's ability to continue deposit growth
during 1996's competitive financial services environment, with so many other
investment alternatives available to depositors, speaks to the Bank's ability
to service customers' needs and retain core deposit relationships. With the
20% growth in deposits during 1996, totaling $61 million, loan growth almost
kept pace, growing by $51 million, resulting in Franklin's loan to deposit
ratio, a key measure of liquidity, remaining at a low level of 64%. In
management's view, this ratio indicates that Franklin is well
17
<PAGE> 18
positioned to fund future liquidity needs. At December 31, 1996, cash, cash
equivalents and securities available-for-sale represent 38% of total assets and
41% of total liabilities.
INTEREST RATE SENSITIVITY MANAGEMENT
The nature of the banking business, which involves paying interest on
deposits at varying rates and terms and charging interest on loans at other
rates and terms, creates interest rate risk. As a result, earnings are subject
to fluctuations which arise due to changes in the level and direction of
interest rates. Management's objective is to minimize this risk.
Measuring and managing interest rate risk is a dynamic process which
is performed regularly as a component of management's analysis of the impact to
earnings of changes in asset and liability portfolios. Management does not
attempt to anticipate changes in interest rates. Its principal objective is to
maintain interest margins in periods of both rising and falling rates.
Franklin's objective is to reduce the sensitivity of its earnings to interest
rate fluctuations by diversifying its sources of funds, controlling its mix of
adjustable and fixed rate assets, improving the ratio of earning assets to
interest bearing liabilities and planning the maturities of its assets and
liabilities. Board and management asset/liability committees monitor both the
liquidity and interest rate sensitivity of the Bank on a continuing basis.
As of December 31, 1996, Franklin's interest sensitive liabilities
exceeded interest sensitive assets within a one-year period by approximately 7%
of assets. This is a relatively low percentage indicating Franklin is almost
neutrally positioned with slightly more liabilities than assets subject to
repricing over the next twelve months. This gap represents a position at one
particular point in time and assumes that assets and liabilities with similar
re-pricing characteristics will reprice to the same degree. Such a static gap
position is not necessarily indicative of the impact on earnings of changes in
interest rates.
Such traditional interest sensitivity gap analyses alone do not
adequately measure an institution's exposure to changes in interest rates
because gap models are not sensitive to changes in the relationship between
interest rates charged or paid and do not incorporate balance sheet trends and
management actions. Each of these factors can affect an institution's
earnings. Accordingly, in addition to performing gap analysis, management also
evaluates the impact of different interest rates on net interest income using
an earnings simulation model. The model incorporates the factors not captured
by gap analysis by projecting income over a twelve-month horizon under a
variety of interest rate scenarios.
Under simulation modeling scenarios, Franklin's net interest income
would improve with rising interest rates primarily due to the magnitude of
Franklin's adjustable rate loan portfolio. Franklin's loan portfolio, 74% of
which consists of adjustable rate loans, provides significant protection during
periods of rising interest rates. Management uses the securities portfolio,
which consists of only 13% floating rate securities and is of longer duration,
to provide stability during periods of falling interest rates.
Franklin's deposit base is structured comparably to its asset base,
with significant deposits subject to fluctuations in interest rates. During
1996, management had the ability to reset the rates paid on 70% of its total
average interest bearing liabilities as required to react to changes in market
interest rates. Certificates of deposit, issued with fixed maturity dates,
represented 30% of total average interest bearing liabilities during 1996. At
December 31, 1996, only 5.38% of total time deposits had maturities of over
twelve months.
18
<PAGE> 19
While financial institutions may enter into agreements that provide
interest rate risk protection, Franklin's management believes effective
interest rate sensitivity management can best be achieved through careful
monitoring and redeployment of its underlying assets and liabilities. The Bank
has never engaged in interest rate futures or options transactions or interest
rate swap agreements and has no intent to do so in the future.
CAPITAL ADEQUACY
Management believes that a strong equity position is critical for any
financial institution to effectively compete in today's market. Stockholders'
equity provides a source of permanent funding, allows for future growth and
assists the Bank in withstanding unforeseen adverse developments. Over the
last three years, Franklin's increasing profitability has continued to
contribute to an improvement in its capital base. Franklin's stockholders'
equity stood at $31.9 million at December 31, 1996 as compared to $26.4 million
and $19.7 million as of December 31, 1995 and 1994, respectively. The
growth in stockholders' equity in 1996 is the result of 1996's strong earnings
of $4.5 million and the new shares issued through Franklin's stock option plans
and a limited offering of 125,000 non-registered, restricted shares of common
stock which, when combined, resulted in additional equity of approximately $1.3
million. The increase in equity was partially offset by the reduction in
unrealized gains on securities available-for-sale of $347 thousand.
The growth in stockholders' equity in 1995 was attributable to
earnings of $3.4 million, new shares issued on the merger with GWBC resulting
in additional equity of $2.1 million, and a change in unrealized gains and
losses on securities available-for-sale from a loss of $820 thousand at
December 31, 1994 to a gain of $143 thousand at December 31, 1995.
Franklin is well capitalized as evidenced by its capital ratios at
December 31, 1996. Franklin maintained leverage and risk-based capital ratios
of 7.62% and 13.00%, respectively, as compared to 8.04% and 13.81% as of
December 31, 1995. The decline in the leverage ratio is attributable to the
significant increase in average assets. The decline in the risk-based capital
ratio is due to the increase in loans outstanding as of December 31, 1996 which
carry a higher regulatory risk rating than other asset types, such as
securities or Federal funds sold. Capital remains well above the minimum
regulatory requirements of 4% and 8%, respectively, for leverage and risk-based
capital. This strong capital base allows Franklin to take advantage of
profitable business opportunities while insuring it has the resources to
protect against the risks inherent in the banking industry.
NET INTEREST INCOME
Net interest income is Franklin's primary source of earnings and
represents the margin or spread between interest and amortized fee income
generated from earning assets and the interest expense paid on deposits and
borrowed funds. Fluctuations in interest rates as well as volume and
composition changes in earning assets and interest bearing liabilities affect
net interest income.
Net interest income for 1996 was $18.3 million, an increase of $4
million, or 28%, over 1995's net interest income of $14.3 million. This growth
is primarily attributable to volume increases with total average earning assets
increasing $103 million during 1996 while total average interest-bearing
liabilities increased $75 million over the same period.
19
<PAGE> 20
Table 5 illustrates the effects of volume and interest rate changes on
net interest income. The increase of $6.9 million in total interest income
from $22.5 million in 1995 to $29.3 million in 1996 is entirely attributable to
volume increases. Volume increases in every earning asset type, with the
exception of securities held-to-maturity, accounted for $7.9 million in
increases to total interest income, offsetting the rate decrease impact of $991
thousand. The rate decrease is the result of the 25 basis point change in the
prime rate in February, 1996 which impacted the interest rate Franklin earned
on its adjustable rate loan portfolio and Federal funds sold.
The $2.9 million increase in total interest expense from $8.2 million
in 1995 to $11.1 million in 1996 was also totally related to volume increases
in every interest-bearing liability category with the exception of savings
accounts. Volume increases accounted for $3 million of the interest expense
increase, offsetting the $178 thousand decrease due to the slight decline in
interest rates paid on deposits.
Net interest income for 1995 at $14.3 million was an increase of $3.8
million, or 36%, over 1994's net interest income of $10.5 million. That
increase was primarily attributable to increased loan volume and secondarily to
the merger with GWBC, which added approximately $25 million in average earning
assets and $16 million in average interest bearing liabilities.
20
<PAGE> 21
TABLE 5
A SUMMARY OF THE CHANGE IN INTEREST EARNED AND INTEREST PAID
RESULTING FROM CHANGES IN VOLUME AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1996 COMPARED TO 1995 1995 COMPARED TO 1994
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (2) VOLUME (1) RATE(1) TOTAL VOLUME(1) RATE(1) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $2,648 $(935) $1,713 $2,332 $1,327 $3,659
Real estate loans 1,779 (319) 1,460 1,281 510 1,791
Consumer loans 42 315 357 461 (135) 326
Securities available-for-sale 2,055 4 2,059 554 136 690
Securities held-to-maturity (145) 17 (128) (152) 209 57
Federal funds sold and securities with
resale agreements 1,488 (73) 1,415 32 257 289
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $7,867 $(991) $6,876 $4,508 $2,304 $6,812
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
- ----------------------------------------------------------------------------------------------------------------------------
DEPOSITS
NOW accounts $ 126 $ (36) $ 90 $ 33 $ (16) $ 17
Money market accounts 984 (34) 950 (197) 527 330
Savings accounts (8) (8) (16) (14) 9 (5)
Certificates less than $100,000 30 (43) (13) 259 178 437
Certificates of $100,000 and over 811 (189) 622 1,130 483 1,613
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,943 (310) 1,633 1,211 1,181 2,392
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase agreements 1,104 132 1,236 293 328 621
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $3,047 $(178) $2,869 $1,504 $1,509 $3,013
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $4,820 $(813) $4,007 $3,004 $ 795 $3,799
============================================================================================================================
</TABLE>
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change in each.
(2) Non-accrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
21
<PAGE> 22
Expressed as a percentage of average earning assets, Franklin's net
interest margin for 1996 decreased to 4.84% from 5.19% in 1995. The decrease
in margin is due to the 1996 growth in customer deposits and repurchase
agreements outpacing the growth in loans. Excess funds were invested in lower
yielding assets, such as securities and Federal funds sold. Of the $103
million increase in average earning assets, $46 million, or 45%, was invested
in loans while $29 million was invested in securities and $28 million was
invested in Federal funds sold.
In 1995, Franklin's net interest margin increased to 5.19% from 4.64%
in 1994. That increase was the result of 88% of 1995's increase in average
earning assets occurring in the loan portfolio, Franklin's highest yielding
asset.
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND
ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the annual cost of providing an
allowance or reserve for anticipated future losses on loans. Due to sustained
credit quality and significant 1996 recoveries, Franklin's provision for loan
losses for 1996 decreased to $27 thousand compared to $181 thousand for 1995.
Through concentrated efforts, Franklin experienced net recoveries of $372
thousand in 1996 as compared to net recoveries of $279 thousand in 1995 and net
charge-offs of $71 thousand in 1994. Total recoveries for 1996 were $881
thousand, representing collections on loans charged-off in prior years. This
compares to recoveries of $649 thousand and $220 thousand in 1995 and 1994,
respectively.
Total loans charged-off in 1996 were $509 thousand as compared to $370
thousand and $291 thousand in 1995 and 1994, respectively. With net recoveries
at this level, additional provisions were not deemed necessary based on
management's review of the overall credit quality of the total loan portfolio.
Table 6 summarizes Franklin's loan loss experience for each of the last five
years.
22
<PAGE> 23
TABLE 6
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $3,443 $2,404 $2,110 $2,653 $1,480
Allowance of acquired bank ------ 579 ------ ------ ------
Charge-offs:
Real Estate (54) (145) ------ (50) (83)
Commercial (274) (198) (268) (1,428) (793)
Consumer (181) (27) (23) (284) (38)
- -----------------------------------------------------------------------------------------------------------------------------------
Total (509) (370) (291) (1,762) (914)
- -----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Real Estate 106 ------ ------ ------ 7
Commercial 765 625 194 103 46
Consumer 10 24 26 35 32
- -----------------------------------------------------------------------------------------------------------------------------------
Total 881 649 220 138 85
- -----------------------------------------------------------------------------------------------------------------------------------
Net recoveries (charge-offs) 372 279 (71) (1,624) (829)
Provision for loan losses 27 181 365 1,081 2,002
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $3,842 $3,443 $2,404 $2,110 $2,653
===================================================================================================================================
Net charge-offs to average loans (0.2)% (0.2)% 0.0% 1.8% 1.2%
Allowance for loan losses to period end loans 1.7% 1.9% 1.9% 2.3% 2.9%
===================================================================================================================================
</TABLE>
ALLOCATIONS OF THE ALLOWANCE FOR LOAN LOSSES TO MAJOR LOAN CATEGORIES AS OF
DECEMBER 31 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real Estate $ 860 $ 609 $ 335 $ 368 $ 415
Commercial 1,952 2,453 1,498 1,297 2,157
Consumer 162 102 116 130 81
Unallocated 868 279 455 315 -------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $3,842 $3,443 $2,404 $2,110 $2,653
===================================================================================================================================
</TABLE>
23
<PAGE> 24
Non-performing loans decreased to $908 thousand at December 31, 1996,
as compared to $1.6 million one year ago. Table 7 details non-performing loans
as of the end of each of the last five years. All non-performing loans at
December 31, 1996 are considered impaired. Additional information regarding
the accounting for impaired loans can be found in Note 5 of the consolidated
financial statements. Loans past due over 30 days, including non-performing
loans, were $2.8 million, which represents 1.23% of total loans at December 31,
1996, as compared to $3.1 million or 1.69% of total loans at December 31, 1995.
TABLE 7
NON-PERFORMING LOAN ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing loans $ 908 $1,594 $521 $1,129 $4,420
Accruing loans 90 days past due 128 44 ------ ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,036 $1,638 $521 $1,129 $4,420
- ----------------------------------------------------------------------------------------------------------------------------------
Income that would have been
recorded in accordance with
original terms $ 80 $ 75 $ 55 $ 153 $ 169
Income actually recorded 15 46 5 4 90
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS OF INCOME $ 65 $ 29 $ 50 $ 149 $ 79
==================================================================================================================================
</TABLE>
With the significant increase in total loans in 1996, overall credit
quality ratios continue to be strong. Non-performing loans are 0.39% of total
loans and Franklin holds no foreclosed property. This compares to
non-performing loans at December 31, 1995 of 0.88% of total loans. Efforts to
strengthen credit administration policies, procedures and controls have been
productive and permitted Franklin to grow the loan portfolio significantly
without impairing credit quality.
During 1995, the provision for loan losses decreased to $181 thousand
compared to $365 thousand for 1994. Net recoveries of $279 thousand were
realized in 1995 as compared to 1994's net charge-offs of $71 thousand.
Non-performing loans increased to $1.6 million on December 31, 1995 from $521
thousand on December 31, 1994. Of that increase, $740 thousand represented one
loan which was paid in full in February, 1996. Loans past due over 30 days,
including non-performing loans, were $3.1 million, or 1.69% of total loans at
December 31, 1995, as compared to $748 thousand, or 0.59% of total loans as of
December 31, 1994.
Table 6 presents an allocation of the allowance for loan losses to
significant loan categories as of the end of each of the last five years.
24
<PAGE> 25
The allowance for loan losses of $3.8 million at December 31, 1996
represents 1.7% of total loans, compared to $3.4 million, or 1.9% of total
loans at December 31, 1995. Franklin's loan loss allowance to non-performing
loans ratio increased significantly to 423% at December 31, 1996 from 216% at
December 31, 1995. As of December 31, 1996, the allowance for loan losses is
deemed to be more than adequate based on management's analysis and overall
methodology for measuring the adequacy of the allowance. Management believes
it has the processes in place to sustain this high level of credit quality as
Franklin continues to expand.
NON-INTEREST INCOME
During 1996, total non-interest income increased by $309 thousand, or
21%, to $1.8 million from $1.5 million in 1995. Excluding securities gains,
non-interest income increased $332 thousand from $1.4 million in 1995 to $1.7
million in 1996, an increase of 24%. Approximately $240 thousand, or 72%, of
that increase is due to the service charges and other fees generated from the
increased volume of both loan and deposit accounts. The remaining $92 thousand
is the result of instituting new fee based products such as foreign currency
exchange as well as bringing certain fee income producing services, such as
payroll processing, in-house.
Net securities gains were $31 thousand in 1996 compared to $54
thousand in 1995. The sales activity in 1996 and 1995 was transacted to take
advantage of changes in market interest rates and other general asset and
liability management considerations.
Non-interest income increased 39% in 1995, from $1.1 million in 1994
to $1.5 million in 1995. Excluding securities gains, non-interest income
increased $485 thousand, or 53%, from $922 thousand in 1994 to $1.4 million in
1995. This increase was due to service charges and other fees generated from
loan and deposit volume increases.
NON-INTEREST EXPENSE
While achieving significant asset growth of 36%, completing a
successful merger of its two subsidiary banks and expanding its suburban
network into Tysons Corner, Virginia and Bethesda, Maryland, Franklin was able
to contain total non-interest expense growth to 28%. Management's focus on the
containment of overhead expenses, while significantly increasing both net and
non-interest income, accounts for the stability of Franklin's productivity
ratio which has improved from 67% in 1994 to 63% in both 1995 and 1996.
Employee related costs, occupancy and other overhead expenses totalled
$12.7 million for 1996, as compared to $9.9 million for 1995. The largest
component of non-interest expense, compensation and employee benefits, grew by
$1.6 million, or 33%, from $4.9 million in 1995 to $6.5 million in 1996 as
Franklin provided for qualified, experienced personnel necessary to continue to
provide operational support to the Bank's growing customer base as well as
staff our new locations. This increase in compensation expense accounted for
57% of the 1996 increase in non-interest expense.
Franklin's occupancy and furniture and equipment expense increased by
$668 thousand, or 35%, from $1.9 million in 1995 to $2.6 million in 1996. This
increase is due to the branch expansion as well as the technology improvements
made to properly manage Franklin's transaction volume growth and provide new
products and services. The increase in all other non-interest expense for 1996
was $530 thousand, or 17%, from $3.1 million in 1995 to $3.6 million in 1996.
That increase is primarily due to the technology and data processing
improvements initiated in 1995 and expanded in 1996 as well as Franklin's
increased commitment as sponsor of the Franklin National Bank Classic.
25
<PAGE> 26
Non-interest expense increased 28% to $9.9 million in 1995 from $7.7
million in 1994. Compensation and employee benefits increased $1.1 million, or
28%, to $4.9 million in 1995 from $3.8 million in 1994. This increase was the
result of doubling Franklin's D.C. branch network and merging with GWBC during
1995. This increase in compensation expense accounted for 50% of 1995's
increase in non-interest expense. Franklin's occupancy and furniture and
equipment expense increased $601 thousand, or 46%, from $1.3 million in 1994 to
$1.9 million in 1995. That increase was also due to the branch expansion, the
merger and the conversion to a new data processing system. The increase in
other non-interest expense for 1995 was $513 thousand, or 20%, from $2.6
million in 1994 to $3.1 million in 1995. That increase was primarily due to
the addition of Franklin-Virginia on April 1, 1995, whose 1995 non-interest
expense was $440 thousand.
INCOME TAXES
Franklin's provision for income taxes includes both federal and local
income taxes. The increase in income tax expense to $2.9 million for 1996,
from $2.3 million in 1995 and $1.1 million in 1994 is attributable to the
significant increase in Franklin's net income and the annual limitations placed
on the utilization of Franklin's available tax loss carryforwards. Franklin's
effective tax rate for 1996 was 39% compared to 41% for 1995. A reconciliation
of the effective tax rate to the 1996 federal statutory rate of 34% can be
found in Note 10 of the consolidated financial statements.
1997 OUTLOOK
1997 will again be a year of expansion for Franklin. Franklin intends
to continue to pursue its goal of being the premier locally-owned financial
institution in the Washington, D.C. metropolitan area by continuing its
investment in our local community. Franklin achieved its goal of having a
presence in all three jurisdictions in the metropolitan area in 1996. In 1997,
Franklin intends to expand its presence in Maryland and Virginia by adding two
branches in Maryland and one in Virginia. This will double Franklin's suburban
branches and allow us to more effectively service our existing customers and
build new business relationships throughout the metropolitan Washington area.
Franklin intends to expand its presence within the District of
Columbia by effectively utilizing the new services initiated in 1996.
Franklin's International Private Banking division was developed to provide
Franklin's personalized service to a particular segment of the Washington
community. Franklin's Community Development Corporation is being developed to
provide economic development opportunities for low-to-moderate income
neighborhoods within the Washington metropolitan area.
While most financial products are relatively similar, the quality of
service provided is not. Management believes that Franklin can successfully
attain its goal of growth and expansion only if it continues to maintain and
improve upon its commitment to quality customer service. Franklin has
established a base of sound operational and administrative policies, procedures
and internal controls from which management believes Franklin can safely and
soundly grow. Management is expanding on its new data processing system to
give Franklin and its customers the tools they need to grow together. Franklin
can now offer new services to meet existing customer needs, as well as service
effectively and efficiently expanded customer relationships.
26
<PAGE> 27
Franklin's objectives are to effectively and efficiently serve its
target market, the business community of the metropolitan Washington area.
Management and the Directors will continue to strive to anticipate and exceed
the service needs and expectations of our customers.
27
<PAGE> 28
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRANKLIN BANCORPORATION, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 22,468 $ 21,811
Federal funds sold and securities purchased
under resale agreements 71,800 47,875
Securities available-for-sale 97,160 44,867
Securities held-to-maturity 66,956 64,273
---------- ---------
Securities 164,116 109,140
Loans, net of unearned income 232,581 181,650
Less: allowance for loan losses (3,842) (3,443)
---------- ---------
Loans, net 228,739 178,207
Accrued interest receivable 3,305 2,316
Premises and Equipment, net 2,504 2,334
Goodwill, net 1,115 2,072
Other assets 3,770 3,276
---------- ---------
TOTAL ASSETS $497,817 $367,031
========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
LIABILITIES:
- ------------
Non-interest bearing deposits $123,197 $ 90,454
Interest bearing deposits 240,230 211,981
---------- ---------
Total deposits 363,427 302,435
Securities sold under repurchase agreements 99,093 35,869
Accrued interest payable 997 903
Other liabilities 2,407 1,439
---------- ---------
Total liabilities 465,924 340,646
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
- ---------------------
Common Stock, $0.10 par value, 25,000,000
shares authorized; 6,485,944 and 6,283,057
shares issued and outstanding, respectively 649 628
Capital surplus 20,960 19,649
Retained earnings 10,488 5,965
Unrealized (loss) gain on securities
available-for-sale (204) 143
---------- ---------
Total stockholders' equity 31,893 26,385
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $497,817 $367,031
========== =========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE> 29
FRANKLIN BANCORPORATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $18,838 $15,308 $ 9,532
Interest and dividends on securities 8,113 6,182 5,435
Interest on federal funds sold and securities
purchased under resale agreements 2,389 974 685
------- ------- -------
Total interest income 29,340 22,464 15,652
------- ------- -------
INTEREST EXPENSE:
- -----------------
Interest on deposits 8,596 6,963 4,571
Interest on securities sold under
repurchase agreements 2,454 1,218 597
------- ------- -------
Total interest expense 11,050 8,181 5,168
------- ------- -------
Net interest income 18,290 14,283 10,484
Provision for loan losses 27 181 365
------- ------- -------
Net interest income after provision
for loan losses 18,263 14,102 10,119
------- ------- -------
NON-INTEREST INCOME:
- --------------------
Service charges on deposits 1,096 960 625
Other fee income 643 447 297
Gains on sales of securities, net 31 54 128
------- ------- -------
Total non-interest income 1,770 1,461 1,050
------- ------- -------
NON-INTEREST EXPENSE:
- ---------------------
Compensation and employee benefits 6,481 4,883 3,823
Occupancy 1,717 1,231 841
Furniture and equipment 845 663 452
Other 3,609 3,079 2,566
------- ------- -------
Total non-interest expense 12,652 9,856 7,682
------- ------- -------
Income before income tax expense 7,381 5,707 3,487
Income tax expense 2,858 2,324 1,056
------- ------- -------
NET INCOME $ 4,523 $ 3,383 $ 2,431
======= ======= =======
PRIMARY EARNINGS PER SHARE:
- ------------------------------
Net Income $ 0.68 $ 0.54 $ 0.43
FULLY DILUTED EARNINGS PER SHARE
- ------------------------------------
Net Income $ 0.68 $ 0.53 $ 0.43
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 30
FRANKLIN BANCORPORATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED UNREALIZED
SHARES STOCK SURPLUS EARNINGS GAIN(LOSS) TOTAL
------ ----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 5,614,877 $ 562 $17,421 $ 151 $ 609 $18,743
Net income --------- ----- ------ 2,431 ------- 2,431
Change in unrealized gain
on securities available-for-sale -------- ---- ------ ------ (1,429) (1,429)
--------- ----- ------- -------- --------- --------
BALANCE, DECEMBER 31, 1994 5,614,877 562 17,421 2,582 (820) 19,745
Common stock issued on the
merger with The George
Washington Banking Corporation 630,180 63 2,067 ------ ------ 2,130
Common stock issued under
stock option plan 38,000 3 161 ------ ------ 164
Net income -------- ---- ------ 3,383 ------ 3,383
Change in unrealized loss
on securities available-for-sale -------- ---- ------ ------- 963 963
--------- ----- ------- ------- -------- -------
BALANCE, DECEMBER 31, 1995 6,283,057 628 19,649 5,965 143 26,385
Proceeds from issuance of common stock 125,000 13 988 ------ ------- 1,001
Common stock issued under
stock option plan 77,887 8 323 ------ ------- 331
Net income -------- ---- ------ 4,523 ------- 4,523
Change in unrealized gain
on securities available-for-sale ------- ---- ------ ------ (347) (347)
--------- ----- ------- ------- -------- -------
BALANCE, DECEMBER 31, 1996 6,485,944 $ 649 $20,960 $10,488 $ (204) $31,893
========= ===== ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
FRANKLIN BANCORPORATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 4,523 $ 3,383 $ 2,431
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 27 181 365
Depreciation and amortization 802 779 561
Gains on sales of securities, net (31) (54) (128)
Change in deferred tax valuation allowance (233) ------ ------
Change in accrued interest receivable and
other assets (223) (2,449) (754)
Change in accrued interest payable and other
liabilities 1,062 1,095 308
--------- ---------- ---------
Net cash provided by operating activities 5,927 2,935 2,783
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchases of securities held-to-maturity (18,741) ------ (10,110)
Proceeds from maturities/principal paydowns
of securities held-to-maturity 16,120 3,663 5,978
Purchases of securities available-for-sale (82,763) (11,607) (24,848)
Proceeds from sales of securities available-for-sale 7,049 4,430 12,639
Proceeds from maturities/principal paydowns
of securities available-for-sale 22,968 8,196 3,103
Net increase in loans receivable (50,891) (36,983) (33,965)
Proceeds from sale of other real estate owned 332 62 ------
Cash provided by merger ------ 2,495 ------
Additions to premises and equipment, net (967) (1,088) (298)
--------- ---------- ---------
Net cash used in investing activities (106,893) (30,832) (47,501)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net increase in deposits 60,992 64,481 45,200
Net change in federal funds purchased and securities
sold under repurchase agreements 63,224 4,893 (13,202)
Proceeds from issuance of common stock 1,332 164 -----
--------- ---------- ---------
Net cash provided by financing activities 125,548 69,538 31,998
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 24,582 41,641 (12,720)
Cash and cash equivalents at beginning
of year 69,686 28,045 40,765
---------- ---------- ---------
Cash and cash equivalents at end of year $ 94,268 $ 69,686 $ 28,045
========== ========== =========
Supplemental Disclosures:
Interest paid $ 10,977 $ 7,670 $ 5,037
Income taxes paid 2,585 2,498 1,059
</TABLE>
See accompaning notes to consolidated financial statements
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE DATA)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY:
The consolidated financial statements include the accounts of Franklin
Bancorporation, Inc. ("Franklin") and its wholly-owned subsidiary, Franklin
National Bank of Washington, D.C. (the "Bank"). Significant intercompany
accounts and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS:
Franklin operates nine branches in the Washington metropolitan area.
Franklin's primary source of revenue is derived from loans to customers.
BASIS OF PRESENTATION:
The accounting and reporting policies of Franklin are in accordance
with generally accepted accounting principles and conform to prevailing
practice within the commercial banking industry. Certain reclassifications
have been made to prior year financial statements to conform with current year
presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
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 these estimates.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, certificates of deposit held for
investment with maturity dates of three months or less, federal funds sold and
securities purchased under resale agreements. Generally, federal funds are
sold for one to seven day periods and securities purchased under resale
agreements are purchased for one to fourteen days.
SECURITIES:
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, securities are classified into one of three categories:
trading, available-for-sale or held-to-maturity.
Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities classified as
held-to-maturity are purchased with the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost.
Debt securities not classified as held-to-maturity and marketable
equity securities are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of stockholders' equity.
32
<PAGE> 33
The amortized cost of debt securities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or call date, if applicable, or in the case of
mortgage-backed securities, over the estimated life of the security. Such
amortization or accretion is included in interest income on securities.
Gains and losses on disposition of securities are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the
specific identification method.
LOANS:
Loans are stated at the principal amount outstanding, net of unearned
income. Interest on loans is computed and recognized based upon the principal
amounts outstanding and their applicable rates. Loan fees, net of related
direct origination costs, are deferred and amortized as an adjustment of yield
over the life of the loan.
The accrual of interest income on loans is discontinued based on
delinquency status, an evaluation of the related collateral and the financial
strength of the borrower. Generally, loans are placed on non-accrual status
when the loans are in default in either principal or interest for 90 days or
more, or earlier if collection is uncertain based upon an evaluation of the net
realizable value of the collateral and the financial strength of the borrower.
When loans are placed on non-accrual status, interest accrued and unpaid is
charged against interest income. Loans may be reinstated to accrual status
when, in the opinion of management, collection of the remaining balance can
reasonably be expected.
ALLOWANCE FOR LOAN LOSSES:
In accordance with SFAS No. 114 and SFAS No. 118, a loan is considered
impaired, based on current information and events, if it is probable that
Franklin will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
The measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral dependent loans are measured for impairment
based on the fair value of the collateral. Interest income on impaired loans
is recognized on a cash basis.
Impaired loans do not include large groups of smaller balance
homogeneous loans that are evaluated collectively for impairment, such as
consumer installment loans. Reserves for probable future credit losses related
to these loans are included in the allowance for loan losses applicable to
other than impaired loans.
The allowance for loan losses is maintained at a level believed by
management to be adequate to absorb potential losses inherent in the loan
portfolio. Management's determination of the adequacy of the allowance is
based on a periodic evaluation of the portfolio with consideration given to the
overall loss experience; current economic conditions; volume, growth, and
composition of the loan portfolio; financial condition of the borrowers; and
other relevant factors that, in management's judgement, warrant recognition in
providing an adequate allowance.
The allowance is increased by provisions for loan losses charged to
expense. Loan principal considered to be uncollectible by management is
charged against the allowance for loan losses.
Changes in the allowance are recorded periodically as conditions
change or as more information becomes available. Increases and decreases in
the allowance include changes in the measurement of impaired loans.
33
<PAGE> 34
PREMISES AND EQUIPMENT:
Premises and equipment, including leasehold improvements, are stated
at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets or, for leasehold improvements, the shorter of the
estimated useful life or the term of the underlying lease. These estimated
lives range from two to fifteen years. Expenditures for repairs and
maintenance are charged to other operating expenses as incurred. Expenditures
for improvements that extend the life of an asset are capitalized and amortized
over the individual asset's remaining useful life or the lease term, if
shorter.
GOODWILL:
The excess of the purchase price paid over the fair value of the net
assets acquired is amortized over fifteen years using the straight-line method.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest that impairment may exist. If the review indicates that goodwill will
not be recoverable, as based on the estimated undiscounted future cash flows of
the entity acquired over the remaining amortization period, Franklin's carrying
value of goodwill would be reduced to the estimated discounted future cash
flows.
INCOME TAXES:
Franklin files a consolidated Federal income tax return with its
subsidiary. Current taxes payable represent the estimated amounts currently
payable to taxing authorities. Deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
Substantially all of the deferred tax asset relates to the expected
utilization of net operating loss carryforwards and the temporary difference
between financial and taxable income as it relates to the provision for loan
losses.
EARNINGS PER SHARE:
Primary earnings per share is computed by dividing net income
applicable to common shares by the weighted average number of common shares
outstanding during the period, including average common equivalent shares
attributable to dilutive stock options. Franklin's weighted average number of
shares outstanding, including dilutive stock options, were 6,611,340, 6,300,363
and 5,614,877 in 1996, 1995 and 1994, respectively.
Fully diluted earnings per share is computed using average common
shares, including the maximum dilutive effect of average common equivalent
shares.
SIGNIFICANT ACCOUNTING PRONOUCEMENTS:
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in June 1996 and
provides accounting and financial reporting standards for sales,
securitizations and servicing of receivables and other financial assets, for
secured borrowing and collateral transactions, and for extinguishments of
liabilities. SFAS No. 125 changes the criteria for determining whether a
transfer of financial assets represents a sale of the assets or a
collateralized borrowing arrangement. The Statement is effective for
transactions occuring after December 31, 1996, however, the effective date
relative to certain provisions, including securities lending and repurchase
agreement
34
<PAGE> 35
transactions, has been deferred to 1998. The adoption of SFAS No. 125 is not
expected to have a significant effect on the consolidated financial statements.
NOTE 2 - ACQUISITION ACTIVITY
On June 23, 1989, Franklin acquired 63.9% of the outstanding common
stock of the Bank by contributing approximately $3 million, excluding expenses,
in capital. During 1991, Franklin acquired an additional 20.7% of the
outstanding common stock of the Bank by contributing approximately $7 million
in capital. On July 6, 1992, the Bank's stockholders approved the Merger
Agreement Plan ("the Plan") which consisted of an offer to exchange one share
of Franklin common stock for each share of the Bank's common stock not owned by
Franklin. The Plan was approved by the stockholders and regulatory agencies,
and the merger was effective November 6, 1992. All acquisitions of common
stock have been accounted for under the purchase method of accounting. The
consolidated financial statements reflect the results of the Bank's operations
beginning at the initial acquisition in 1989. Goodwill of $663 thousand, $730
thousand and $380 thousand which resulted from the 1992, 1991 and 1989
transactions, respectively, is being amortized over 15 years.
On April 1, 1995, Franklin completed the acquisition of The George
Washington Banking Corporation ("GWBC"), the holding company of The George
Washington National Bank of Alexandria, Virginia. The merger was
accounted for as a purchase with the GWBC stockholders receiving a combination
of $237 thousand in cash and 630,180 shares of Franklin stock for a total
purchase price of $2.9 million, of which $519 thousand represents merger
related costs. The merger resulted in the acquisition of assets of $28.8
million, including goodwill of $941 thousand which will be amortized over a
period of fifteen years, and the assumption of $25.9 million of liabilities.
Upon consummation of the merger, The George Washington National Bank was
re-named Franklin National Bank of Virginia. Unaudited pro forma combined
results of operations of Franklin for the years ended December 31, 1995 and 1994
are presented below. Such pro forma presentation has been prepared assuming
the acquisition was made as of the beginning of each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $14,664 $12,072
Net income 3,292 1,960
Earnings per share:
Net income $ 0.52 $ 0.35
</TABLE>
The unaudited pro forma information is not necessarily indicative of
what actual results of operations of Franklin would have been assuming such
transactions had been completed as of the beginning of each year, nor does it
purport to represent the results of operations for future periods.
35
<PAGE> 36
On August 7, 1996, Franklin received regulatory approval to merge
Franklin National Bank of Virginia ("Franklin-VA") with and into the Bank. The
merger resulted in the immediate recognition of net operating loss
carryforwards of approximately $1 million which had been fully reserved against
at the time of the acquisition of GWBC.
NOTE 3 - CASH AND DUE FROM BANKS
Under Federal Reserve Bank ("FRB") regulations, banks are required to
maintain cash reserves based upon average deposits. Assets qualified to meet
these reserve requirements consist of vault cash and balances on deposit with
the FRB. The Bank's reserve requirements for the periods ending December 31,
1996 and 1995, respectively, were $8.4 million and $6.2 million.
NOTE 4 - SECURITIES
SECURITIES AVAILABLE-FOR-SALE:
The amortized cost and market value of securities available-for-sale
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities $19,712 $ 196 $ (1) $19,907
U.S. government agencies 67,393 241 (564) 67,070
Step-up and structured notes 5,928 51 (262) 5,717
Mortgage-backed securities 2,643 2 (57) 2,588
Equity securities 1,878 ---- ---- 1,878
- -------------------------------------------------------------------------------------------------
$97,554 $490 $(884) $97,160
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities $ 9,418 $ 38 $ (2) $ 9,454
U.S. government agencies 20,576 267 ----- 20,843
Step-up and structured notes 9,893 89 (225) 9,757
Mortgage-backed securities 3,100 76 (12) 3,164
Equity securities 1,649 --- ----- 1,649
- --------------------------------------------------------------------------------------------------
$44,636 $470 $(239) $44,867
- --------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
The remaining contractual maturity distribution of debt securities
available-for-sale at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
DUE: COST VALUE GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Within one year $ 2,997 $ 2,999 $ 2
After 1 year through 5 years 76,403 76,199 (204)
After 5 years through 10 years 13,633 13,496 (137)
Mortgage-backed securities 2,643 2,588 (55)
- ----------------------------------------------------------------------------------------------------
$95,676 $95,282 $(394)
- ----------------------------------------------------------------------------------------------------
</TABLE>
The mortgage-backed securities have contractual maturities ranging
from 2 to 26 years but repayments will vary from the contractual maturities.
Securities available-for-sale with a fair value of $67.2 million and
$504 thousand at December 31, 1996 and 1995, respectively, were pledged as
collateral for securities sold under repurchase agreements and other customer
deposits. All repurchase agreements have maturity dates of less than 90 days.
Proceeds from sales and calls of securities available-for-sale were
$21.1 million, $11.4 million and $12.5 million in 1996, 1995 and 1994,
respectively.
Gross gains and losses on sales of securities for the years ended
December 31 were realized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Gross gains $31 $ 54 $154
Gross losses --- --- 26
- ------------------------------------------------------------
NET GAINS $31 $ 54 $128
- ------------------------------------------------------------
</TABLE>
SECURITIES HELD-TO-MATURITY:
The amortized cost and market value of securities held-to-maturity are
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities $12,975 $--- $ (135) $12,840
U.S. government agencies 4,983 --- (62) 4,921
Mortgage-backed securities 37,248 63 (1,297) 36,014
States and political subdivisions 11,750 11 (89) 11,672
- --------------------------------------------------------------------------------------------
$66,956 $ 74 $(1,583) $65,447
- --------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities $21,408 $ 1 $(70) $21,339
U.S. government agencies 1,988 --- (4) 1,984
Mortgage-backed securities 40,877 73 (904) 40,046
- -----------------------------------------------------------------------------------------
$64,273 $ 74 $(978) $63,369
- -----------------------------------------------------------------------------------------
</TABLE>
The remaining contractual maturity distribution of securities
held-to-maturity on December 31, 1996 is as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
DUE: COST VALUE LOSS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Within one year $------ $------ $------
After 1 year through 5 years 21,760 21,591 (169)
After 5 years through 10
years 7,948 7,842 (106)
Mortgage-backed securities 37,248 36,014 (1,234)
- ---------------------------------------------------------------------------------------
$66,956 $65,447 $(1,509)
- ---------------------------------------------------------------------------------------
</TABLE>
The mortgage-backed securities have contractual maturities ranging
from 1 to 30 years, but repayments will vary from the contractual maturities.
Securities held-to-maturity with an amortized cost of $52.8 million
and $55 million at December 31, 1996 and 1995, respectively, were pledged as
collateral for securities sold under repurchase agreements and other customer
deposits. All repurchase agreements have maturity dates of less than 120 days.
For the years ended December 31, 1996 and 1995, there were no sales
of, or transfers from, securities held-to-maturity.
38
<PAGE> 39
NOTE 5 - LOANS
LOAN PORTFOLIO:
Major categories of loans included in the loan portfolio at December
31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE
Commercial $ 44,136 $ 26,818
Construction and development 15,243 9,394
Residential mortgage 18,768 20,638
- -----------------------------------------------------------------------------------------
TOTAL 78,147 56,850
COMMERCIAL AND INDUSTRIAL 140,544 111,110
CONSUMER
Consumer 9,800 11,279
Home equity 4,526 2,804
- -----------------------------------------------------------------------------------------
TOTAL 14,326 14,083
233,017 182,043
Unearned income (436) (393)
- -----------------------------------------------------------------------------------------
LOANS, NET OF UNEARNED INCOME $232,581 $181,650
- -----------------------------------------------------------------------------------------
</TABLE>
Primarily all of Franklin's loan portfolio at December 31, 1996 and
1995 consists of loans made within the Washington, D. C. area. This
includes real estate loans made for acquisition, renovation or development for
which a deed of trust on the subject property is the primary collateral.
ALLOWANCE FOR LOAN LOSSES:
While management uses available information to recognize losses on
loans, future additions to the allowance for existing loans may be necessary
based on changes in economic and borrower conditions. Management believes that
adequate allowances have been established to reflect possible losses on loans
as of December 31, 1996, 1995 and 1994.
Changes in the allowance for loan losses for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1 $3,443 $2,404 $2,110
- -------------------------------------------------------------------------------------
Provision for loan losses 27 181 365
Loans charged off (509) (370) (291)
Recoveries 881 649 220
Allowance applicable to loans
purchased through merger ----- 579 -----
- -------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $3,842 $3,443 $2,404
- -------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
Various regulatory agencies, as an integral part of the examination
process, periodically review the allowance based on their judgements about
information available to them at the time of their examination.
IMPAIRED LOANS:
At December 31, 1996, impaired loans totalled $908 thousand with a
corresponding valuation allowance of $186 thousand. Of that total, $445
thousand was measured using the present value of expected future cash flow
method and $463 thousand was measured using the fair value of the loan's
underlying collateral. All of the loans deemed to be impaired are commercial
loans.
At December 31, 1995, impaired loans totalled $1.6 million with a
corresponding valuation allowance of $361 thousand. Of that total, $200
thousand was measured using the present value of expected future cash flow
method and $1.4 million was measured using the the fair value of the loan's
underlying collateral. All of the loans deemed to be impaired were commercial
loans.
The average recorded investment in impaired loans, the interest income
due under their original terms and the interest income recorded for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Average recorded investment
in impaired loans $812 $1,120
Income due under original terms 80 75
Income recorded 15 46
- -----------------------------------------------------------------------
</TABLE>
The aggregate recorded investment in non-performing assets at December
31, 1994 was $521 thousand and the interest income which would have been
recorded had the loans performed in accordance with their original terms and
the interest actually recorded was $55 thousand and $5 thousand, respectively,
for the year ended December 31, 1994.
At December 31, 1996, Franklin had no other loans on non-accrual other
than those deemed to be impaired loans. There was one loan of $128 thousand
which was 90 days or more past due which was still accruing interest and was
not deemed to be impaired.
40
<PAGE> 41
RELATED PARTY LOANS:
The Bank, in the normal course of business, makes loans to executive
officers, directors and stockholders, as well as to companies and individuals
affiliated with those officers and directors. In the opinion of management,
these loans are consistent with sound banking practices, are within regulatory
lending limits, and do not involve more than normal risk of collectibility.
Activity in such loans is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 1 $ 9,319 $4,422
- -------------------------------------------------------------------------------
New loans 4,415 4,426
Repayments (8,307) (86)
Executive officers' and directors'
loans acquired through merger ------ 557
- -------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 5,427 $9,319
===============================================================================
</TABLE>
There were no loans to directors, officers or other related parties
that were classified as impaired as of December 31, 1996 and 1995.
NOTE 6 - PREMISES AND EQUIPMENT
Investments in premises and equipment at December 31 are:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $2,167 $ 1,924
Furniture and equipment 3,449 2,956
- ------------------------------------------------------------------------
5,616 4,880
Accumulated depreciation and
amortization (3,112) (2,546)
- ------------------------------------------------------------------------
TOTAL PREMISES AND EQUIPMENT $2,504 $ 2,334
========================================================================
</TABLE>
Depreciation and amortization expense was $797 thousand, $605 thousand
and $435 thousand for 1996, 1995 and 1994, respectively.
41
<PAGE> 42
NOTE 7 - DEPOSITS
Major classifications of deposits at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
NON-INTEREST BEARING DEPOSITS $123,197 $ 90,454
- ------------------------------------------------------------------------------------
INTEREST BEARING DEPOSITS
- ------------------------------------------------------------------------------------
Savings accounts 4,121 3,872
NOW accounts 38,822 38,468
Money market accounts 117,857 89,440
IRA certificates 1,965 2,257
Certificates less than $100,000 12,708 13,158
Certificates of $100,000 and over 64,757 64,786
- ------------------------------------------------------------------------------------
TOTAL INTEREST BEARING DEPOSITS 240,230 211,981
- ------------------------------------------------------------------------------------
TOTAL DEPOSITS $363,427 $302,435
====================================================================================
</TABLE>
Interest expense on certificates of deposit of $100,000 or more for
the years ended December 31, 1996, 1995 and 1994 was approximately $3.1
million, $2.6 million and $917 thousand, respectively. At December 31, 1996
and 1995 there were no brokered deposits included in total deposits.
At December 31, 1996, time deposits in amounts of $100,000 or more
have maturities as follows:
<TABLE>
<S> <C>
Three months or less $41,083
Over three months to six months 13,208
Over six months to twelve months 8,032
Over twelve months 2,434
---------
$64,757
=========
</TABLE>
42
<PAGE> 43
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings with maturities of less than one year are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE FOR THE YEAR:
Securities sold under repurchase agreements $58,040 4.23% $ 31,224 3.85%
- ---------------------------------------------------------------------------------------------------
AT YEAR-END:
Securities sold under repurchase agreements $99,093 4.19% $ 35,869 4.06%
- ---------------------------------------------------------------------------------------------------
MAXIMUM MONTH-END BALANCE:
Securities sold under repurchase agreements $99,093 $ 42,616
- ---------------------------------------------------------------------------------------------------
</TABLE>
Securities sold under repurchase agreements are entered into primarily
as accommodations to the Bank's large commercial deposit customers. Several of
these customer relationships in the aggregate exceed 10% of Franklin's
stockholders' equity. All of the collateral provided under these agreements is
maintained under Franklin's control.
Securities sold under repurchase agreements at December 31, 1996, by
due date, are as follows:
<TABLE>
<CAPTION>
LESS THAN 30 - 90 OVER
OVERNIGHT 30 DAYS DAYS 90 DAYS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES:
Securities sold:
Carrying value $13,923 $2,094 $3,255 $---- $19,272
Market value 13,956 2,105 3,253 ---- 19,314
U.S. GOVERNMENT AGENCIES:
Securities sold:
Carrying value 54,556 688 ------ 541 55,785
Market value 54,238 689 ------ 541 55,468
MORTGAGE-BACKED SECURITIES:
Securities sold:
Carrying value 26,898 692 ----- ---- 27,590
Market value 25,895 656 ----- ---- 26,551
REPURCHASE AGREEMENTS 92,244 3,318 3,000 531 99,093
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 44
NOTE 9 - STOCKHOLDERS' EQUITY
LIMITED OFFERING:
During 1996, Franklin issued a limited offering pursuant to Regulation
D, Rule 505 under a stock subscription agreement. The minimum acceptable
investment from accredited investors under the offering was $1 million.
As a result of the offering, Franklin issued 125,000 non-registered,
restricted shares resulting in an increase in capital of approximately $1
million.
STOCK OPTION PLANS AND AGREEMENTS:
Under various stock option plans and agreements, Franklin has
authorized the issuance of stock options to purchase 1,110,537 shares of
Franklin's common stock. Options are granted at exercise prices equal to fair
market value on the option grant date and generally expire ten years from the
date of grant.
Franklin applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for
Franklin's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of SFAS No. 123, Franklin's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $4,523 $3,383
Pro forma 4,075 3,000
Primary earnings per share As reported $ 0.68 $ 0.54
Pro forma 0.62 0.48
Fully diluted earnings per share As reported $ 0.68 $ 0.53
Pro forma 0.62 0.47
- ---------------------------------------------------------------------------------------------
</TABLE>
FIXED STOCK OPTION PLANS:
At December 31, 1996, Franklin has two stock-based compensation plans.
Under the 1991 Employee Stock Option Plan, Franklin may grant options to its
employees for up to 800,000 shares of common stock. Under the 1996 Directors
Stock Option Plan, Franklin may grant options to its Directors based on the
achievement of annually stipulated goals for referrals of deposits and loans
for up to 100,000 options. Under both plans, the exercise price of each option
equals the market price of Franklin's stock on the date of grant, each option
vests on date of grant and an option's maximum term is 10 years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
zero dividend yield for all years; expected volatility of 27% and 28%;
risk-free interest rates of 6.3% and 5.9%; and expected lives of 7 years for
all years.
44
<PAGE> 45
The following summarizes activity relating to Franklin's fixed stock option
plans as of December 31:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
(Options in Thousands) OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 642 $4.12 475 $ 3.52 376 $3.43
Granted 126 7.91 140 6.25 100 3.90
Conversion of GWBC options ---- ---- 66 4.18 --- ----
Exercised (78) 4.26 (38) 4.33 --- ----
Forfeited (12) 4.96 (1) 11.00 (1) 8.75
----- ----- -----
Outstanding, December 31 678 4.80 642 4.12 475 $3.52
===== ===== =====
Options exercisable at
year-end 678 4.80 642 4.12 475 3.52
Weighted-average fair value
of options granted during
the year 3.56 2.73
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$3 to $5 437,200 5.4 years $3.48
5 to 7 69,600 8.5 5.73
7 to 9 171,550 9.4 7.87
-------
$3 to $9 678,350 6.6 $4.80
=======
</TABLE>
Stock appreciation rights may be granted with the employee options whereby the
employee is entitled, upon exercise of the option and approval of the Board of
Directors, to receive, in cash or other consideration, an amount equal to the
difference between the exercise price of the option and the market value of the
shares covered. During 1996, 1995 and 1994, no stock appreciation rights were
outstanding, approved or exercised.
45
<PAGE> 46
NOTE 10 - INCOME TAXES
The provision for income taxes for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT TAXES
- -----------------------------------------------------------------------------------------
Federal $2,335 $1,808 $1,209
Local 636 429 83
- -----------------------------------------------------------------------------------------
TOTAL CURRENT TAXES 2,971 2,237 1,292
- -----------------------------------------------------------------------------------------
DEFERRED TAXES
- -----------------------------------------------------------------------------------------
Federal 123 83 (194)
Local (3) 4 (42)
- -----------------------------------------------------------------------------------------
TOTAL DEFERRED TAXES 120 87 (236)
- -----------------------------------------------------------------------------------------
Change in valuation allowance (233) ----- -----
- -----------------------------------------------------------------------------------------
TOTAL PROVISION $2,858 $2,324 $1,056
- -----------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the federal statutory rate to the
consolidated effective tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATUTORY U.S. TAX RATE 34% 34% 34%
- -----------------------------------------------------------------------------------------
INCREASE(DECREASE) RESULTING FROM:
- -----------------------------------------------------------------------------------------
Non-deductible items --- --- 1
Tax exempt income --- --- (3)
Local tax 6 5 1
Realization of federal net operating
loss carryfoward --- --- (4)
Change in valuation allowance (3) --- ---
Other 2 2 1
- -----------------------------------------------------------------------------------------
EFFECTIVE TAX RATE 39% 41% 30%
=========================================================================================
</TABLE>
46
<PAGE> 47
Deferred tax assets (liabilities) are composed of the following at December 31:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryfowards $1,503 $1,738
Book bad debt reserves 1,559 1,358
Unearned income 177 155
Net unrealized loss on securities 160 -----
Other 224 182
- ------------------------------------------------------------------------------
$3,623 3,433
Less: valuation allowance ----- 1,030
- ------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 3,623 2,403
DEFERRED TAX LIABILITIES:
- ------------------------------------------------------------------------------
Tax bad debt reserves 731 581
Net unrealized gain on securities
available-for-sale ----- 92
- ------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 731 673
- ------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $2,892 $1,730
==============================================================================
</TABLE>
As discussed in Note 2, the valuation allowance established against
the net operating loss carryforwards acquired through the purchase of GWBC was
eliminated at the time of the merger of Franklin-VA with the Bank. The benefit
derived from the elimination of the valuation allowance was applied first to
the remaining goodwill related to the GWBC acquisition in the amount of $797
thousand and then to reduce income tax expense of approximately $233 thousand.
Franklin has approximately $5.9 million net operating loss
carryforwards at December 31, 1996 for federal income tax purposes. However,
these net operating losses are limited to $4.2 million of amounts available as
a result of ownership changes in the stock of the Bank. The amounts and
expiration dates of future carryforwards for future years are as follows:
<TABLE>
<CAPTION>
AVAILABLE
EXPIRATION DATE NET OPERATING LOSS
- ---------------------------------------------
<S> <C>
2005 $ 664
2006 2,157
2007 626
2008 523
2009 122
2010 123
- ---------------------------------------------
CUMULATIVE $4,215
=============================================
</TABLE>
47
<PAGE> 48
NOTE 11- BENEFIT PLANS
Franklin has a qualified 401(k) plan which allows substantially all
employees to participate in this contributory savings plan after satisfaction
of service requirements. The plan provides for an employee salary reduction
feature pursuant to section 401(k) of the Internal Revenue Code. Employee
contributions are voluntary, and the employee can elect to defer up to 15% of
their compensation, subject to certain limitations. The Bank provides a 100%
matching contribution upon the first 4% of the employee's salary. For the
years ended December 31, 1996, 1995 and 1994, Franklin contributed
approximately $127 thousand, $110 thousand and $104 thousand, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various commitments, legal
proceedings, and contingencies. In the opinion of management, based on its
review with counsel of these matters to date, disposition of all matters will
not materially effect the consolidated financial position or results of
operations of Franklin.
The Bank leases facilities under operating leases with unaffiliated
third parties which have expiration dates ranging from 1997 through 2009.
Several of the leases have one or more renewal options. The leases require
payment by the Bank of its proportionate share of real estate taxes and
insurance on the leased properties. One lease agreement requires Franklin to
pledge a certificate of deposit for $200,000 to the lessor as a security
deposit. Rental expense aggregated $1.4 million, $1 million and $719 thousand
in 1996, 1995 and 1994, respectively.
Total future minimum annual rental payments under these agreements as
of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 1,331
1998 1,106
1999 1,145
2000 1,190
2001 1,233
Thereafter 4,243
- -------------------------------------
$10,248
=====================================
</TABLE>
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Franklin is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financial needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statement of financial condition. The contract or notional amounts of
those instruments reflect the extent of involvement Franklin has in particular
classes of financial instruments.
48
<PAGE> 49
Franklin's exposure to credit loss in the event of non-performance by
the other parties to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of those instruments. Franklin uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to lend are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose
contract amounts represent credit risk:
Commitments to extend credit $84,776 $67,294
Standby letters of credit 10,576 10,377
</TABLE>
Collateral in the form of restricted cash accounts totalling $5.9
million and $4.1 million, as of December 31, 1996 and 1995, respectively, are
maintained by Franklin with respect to these letters of credit. Primarily all
of Franklin's outstanding commitments to lend have been issued at variable
interest rates.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Different assumptions could significantly
affect these estimates of fair value. Accordingly, the net realizable value
could be materially different from the estimates presented and should not be
considered an indication of the fair value of Franklin taken as a whole.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:
CASH AND DUE FROM BANKS: The carrying amount approximates fair value.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER RESALE AGREEMENTS: The
carrying amount approximates fair value.
SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY: For U.S. treasury
securities, agencies, municipal and mortgage-backed securities, fair values are
based on quoted market prices or dealer quotes. If a quoted market price is
not readily available, as is the case for the equity securities such as Federal
Reserve Bank stock, management believes that the carrying amount approximates
fair value.
49
<PAGE> 50
LOANS: Fair values are estimated for categories of loans with similar
financial characteristics. The fair value of loans is estimated by discounting
expected future cash flows using the current rates at which similar loans would
be made to borrowers with comparable credit ratings and for similar remaining
maturities.
ACCRUED INTEREST RECEIVABLE AND INTEREST PAYABLE: The carrying amount
approximates fair value.
DEPOSITS: The fair value of demand deposits is the amount payable on demand
exclusive of any value derived from retaining those deposits for an expected
future period of time. This component of fair value is commonly referred to as
a core deposit intangible and is neither considered in the fair value amounts
nor is it recorded as an intangible asset in the statement of financial
condition.
NON-INTEREST BEARING DEPOSITS: The fair value of these deposits is the
amount payable on demand at the reporting date.
INTEREST BEARING DEPOSITS: The fair value of NOW, savings and money
market accounts is the amount payable on demand at the reporting date.
The fair value of certificates of deposit is estimated by discounting
the future cash flows using the current rates at which similar
deposits would be accepted.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS: For these short-term instruments,
the carrying amount approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS: The fair value of commitments to extend credit
and letters of credit, both standby and commercial, is assumed to equal the
carrying value, which is immaterial. Extensions of credit under these
commitments, if exercised, would result in loans priced at market terms.
The estimated fair values of Franklin's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS: VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 22,468 $ 22,468 $ 21,811 $ 21,811
Federal funds sold and securities purchased
under resale agreements 71,800 71,800 47,875 47,875
Securities available-for-sale 97,160 97,160 44,867 44,867
Securities held-to-maturity 66,956 65,447 64,273 63,369
Loans, net of allowance 228,739 228,953 178,207 180,234
Accrued interest receivable 3,305 3,305 2,316 2,316
FINANCIAL LIABILITIES:
- -----------------------------------------------------------------------------------------------------------------
Non-interest bearing deposits 123,197 123,197 90,454 90,454
Interest bearing deposits 240,230 240,615 211,981 212,212
Securities sold under repurchase
agreements 99,093 99,093 35,869 35,869
Accrued interest payable 997 997 903 903
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 51
NOTE 15 - REGULATORY REQUIREMENTS
Franklin and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on Franklin's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Franklin and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Franklin's and the Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Franklin and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that Franklin and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
51
<PAGE> 52
Franklin's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,1996
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
greater than greater than
or equal to or equal to
Franklin $34,286 13.0% $21,104 8.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 31,634 12.0% 21,104 8.0% $26,381 10.0%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
greater than greater than
or equal to or equal to
Franklin $30,982 11.7% $10,552 4.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 28,329 10.7% 10,552 4.0% $15,828 6.0%
TIER I CAPITAL (TO AVERAGE ASSETS)
greater than greater than
or equal to or equal to
Franklin $30,982 7.6% $16,270 4.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 28,329 7.0% 16,270 4.0% $20,337 5.0%
- -----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
greater than greater than
or equal to or equal to
Franklin $26,589 13.8% $15,398 8.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 22,678 13.2% 13,767 8.0% $17,209 10.0%
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-VA 2,405 11.7% 1,647 8.0% 2,059 10.0%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
greater than greater than
or equal to or equal to
Franklin $24,170 12.6% $ 7,699 4.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 20,518 11.9% 6,884 4.0% $10,326 6.0%
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-VA 2,144 10.4% 824 4.0% 1,235 6.0%
TIER I CAPITAL (TO AVERAGE ASSETS)
greater than greater than
or equal to or equal to
Franklin $24,170 8.0% $12,029 4.0% N/A N/A
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-DC 20,518 7.5% 10,945 4.0% $13,681 5.0%
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
Franklin-VA 2,144 7.8% 1,095 4.0% 1,369 5.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Franklin may not declare or pay any cash dividends except as directed
by policies of the Federal Reserve System. Certain restrictions exist
regarding the ability of the Bank to transfer funds to Franklin in the form of
dividends, advances and loans. No such dividends, advances or loans have been
made to Franklin.
52
<PAGE> 53
NOTE 16 - FRANKLIN BANCORPORATION, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
Presented below are the parent company only condensed financial statements.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------
Cash and cash equivalents $ 2,703 $ 1,517
Investment in subsidiary 28,126 23,636
Goodwill, net 1,115 1,241
Other assets ------ 1
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $31,944 $26,395
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
LIABILITIES $ 51 $ 10
- ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
Common stock 649 628
Capital surplus 20,960 19,649
Retained earnings 10,488 5,965
Unrealized (loss) gain in subsidiary's
securities available-for-sale (204) 143
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 31,893 26,385
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,944 $26,395
==========================================================================================
</TABLE>
53
<PAGE> 54
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME $----- $----- $ 4
- -----------------------------------------------------------------------------------------------
Amortization of goodwill 126 126 126
Other expenses 251 149 81
- -----------------------------------------------------------------------------------------------
TOTAL EXPENSE 377 275 207
- -----------------------------------------------------------------------------------------------
Loss before income tax benefit and
equity in undistributed net income
of subsidiary (377) (275) (203)
Income tax benefit 64 42 -----
Equity in undistributed net income
of subsidiary 4,836 3,616 2,634
- -----------------------------------------------------------------------------------------------
NET INCOME $4,523 $3,383 $2,431
===============================================================================================
</TABLE>
54
<PAGE> 55
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Net income $ 4,523 $ 3,383 $ 2,431
Adjustments to reconcile net income
to net cash used in operating
activities:
Amortization 126 126 126
Equity in income of subsidiary (4,836) (3,616) (2,634)
Change in other assets 1 65 (65)
Change in liabilities 40 4 ------
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING
ACTIVITIES (146) (38) (142)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Acquisition of The George Washington
Banking Corporation ------ (756) ------
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ------ (756) ------
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock 1,332 164 ------
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,332 164 ------
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,186 (630) (142)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 1,517 2,147 2,289
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $ 2,703 $ 1,517 $2,147
- --------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 56
NOTE -17 QUARTERLY FINANCIAL DATA (UNAUDITED)
Consolidated quarterly financial results for Franklin are as follows:
<TABLE>
<CAPTION>
1996 - THREE MONTHS ENDED,
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $8,167 $7,957 $6,736 $6,480
Interest expense 3,144 2,939 2,520 2,447
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,023 5,018 4,216 4,033
- ---------------------------------------------------------------------------------------------------------
Provision for loan losses ----- ----- ----- 27
Gains on sales of securities ----- ----- 31 -----
Other operating income 554 437 394 354
Other operating expense 3,373 3,607 2,898 2,774
- ---------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 2,204 1,848 1,743 1,586
Income tax expense 918 627 691 622
- ---------------------------------------------------------------------------------------------------------
NET INCOME $1,286 $1,221 $1,052 $ 964
- ---------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.19 $ 0.18 $ 0.16 $ 0.15
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 - THREE MONTHS ENDED,
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $6,127 $5,834 $5,611 $4,892
Interest expense 2,314 2,079 2,048 1,740
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,813 3,755 3,563 3,152
- ---------------------------------------------------------------------------------------------------------
Provision for loan losses ----- 46 55 80
Gains on sales of securities ----- 46 8 -----
Other operating income 362 419 351 275
Other operating expense 2,761 2,598 2,462 2,035
- ---------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 1,414 1,576 1,405 1,312
Income tax expense 567 614 558 585
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 847 $ 962 $ 847 $ 727
- ---------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.13 $ 0.15 $ 0.13 $ 0.13
=========================================================================================================
</TABLE>
56
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Franklin Bancorporation
We have audited the accompanying consolidated statements of financial
condition of Franklin Bancorporation and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. 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 required 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Franklin Bancorporation and subsidiary as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D. C.
February 7, 1997
57
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders of Franklin Bancorporation, Inc.
In our opinion, the consolidated statements of operatons, of changes
in stockholders' equity and of cash flows for the year ended December 31, 1994
(appearing on pages 28 through 55 of the Franklin Bancorporation, Inc. Annual
Report on Form 10-K for the year ended December 31, 1996) present fairly,in all
material respects, the results of operations and cash flows of Franklin
Bancorporation, Inc. ("the Company") and its subsidiary for the year ended
December 31, 1994,in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the financial statements of the
Company and its subsidiary for any period subsequent to December 31, 1994.
Price Waterhouse L.L.P.
Washington, D.C.
February 3, 1995
58
<PAGE> 59
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
The information required by Items 10-13 of this report relating to
directors, executive compensation, ownership of Franklin's securities, and
certain relationships and transactions is incorporated herein by reference to
the sections headed "Election of Directors" and "Executive Compensation"
contained in Franklin's definitive Proxy Statement.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules: None
3. Exhibits:
2.1 Prospectus and Proxy Statement on Agreement and Plan
of Merger dated July 13, 1994 re: Merger between
Franklin Bancorporation, Inc. and The George
Washington Banking Corporation (5)
3.1 Certificate of Incorporation (as amended) and Bylaws
of Franklin. (1)
10.1 Lease dated September 22, 1982 between Sidley &
Austin and Franklin-DC re: 1722 I (Eye) Street, N.W.
(2)
10.2 Letter agreement dated April 22, 1983 between Sidley
& Austin and Franklin - DC amending lease re: 1722 I
(Eye) Street, N.W. (2)
10.3 First Amendment to Lease dated December 27, 1984
between Sidley & Austin and Franklin - DC re: 1722 I
(Eye) Street, N.W. (2)
10.4 Second Amendment to Lease dated September 15, 1992
between Sidley & Austin and Franklin - DC re: 1722 I
(Eye) Street, N.W. (2)
10.5 Lease dated March 20, 1989 between Second National
Federal Savings Bank and Rhode Island & M Associates
re: 1730 Rhode Island Avenue, N.W. (2)
<PAGE> 60
10.6 Agreement dated June 12, 1992 between Second National
Federal Savings Bank and Rhode Island & M Associates
re: 1730 Rhode Island Avenue, N.W. (2)
10.7 Lease Assignment and Assumption Agreement dated June
12, 1992 among Second National Federal Savings Bank,
Franklin-DC, and Rhode Island & M Associates re:
1730 Rhode Island Avenue, N.W. (2)
10.8 Note dated June 12, 1992 from Franklin - DC to Second
National Federal Savings Bank re: 1730 Rhode Island
Avenue, N.W. (2)
10.9 Bill of Sale dated June 12, 1992 from Second National
Federal Savings Bank to Franklin - DC re: 1730 Rhode
Island Avenue, N.W. (2)
10.10 Supplement to Lease dated June 13, 1992 between
Franklin - DC and Rhode Island & M Associates re:
1730 Rhode Island Avenue, N.W. (2)
10.11 Lease Agreement dated as of November 30, 1992 between
GLN Associates and Franklin - DC re: 1300 Wisconsin
Avenue, N.W., with Unconditional Guarantee by
Franklin. (2)
10.12 Stock Purchase Agreement dated as of November 30,
1988, among Franklin, Franklin - DC and Joel N.
Fernebok. (2)
10.13 Amended and Restated Stock Option Plan of Franklin.
(3)
10.14 Lease Agreement dated November 2, 1994 between
Northend Associated Limited Partnership and Franklin
- DC re: 1316 and U Street, N.W. (4)
10.15 Computer Service Agreement dated February 22, 1995
between M&I Data Services, Inc. and Franklin - DC re:
Data Processing. (4)
10.16 Release, Assumption, Assignment and Amendment
Agreement dated March 6, 1995 between NationsBank,
N.A., Franklin - DC and 601 Thirteenth Street, N. W.
Associates Limited Partnership re: 601 13th Street,
N.W. (7)
10.17 Lease Agreement dated August 30, 1995 between 5301
Wisconsin Avenue Associates Limited Partnership and
Franklin - DC re: 5301 Wisconsin Avenue, N. W. (7)
10.18 Lease Agreement dated November 17, 1995 between
Tysons II Development Co. Limited Partnership and
Franklin - VA re: 1650 Tysons Boulevard. (7)
10.19 Nondiscretionary Stock Option Plan.
10.20 Stock Subscription Agreement dated December 27, 1996
by and among Franklin Bancorporation, Rock Creek
Corporation and Elias F. Aburdene.
60
<PAGE> 61
10.21 Lease Agreement dated May 28, 1996 between Bay
Limited Partnership and Franklin-VA. Re: 7200
Wisconsin Avenue.
10.22 Agreement of Sublease dated March 29, 1996 between
Thomas Cook Currency Services, Inc. and Franklin-DC
Re: 1800 K Street, N.W., Suite 929.
10.23 Letter Agreement dated September 15, 1995 between
Franklin and William J. Ridenour Re: GWBC Options.(6)
10.24 Letter agreement dated September 27, 1995 between
Franklin and Leslie T. Proctor Re: GWBC Options.(6)
11.1 Computation of primary and fully diluted Earnings
Per Share.
21.1 Subsidiaries of the Registrant
Franklin National Bank of Washington, D.C.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse L.L.P.
(b) Reports on Form 8-K: None
- --------------------------------
(1) Filed as an Exhibit of the same number to Franklin's proxy statement
prospectus/offer to exchange on Form S-4, registration No. 33-46835
and incorporated herein by reference.
(2) Incorporated by reference from Franklin's Annual Report in Form 10-K
for the fiscal year ended December 31, 1992.
(3) Incorporated by reference from Franklin's Proxy Statement with regard
to its 1993 meeting of stockholders filed on November 23, 1993.
(4) Incorporated by reference from Franklin's Annual Report in Form 10-K
for the fiscal year ended December 31, 1994.
(5) Incorporated by reference from Form S-4 Registration Statement No.
33-83220 filed on August 24, 1994.
(6) Incorporated by reference from Form S-8 Registration Statement filed
on May 14, 1996.
(7) Incorporated by reference from Franklin's Annual Report in Form 10-K
for the fiscal year ended December 31, 1995.
<PAGE> 62
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, on March 28, 1997.
FRANKLIN BANCORPORATION, INC.
By: Robert P. Pincus
---------------------------
Robert P. Pincus
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Robert P. Pincus President, Chief March 28, 1997
- ------------------------ Executive Officer,
Robert P. Pincus and Director
(Principal Executive Officer)
Joseph R. Schuble, Sr. Chairman of the Board March 28, 1997
- ------------------------ and Director
Joseph R. Schuble, Sr.
Diane M. Begg Senior Vice President and March 28, 1997
- ------------------------ Chief Financial Officer
Diane M. Begg (Principal Financial and
Accounting Officer)
George Chopivsky, Jr. Director March 28, 1997
- ------------------------
George Chopivsky, Jr.
Joseph B. Gildenhorn Director March 28, 1997
- ------------------------
Joseph B. Gildenhorn
Stephen S. Haas Director March 28, 1997
- ------------------------
Stephen S. Haas
Susan B. Hepner Director March 28, 1997
- ------------------------
Susan B. Hepner
H. Peter Larson, III Director March 28, 1997
- ------------------------
H. Peter Larson, III
Gant Redmon Director March 28, 1997
- ------------------------
Gant Redmon
James C. Stearns Director March 28, 1997
- ------------------------
James C. Stearns
</TABLE>
62
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER PAGE NUMBER
- -------------- -----------
<S> <C> <C>
10.19 Nondiscretionary Stock Option Plan
10.20 Stock Subscription Agreement dated December 27,
1996 by and among Franklin Bancorporation, Rock
Creek Corporation and Elias F. Aburdene
10.21 Lease Agreement dated May 28, 1996 between Bay
Limited Partnership and Franklin-VA Re: 7200
Wisconsin Avenue.
10.22 Agreement of Sublease dated March 29, 1996 between
Thomas Cook Currency Services, Inc. and Franklin-DC
Re: 1800 K Street, N.W., Suite 929.
11.1 Computation of primary and fully diluted earnings
per share
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 10.19
FRANKLIN BANCORPORATION, INC.
NONDISCRETIONARY STOCK OPTION PLAN
1. Purpose.
This Nondiscretionary Stock Option Plan (hereinafter referred
to as this "Plan") is intended to promote the best interests of the Corporation
and its stockholders by providing an incentive and reward for the individuals
serving as directors who make certain contributions to the business of the
Corporation in such capacity, by providing such incentive and reward in a form
of equity compensation and by furthering the alignment of the interests of such
directors with those of the stockholders of the Corporation.
2. Definitions.
The following terms shall have the following meanings when
used herein unless the context clearly otherwise requires:
A. "Banks" means Franklin National Bank of Washington,
D.C., a national banking association, and George Washington Banking
Corporation, a Virginia corporation.
B. "Board of Directors" means the Board of Directors of
the Corporation.
C. "Code" means the Internal Revenue Code of 1986, as
amended, or any successor provisions.
D. "Common Stock" means the Common Stock of the
Corporation, par value Ten Cents ($0.10) per share.
E. "Corporation" means Franklin Bancorporation, Inc., a
Delaware corporation.
F. "Effective Date" means January 31 of each year, or,
if January 31 is not a business day, the first business day next succeeding
January 31.
G. "Eligible Person" means any individual who becomes
eligible to participate in this Plan in accordance with Section 5A hereof.
H. "ERISA" means the Employee Retirement Income Security
Act, as amended.
I. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
<PAGE> 2
J. "Exercise Price" means the price at which a share of
Incentive Stock may be purchased by a particular Participant pursuant to the
exercise of an Option.
K. "Fair Market Value" means the value of a share of
Incentive Stock as determined in accordance with Section 5D hereof.
L. "Formula" means a formula which uses objective
criteria to determine the amount, price and timing of awards to be granted
under this Plan.
M. "Incentive Stock" means shares of Common Stock that
may be issued pursuant to this Plan.
N. "Nondiscretionary Stock Option Agreement" means an
agreement by and between a Participant and the Corporation setting forth the
specific terms and conditions of an Option, as well as the specific terms and
conditions under which Incentive Stock may be purchased by such Participant
pursuant to the exercise of such Option and, if applicable, a SAR with respect
to such shares of Incentive Stock. Such Nondiscretionary Stock Option
Agreement shall be subject to the provisions of this Plan (which shall be
incorporated by reference therein) and shall contain such provisions as the
Board of Directors, in its sole discretion, may authorize.
O. "Option" means the right of a Participant to purchase
shares of Incentive Stock in accordance with the terms of this Plan and the
Nondiscretionary Stock Option Agreement between such Participant and the
Corporation.
P. "Participant" means any Eligible Person to whom an
Option has been granted pursuant to this Plan and who is a party to a
Nondiscretionary Stock Option Agreement.
Q. "SAR" means a right granted by the Corporation to a
Participant to receive cash or other consideration equal to the difference
between the market value of the Incentive Stock covered by all or any
unexercised portion of an Option on the date of exercise of the SAR and the
Fair Market Value of such Incentive Stock on the date of grant of the SAR.
R. "Subsidiary" means any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation if, at the time of granting of an Option, each of the corporations
(other than the last corporation in the unbroken chain) owns stock possessing
at least fifty percent (50%) of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
- 2 -
<PAGE> 3
3. Adoption, Administration Amendment and Termination of Plan.
A. This Plan shall become effective upon its adoption by
the Board of Directors and its subsequent approval by a majority of the votes
cast in person or by proxy at a meeting of the stockholders of the Corporation
held within twelve (12) months of adoption of this Plan by the Board of
Directors. No Option or other award hereunder shall be exercisable or payable
in any respect prior to such approval of this Plan by the stockholders of the
Corporation.
B. No Option may be granted pursuant to this Plan after
March 1, 2005.
C. The Board of Directors shall implement, interpret
(except as expressly provided in this Plan) and administer this Plan. Without
limiting the powers and authority of the Board of Directors in any respect, the
Board of Directors shall have authority (i) to construe and interpret this Plan
and any Nondiscretionary Stock Option Agreement entered into hereunder; (ii) to
determine the applicability of the Formula to each Eligible Person, (iii) to
determine the Fair Market Value, if necessary; (iv) to determine the terms and
conditions, consistent with the terms and conditions of this Plan, of any
Option and to approve forms of Nondiscretionary Stock Option Agreement; (v) to
determine whether, and under what circumstances, an Option may be settled or
paid in cash or other consideration; (vi) to amend, cancel, accept the
surrender of, modify or accelerate the vesting of all or any portion of an
Option; (vii) to authorize and implement any amendment, as required by
applicable law or regulations, or with the consent of the Participant, to any
Nondiscretionary Stock Option Agreement and the terms of any Option evidenced
thereby; (viii) to include within the definition of "Banks" any Subsidiary
(including any entity to be acquired by the Corporation) and to fix the date or
circumstances under which directors of such Subsidiary may be eligible to
participate herein; and (ix) to establish policies and procedures for the
exercise of Options and the satisfaction of withholding or other obligations
arising in connection therewith. The Board of Directors may delegate to the
appropriate officer or officers of the Corporation the authority to prepare,
execute and deliver any Nondiscretionary Stock Option Agreement, the terms of
which shall be consistent with the terms and conditions of this Plan. Any
action taken by the Board of Directors with respect to the implementation,
interpretation or administration of this Plan shall be final, conclusive and
binding.
D. This Plan may be amended or terminated in whole or in
part by the Board of Directors (in its sole discretion), except that (i) no
such action shall adversely affect or alter any right or obligation with
respect to any Option or Nondiscretionary Stock Option Agreement then in effect
unless such action is required by applicable law or regulations, (ii) the
Formulas provided or referred to in Sections 5B or 5C hereof may not be
amended, restated or revised more frequently than once every six months, other
than to comport with changes in the Code, ERISA or the rules thereunder or as
permitted by Rule 16b-3 promulgated under the Exchange Act (or any successor
provision) and (iii) any amendment shall be
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approved by the stockholders of the Corporation if, and to the extent, required
by applicable law or Rule 16b-3 promulgated under the Exchange Act (or any
successor provision).
4. Total Number of Shares of Incentive Stock.
The number of shares of Incentive Stock which may be issued in
the aggregate by the Corporation under this Plan pursuant to the exercise of
Options granted hereunder shall not be more than one hundred thousand
(100,000). Such shares of Incentive Stock may be issued out of the authorized
and unissued or reacquired Common Stock of the Corporation. Any shares subject
to an Option or portion thereof which expires or is terminated unexercised
(unless by virtue of the exercise of a SAR granted in tandem therewith) as to
such shares may again be subject to an Option under this Plan. To the extent
there shall be any adjustment pursuant to the provisions of Article 9 hereof,
the aforesaid number of shares shall be appropriately so adjusted.
5. Eligibility and Awards.
A. The persons eligible to participate in this Plan
shall be (i) all members of the Board of Directors, (ii) all members of the
board of directors of the Banks and (iii) those members of the board of
directors of any current or hereafter acquired Subsidiary of the Corporation to
which the Board of Directors have determined to extend the application of this
Plan.
B. The Formula to be applied to the Eligible Persons
described in Subsections 5A(i) and (ii) hereof is:
(i) Each person who secures business for the
Corporation and/or for one or more of the Banks, which amounts, during a given
calendar year, to at least $700,000 (average balance) in deposits and $500,000
in loans, shall be entitled to receive an Option to purchase five hundred (500)
shares of Incentive Stock; and
(ii) Each person who secures business for the
Corporation and/or for one or more of the Banks, which amounts, during a given
calendar year, to at least $1,400,000 (average balance) in deposits and
$1,000,000 in loans, shall be entitled to receive an additional Option to
purchase five hundred (500) shares of Incentive Stock; and
(iii) Each person who secures business for the
Corporation and/or for one or more of the Banks, which amounts, during a given
calendar year, to at least $2,800,000 (average balance) in deposits and
$2,000,000 in loans, shall be entitled to receive an additional Option to
purchase one thousand (1,000) shares of Incentive Stock.
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C. The Formula to be applied to the Eligible Persons
described in Subsection 5A(iii) hereof shall be determined from time to time by
the Board of Directors in accordance with Section 3D hereof.
D. Grants of Options under this Plan shall be made
annually, as of the Effective Date, based on each Eligible Person's performance
under the Formula for the calendar year immediately preceding such Effective
Date. The Exercise Price for the Options granted on each Effective Date shall
be the Fair Market Value equal to the average of the bid and asked prices for
the Common Stock over the five (5) business days immediately preceding the
Effective Date, as correctly reported in any stock quotation report provided by
the NASDAQ System or the National Association of Securities Dealers, Inc. or,
if the Common Stock is quoted on the NASDAQ National Market System or traded on
an exchange, the average of the closing prices for the Common Stock over the
five (5) business days immediately preceding the Effective Date, as correctly
quoted in the Wall Street Journal. Each Option shall have a term of ten (10)
years from the Effective Date relating thereto.
E. As soon as practicable after it is determined that
the criteria have been met so that Eligible Person has the right to receive an
Option under this Plan, the appropriate officer or officers of the Corporation
shall give notice (written or oral) to such effect to such Eligible Person,
which notice shall be accompanied by a copy or copies of the Nondiscretionary
Stock Option Agreement to be executed by such Eligible Person. Upon receipt of
such notice, an Eligible Person shall have an Option, and shall thereby become
and be a Participant, only after the due execution and delivery by such
Eligible Person and the Corporation of a Nondiscretionary Stock Option
Agreement (in such number as the officer or officers of the Corporation shall
direct) by such date and time as shall be specified in such notice (unless
waived by the Corporation).
6. Exercise and Termination of Options.
A. An Option of a Participant may be exercised during
the period such Option is in effect and as set forth herein and in the
Nondiscretionary Stock Option Agreement, and only if compliance with all
applicable Federal and state securities laws can be effected. An Option may be
exercised only by (i) the Participant's completion, execution and delivery to
the Corporation of a notice of such Participant's exercise of such Option and
an "investment letter" (if required by the Corporation) as supplied by the
Corporation and (ii) the payment to the Corporation of the aggregate Exercise
Price, in accordance with Section 6B hereof and the Nondiscretionary Stock
Option Agreement, for the shares of Incentive Stock to be purchased pursuant to
such exercise (as shall be specified by such Participant in such notice).
Except as specifically provided by a duly executed Nondiscretionary Stock
Option Agreement or unless waived by the Board of Directors, an Option or any
of the rights thereunder may be exercised by such Participant only, and may not
be transferred or assigned, voluntarily, involuntarily or by operation of law
other than by will or the laws of descent and distribution.
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B. Payment by each Participant for the shares of Incentive
Stock purchased hereunder upon the exercise of an Option shall be made by good
check or in accordance with the terms of any Nondiscretionary Stock Option
Agreement executed by such Participant, which may permit payment of such
aggregate Exercise Price by a loan from the Corporation to such Participant or
the surrender of shares of Common Stock held by such Participant.
C. The Board of Directors at any time or from time to time
may offer to buy out for a payment in cash or Incentive Stock all or a portion
of an outstanding Option held by a Participant, based on such terms and
conditions as the Board of Directors shall establish and communicate to the
Participant at the time that such offer is made. The Board of Directors may
provide for the surrender of all or any portion of an Option in satisfaction of
specified obligations of a Participant.
D. As a condition to the exercise of any Option or SAR (for
non-cash consideration), the Corporation shall have the right to require that
the Participant (or the recipient of any shares of Incentive Stock or non-cash
consideration) remit to the Corporation or any Subsidiary an amount calculated
by the Corporation to be sufficient to satisfy applicable Federal, state,
foreign or local income tax withholding and other tax requirements prior to the
delivery of any stock certificate evidencing shares of Incentive Stock or other
form of non-cash consideration; in lieu thereof, the Participant may satisfy
applicable income tax withholding and other tax requirements by electing to
have the Corporation withhold from the Incentive Stock issuable upon exercise
of an Option a number of whole shares having a fair market value (determined on
the date that the amount of tax to be withheld is to be fixed) at least equal
to the aggregate amount required to be withheld. Whenever any payments are to
be made in cash (upon the exercise of a SAR or otherwise), the Corporation
shall deduct from such payment such amount calculated by the Corporation to be
sufficient to satisfy applicable Federal, state, foreign or local income tax
withholding and other tax requirements thereon.
7. Costs and Expenses.
All costs and expenses with respect to the adoption,
implementation, interpretation and administration of this Plan shall be borne
by the Corporation; provided, however, that, except as otherwise specifically
provided in this Plan or a Nondiscretionary Stock Option Agreement, the
Corporation shall not be obligated to pay any costs or expenses (including
legal fees) incurred by any Participant in connection with any Nondiscretionary
Stock Option Agreement, this Plan or any Option or Incentive Stock held by any
Participant.
8. No Prior Right of Award.
Nothing in this Plan shall be deemed to give any director,
officer or employee of, or advisor or consultant to, the Corporation or any
Subsidiary, or such person's legal representatives or assigns, or any other
person or entity claiming under or through such
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<PAGE> 7
person, any contract or other right to participate in the benefits of this
Plan. Nothing in this Plan shall be construed as constituting a commitment,
guarantee, agreement or understanding of any kind or nature that the
Corporation or any Subsidiary shall continue to employ, retain or engage any
individual (whether or not a Participant). This Plan shall not affect in any
way the right of the Corporation and any Subsidiary to terminate the employment
or engagement of any individual (whether or not a Participant) at any time and
for any reason whatsoever and to remove any individual (whether or not a
Participant) from any position as a director or officer. No change of a
Participant's duties as an employee of the Corporation or any Subsidiary shall
result in a modification of the terms of any rights of such Participant under
this Plan or any Nondiscretionary Stock Option Agreement executed by such
Participant.
9. Changes in Capital Structure.
Subject to any required action by the stockholders of the
Corporation and the provisions of the General Corporation Law of the State of
Delaware, the number of shares of Incentive Stock represented by the
unexercised portion of an Option and the number of shares of Incentive Stock
which has been authorized or reserved for issuance hereunder (whether such
shares are unissued, reacquired or subject to an Option that expired, was
cancelled, surrendered or terminated unexercised as to such shares), as well as
the Exercise Price under the unexercised portion of an Option, shall be
proportionately adjusted for (i) a division, combination or reclassification of
any of the shares of Common Stock of the Corporation or (ii) a dividend payable
in shares of Common Stock of the Corporation.
10. Burden and Benefit.
The terms and provisions of this Plan shall be binding upon,
and shall inure to the benefit of, each Participant and such Participant's
executors and administrators, estate, heirs and personal and legal
representatives.
11. Headings.
The headings and other captions contained in this Plan are for
convenience of reference only and shall not be used in interpreting, construing
or enforcing any of the provisions of this Plan.
12. Interpretation.
Notwithstanding any provision of this Plan or any provision of
any Nondiscretionary Stock Option Agreement evidencing an Option, for so long
as any securities of the Corporation are registered under Section 12 of the
Exchange Act, this Plan and each Nondiscretionary Stock Option Agreement
evidencing an Option granted to an Eligible Person who is then required to
report transactions in the securities of the Corporation pursuant to Section
16(a) of the Exchange Act are intended to meet the applicable requirements for
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<PAGE> 8
exemption under Rule 16b-3 promulgated pursuant to the Exchange Act (or any
successor provision). This Plan shall be governed by, and construed in
accordance with, the substantive laws of the State of Delaware.
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EXHIBIT 10.20
STOCK SUBSCRIPTION AGREEMENT
This STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made
and entered into as of the 27th day of December, 1996, by and among Franklin
Bancorporation, Inc., a Delaware corporation (the "Company"), Rock Creek
Corporation, a Delaware Corporation (the "Investor") and Elias F. Aburdene, a
resident of the District of Columbia, ("Aburdene").
WHEREAS, the Company desires to issue and sell to the Investor 125,000
shares (the "Shares") of Common Stock, par value $0.10 per share ("Common
Stock") for the purchase price of $8.00 per share or $1,000,000 in the
aggregate (the "Purchase Price");
WHEREAS, the Investor desires to subscribe for and purchase from the
Company the Shares for the Purchase Price;
WHEREAS, Aburdene is the President and controls all of the voting
power of the Investor;
WHEREAS, Aburdene has served as a consultant to the Company in
connection with development of the Company's international private banking
operations; and
WHEREAS, the Investor desires that Aburdene serve as a director of
Franklin National Bank of Washington, D.C. ("FNB"), a wholly owned subsidiary
of the Company.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 Issuance and Sale of the Shares. Subject to the
terms and conditions of this Agreement, the Investor hereby subscribes for and
agrees to purchase at the Closing (as defined below) the Shares for the
Purchase Price, and the Company agrees to issue and sell to the Investor at the
Closing the Shares for the Purchase Price.
Section 1.2 Closing. The purchase and sale of the Shares
shall be made at a closing (the "Closing") at the offices of Tucker, Flyer &
Lewis, 1615 L Street, N.W., Suite 400, Washington, D.C. at 1:00 p.m. on the
date that is one business day after the day on which the last of the conditions
set forth in Articles IV and V shall have been satisfied or waived, or on such
other date and/or at such other time and place as the Company and the Investor
may agree (the "Closing Date"). On the Closing Date, (i) the Company shall
deliver to the Investor one or more stock certificates representing the Shares
subscribed for by the Investor, duly registered in the name of the Investor,
and (ii) the Investor shall deliver or cause to be delivered to the Company the
Purchase Price, in cash, or by a certified or bank cashier's check, or by a
wire transfer to a bank account designated by the Company, in lawful currency
of the United States of America.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that:
Section 2.1 Organization and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own
its properties and to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on the
operations, properties, or financial condition of the Company.
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Section 2.2 Authorization. The Company has the requisite
corporate power and authority to enter into, deliver and perform this Agreement
and to issue the Shares in accordance with the terms hereof. All corporate
action on the part of the Company and its officers and directors necessary for
the authorization, execution and delivery of this Agreement and the performance
of all obligations of the Company under this Agreement required to be performed
at or prior to the Closing and for the authorization, issuance and delivery of
the Shares being sold under this Agreement has been taken. This Agreement
(when duly executed and delivered by the parties hereto) shall constitute the
valid and legally binding obligation of the Company, except to the extent
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
Section 2.3 Validity of the Shares. The Shares, when issued,
sold and delivered in accordance with the terms of this Agreement, shall be
duly and validly issued, fully paid and nonassessable.
Section 2.4 Capitalization. The authorized capital stock of
the Company consists of 25,000,000 shares of Common Stock of which 6,347,107
shares of Common Stock were issued and outstanding as of September 30, 1996.
Except for options to purchase 641,437 shares of Common Stock issued pursuant
to the Amended and Restated Stock Option Plan, the Nondiscretionary Stock
Option Plan and certain stock option agreements, there are no outstanding
warrants, options, commitments, preemptive rights, rights to acquire or
purchase, conversion rights or demand of any character relating to the Common
Stock or other securities of the Company. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as in effect on the date hereof (the "Bylaws").
Section 2.5 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby or relating hereto do not and
will not (i) result in a violation of the Company's Certificate of
Incorporation or Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and federal banking laws) applicable to the Company, or by which
any property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or issue and sell the Shares in accordance
with the terms hereof.
Section 2.6 SEC Reports. All forms, reports, schedules,
statements and other documentation which were required to be filed by the
Company under the Securities Exchange Act since January 1, 1996 (the "SEC
Reports") have been duly and timely filed by the Company, were in compliance
with the requirements of their respective report forms and were complete and
correct in all material respects, as of the dates at which the information was
furnished. The Investor has received copies of the SEC Reports.
Section 2.7 Material Adverse Changes. Except as disclosed in
writing to the Investor prior to Closing, the Company has no knowledge of any
event or condition that would have a material adverse effect on the Company's
results of operations or financial condition for the fiscal year ending on
December 31, 1996.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR AND ABURDENE
The Investor and Aburdene represent and warrant that:
Section 3.1 Organization and Standing. The Investor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own
its properties and to carry on its business as now conducted and as proposed to
be conducted. The Investor is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary.
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Section 3.2 Authorization.
(a) The Investor has the requisite corporate
power and authority to enter into, deliver and perform this Agreement and to
purchase the Shares in accordance with the terms hereof. All corporate action
on the part of the Investor and its officers and directors necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations of the Investor under this Agreement required to be performed
at or prior to the Closing and for the authorization, issuance and delivery of
the Shares being sold under this Agreement has been taken. This Agreement
(when duly executed and delivered by the parties hereto) shall constitute the
valid and legally binding obligation of the Investor, except to the extent
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
(b) Aburdene has full right, power, legal
capacity and authority to enter into, deliver and perform this Agreement and to
consummate the transaction contemplated hereby. This Agreement, when executed
and delivered by all parties hereto, will constitute a valid and legally
binding obligation of Aburdene, except to the extent that such enforceability
may be limited by bankruptcy, insolvency, or similar laws affecting creditors'
rights generally.
Section 3.3 No Conflicts. The execution, delivery and
performance of this Agreement by the Investor and Aburdene and the consummation
by the Investor and Aburdene of the transactions contemplated hereby or
relating hereto do not and will not conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Investor or Aburdene is a party, or result in a violation of any material law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Investor or Aburdene, or by
which any property or asset of the Investor or Aburdene is bound or affected.
Section 3.4 Capitalization. The authorized capital stock
of the Investor consists of 1,000 shares of common stock, par value $0.10 (the
"Investor's Stock) of which 100 shares of the Investor's Stock were issued and
outstanding as of the date of this Agreement. There are no outstanding
warrants, options, commitments, preemptive rights, rights to acquire or
purchase, conversion rights or demand of any character relating to the
Investor's Stock. The Investor has furnished to the Company true and correct
copies of the Investor's Certificate of Incorporation as in effect on the date
hereof.
Section 3.5 Investment Representations.
(a) This Agreement is entered into by the Company
with the Investor and Aburdene in reliance upon the Investor's and Aburdene's
representations to the Company that (i) the Shares to be received by the
Investor will be acquired for investment for its own account, not as a nominee
or agent, and not with a view to the sale or distribution of any part thereof
in violation of applicable Federal and state securities laws, (ii) the Investor
does not have a present intention of selling, granting participation in or
otherwise distributing the same in violation of applicable Federal and state
securities laws and (iii) the Investor is an "accredited investor" as that term
is defined in Regulation D promulgated under the Securities Act of 1933 (the
"Securities Act"). By executing this Agreement, the Investor and Aburdene
further represent that they do not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to any of the Shares in violation
of applicable Federal and state securities laws.
(b) The Investor and Aburdene understand that the
Shares are not registered under the Securities Act on the basis that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof and regulations issued thereunder, and that the Company's reliance on
such exemption is predicated on representations of the Investor set forth
herein.
(c) The Investor represents that it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment. The Investor further
represents that it has had access, during the course of the transaction and
prior to the Investor's purchase of the Shares, to the same kind of information
that is specified in Rule 502(b)(2)(ii) of Regulation D promulgated under the
Securities Act and that it has had, during the course of the transaction and
prior to the Investor's purchase of the Shares, the opportunity to ask
questions of and to receive answers from the Company concerning the terms and
conditions of the offering and to obtain
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additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to it or to which it had access.
(d) The Investor and Aburdene understand that the
Shares may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely. The Investor represents that, in the absence of an
effective registration statement covering the Shares, it will sell, transfer or
otherwise dispose of the Shares only in a manner consistent with its
representations set forth herein.
Section 3.6 Investor Control. Aburdene is the President of the
Investor and holds exclusive voting power over all of the Investor's
outstanding capital stock. Neither the Investor, Aburdene nor any of their
Affiliates (as such term is defined pursuant to Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) beneficially own any shares of Common Stock.
Aburdene has been authorized by each of the shareholders of the Investor to
execute and deliver the Escrow Agreement on their behalf.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF
THE INVESTOR AT CLOSING
The obligations of the Investor under Article I of this
Agreement are subject to the fulfillment on or before the Closing of each of
the following conditions:
Section 4.1 Representations and Warranties. The
representations, warranties and agreements of the Company contained in Article
II hereof shall be true on and as of the Closing with the same force and effect
as if they had been made at the Closing.
Section 4.2 Performance. The Company shall have
performed in all material respects all of its respective obligations and
materially complied with each and all of its respective covenants required to
be performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of any agreements and undertakings
provided for in this Agreement.
Section 4.3 Qualifications. All authorizations,
approvals or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful issuance and sale of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing.
Section 4.4 No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of the transaction contemplated
by this Agreement.
Section 4.5 Share Price. The average of the closing bid
and ask prices for the Common Stock as correctly reported in any stock
quotation report provided by the NASDAQ System of the National Association of
Securities Dealers, Inc. on the day before the Closing shall be greater than or
equal to eight dollars ($8.00) per share.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY AT CLOSING
The obligations of the Company under Articles I and IX of this
Agreement are subject to the fulfillment on or before the Closing of each of
the following conditions:
Section 5.1 Representations. The representations,
warranties and agreements of the Investor and Aburdene contained in Article III
hereof shall be true on and as of the Closing with the same force and effect as
if they had been made at the Closing.
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Section 5.2 Qualifications. All authorizations, approvals
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing.
Section 5.3 Performance. The Investor and Aburdene shall
have performed in all material respects all of its respective obligations and
materially complied with each and all of its respective covenants required to
be performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of any agreements and undertakings
provided for in this Agreement.
Section 5.4 No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of the transaction contemplated
by this Agreement.
Section 5.5 Escrow. Aburdene, the Investor, the Company
and the Escrow Agent shall have executed the Escrow Agreement in the form
attached as Exhibit 1 and all the Investor's Stock shall have been delivered to
the Escrow Agent thereunder.
ARTICLE VI
TERMINATION
Section 6.1 Termination. This Agreement may be
terminated (as to the party electing to so terminate it) at any time prior to
the Closing:
(a) by the Investor if any of the conditions
specified in Article IV of this Agreement have not been met or waived by the
Investor pursuant to the terms of this Agreement by December 31, 1996 or at
such earlier date that it becomes apparent that any such condition can no
longer be satisfied; or
(b) by the Company if any of the conditions
specified in Article V of this Agreement have not been met or waived by it
pursuant to the terms of this Agreement by December 31, 1996 or at such earlier
date that it becomes apparent that any such condition can no longer be
satisfied.
ARTICLE VII
RESTRICTIONS UPON TRANSFER
Section 7.1 Transfer Restrictions. Except as otherwise
provided in this Agreement, the Investor shall not sell, exchange, deliver or
assign, dispose of, gift, pledge, mortgage, hypothecate or otherwise encumber,
transfer or permit to be transferred, whether voluntarily, involuntarily or by
operation of law (including, without limitation, the laws of bankruptcy,
insolvency or succession) any of the Shares.
Section 7.2 Legends; Stop Transfer.
(a) The Investor agrees that it will not make a
transfer, disposition or pledge of any of the Shares other than pursuant to an
effective registration statement under the Securities Act, unless and until (i)
the Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the disposition, and (ii) at the expense of the Investor or
transferee, the Investor shall have furnished to the Company an opinion of
counsel, reasonably satisfactory to the Company, to the effect that such
transfer may be made without registration of the Shares under the Securities
Act.
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(b) The Investor acknowledges that all
certificates evidencing the Shares shall bear a legend substantially similar to
the following:
"The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition
pursuant to the laws of bankruptcy, insolvency or succession)
of the shares of common stock evidenced by the within
certificate is restricted under the terms of the Stock
Subscription Agreement, dated December 27, 1996. A copy of
this agreement is on file at the principal office of the
company. Upon written request of any holder of this
certificate, the company shall furnish, without charge to such
holder, a copy of such agreement.
The shares of Common Stock represented by this certificate
have not been registered under the Securities Act of 1933 (the
"Securities Act") and may not be transferred unless (i) a
registration statement for the shares under the Securities Act
is in effect or (ii) the corporation has received an opinion
of counsel, which opinion is reasonably satisfactory to the
corporation, to the effect that such registration is not
required under the Securities Act or the securities laws of
any state."
(c) The certificates evidencing the Shares shall also
bear any legend necessitated by law.
(d) The Company shall make a notation regarding
the restrictions on transfer of the Shares in its stock books, and the Shares
shall be transferred on the books of the Company only if transferred or sold
pursuant to an effective registration statement under the Securities Act
covering such Shares or pursuant to and in compliance with the provisions of
this Article VII.
Section 7.3 Option.
(a) Subject to the terms and conditions set forth
herein, the Investor hereby grants to the Company an irrevocable option (the
"Option") to purchase the Shares at a price per share as set forth in Section
7.3(b).
(b) The Company (or its designee) may exercise
the Option (i) within ten (10) business days beginning one business day after
(x) the expiration or termination (by the Company or Aburdene) of the agreement
between Aburdene and the Company, dated July 17, 1996 (the "Letter Agreement"),
or (y) Aburdene or the Company has terminated his or its association with the
other, as evidenced by the termination without renewal of any consulting
agreement, employment agreement or any other agreement or understanding that
defines such association, or (ii) at any time after Aburdene no longer
exclusively controls all of the voting power of the Investor's outstanding
capital stock. The purchase price for each share of Common Stock purchased by
the Company (or its designee) pursuant to this Article VII (the "Option
Purchase Price") shall be at the Fair Market Value. For the purposes of this
Agreement, "Fair Market Value" shall mean: (A) the average of the closing bid
and asked prices for the class of Common Stock over a period of 10 consecutive
trading days ending on the third trading day prior to the date of the Option
Closing, as correctly reported in any stock quotation report provided by the
NASDAQ System of the National Association of Securities Dealers, Inc. or, if
the Common Stock is traded on an exchange, the average of the closing prices
over the same period of the sales of the class of Common Stock on all
securities exchanges on which such Common Stock may at the time be listed, or,
if there have been no sales on any such exchange in any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day; or (B) if at any time such Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
Fair Market Value will be the fair value of such Common Stock determined in
good faith by the Board of Directors of the Company.
(c) The Option Purchase Price for the Shares
acquired pursuant to the Option shall be payable in cash, or by a certified or
bank cashier's check, or by wire transfer to a bank account designated by the
Investor, in the lawful currency of the United States of America at a closing
(the "Option Closing") and shall be in the amount determined pursuant to
Section 7.3(b). At the Option Closing, the Investor shall deliver to the
Company (or its designee) a certificate or certificates representing the Shares
and the Company (or its designee) shall deliver to the Investor the Option
Purchase Price per share. The Shares shall be free and clear of all liens,
security interests, charges, encumbrances, conditional sales agreements or
other obligations relating to their sale or transfer.
69
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Section 7.4 Right of First Refusal.
(a) If at any time the Investor desires to sell
or otherwise transfer all or any part of the Shares pursuant to a Bona Fide
Offer (as defined below) from a third party (the "Proposed Transferee"), the
Investor shall submit a written offer (the "Offer") to the Company to sell such
shares (the "Offered Shares") to the Company (or its designee) at a price and
upon terms and conditions not less favorable than those contained in the Bona
Fide Offer. The Offer shall disclose the identity of the Proposed Transferee,
the number of Offered Shares proposed to be sold, the total number of Shares to
be sold or transferred by the Investor, the terms and conditions, including
price, of the proposed sale, and any other material facts relating to the
proposed sale. The Offer shall further state that the Company (or its
designee) may acquire, in accordance with the provisions of this Agreement, the
Offered Shares upon the terms and conditions set forth therein. "Bona Fide
Offer" shall mean a legally enforceable offer in writing, made and signed by a
bona fide third-party offeror or offerors who is a person or persons or entity
or entities that is not an Affiliate of Aburdene or the Investor and is
believed by the Investor to be financially capable of carrying out the terms of
such offer.
(b) If the Company (or its designee) desires to
purchase the Offered Shares, it shall communicate in writing, within 20 days of
the date the Offer was made, its election to purchase the Offered Shares to the
Investor.
(c) If the Company does not purchase the Offered
Shares, all, but not fewer than all, of the Offered Shares may be sold by the
Investor at any time within 45 days after the date the Offer was made. Any
such sale shall be to the Proposed Transferee, at not less than the price and
upon other terms and conditions, if any, not more favorable to the Proposed
Transferee than those specified in the Offer. The sale by the Investor must be
fully consummated within 45 days after the date the Offer; and, in the event
that such sale is not fully consummated within such period, the provisions of
this Article VII must again be complied with by the Investor before the
Investor may sell the Offered Shares.
Section 7.5 Piggyback Registrations.
(a) Right to Piggyback. Whenever Company
proposes to register or qualify for distribution by prospectus any of its
shares of Common Stock under the Securities Act (other than pursuant to a
registration under the Securities Act on Form S-4 or S-8 or any successor or
similar forms) and the registration form or prospectus to be used may be used
for the registration or qualification for distribution of the Shares (a
"Piggyback Registration"), for sale for its own account, the Company shall give
prompt written notice to the Investor of its intention to file such prospectus
and shall include in such registration or qualification the Shares with respect
to which Company has received a written request for inclusion therein from the
Investor within 15 days after the receipt of Company's notice.
(b) Piggyback Expenses. The Investor shall pay
his pro rata share of the registration expenses in all Piggyback Registrations
to the fullest extent permitted by applicable law, including any Underwriting
fees or commissions.
(c) Priority on Registrations. If a Piggyback
Registration is an underwritten registration or distribution by prospectus on
behalf of Company, and the managing underwriter advises Company in writing
(with a copy to each party hereto requesting registration or qualification for
distribution by prospectus) that marketing factors require a limitation of the
number of shares to be underwritten, Company shall include in such registration
or prospectus (a) first, the securities Company proposes to sell (b) second,
pro rata (x) Shares held by the Investor requested by Investor to be included
in such registration or prospectus and (y) other securities requested to be
included in such registration or prospectus.
70
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ARTICLE VIII
RESTRICTIONS UPON TRANSFER
OF THE INVESTOR'S STOCK
Section 8.1 Transfer Restrictions.
(a) So long as the Investor holds the Shares, the
Investor and Aburdene shall take all reasonable steps to assure that none of
the shareholders of the Investor sell, exchange, deliver or assign, dispose of
or gift, pledge, mortgage, hypothecate or otherwise encumber, transfer or
permit to be transferred, whether voluntarily, involuntarily or by operation of
law (including, without limitation, the laws of bankruptcy, insolvency, and
succession) any of the shares of the Investor's Stock; except for transfers
(i) to other shareholders of the Investor and (ii) to heirs of a shareholder of
the Investor through the laws of intestacy, descent and distribution, provided
any such heirs agree to be bound by the terms and conditions of this Agreement.
(b) So long as the Investor holds the Shares, the
Investor shall not issue any additional shares of the Investor's Stock or any
other class of capital stock.
(c) Aburdene shall retain voting power over all
of the outstanding Investor's Stock and all of the Investor's voting stock and
retain day-to-day control over the Investor's corporate actions. Aburdene
shall not grant any proxies with respect to the Investor's Stock or enter into
any voting trust arrangement with respect to the Investor's Stock.
(d) Neither the Investor nor Aburdene shall take
any actions in contradiction to or which are inconsistent with any of their
representations, covenants or agreements contained herein.
Section 8.2 Escrow. So long as the Investor retains ownership of
the Shares, the Investor's Stock shall be placed into escrow with Storch &
Brenner, as escrow agent, pursuant to an Escrow Agreement in the form attached
hereto as Exhibit 1. Upon the disposition by the Investor of all of the Shares
in accordance with the terms of this Agreement, the Company and Aburdene shall
issue joint written instructions to the Escrow Agent to release the Investor's
Stock to the holders thereof.
ARTICLE IX
REPRESENTATION ON THE BOARD OF DIRECTORS
The Company shall take all necessary actions to cause Aburdene
to be elected as a member of the board of directors of FNB as soon as possible
after the Closing but no later than the next regularly scheduled or special
meeting of the Board of Directors of the Company. If Aburdene is not elected
by such date, the Investor may elect to rescind its purchase of the Shares made
pursuant to this Agreement. Aburdene shall be entitled to serve as a member of
the Board of Directors of FNB until the first to occur of the following events:
(i) the expiration or termination (by the Company or Aburdene) of the Letter
Agreement, (ii) Aburdene or the Company shall have terminated his or its
association with the other, as evidenced by the termination without renewal of
any consulting agreement, employment agreement or any other agreement or
understanding that defines such association, (iii) the sale of more than 75% of
the Shares by the Investor, (iv) Aburdene no longer controls 100% of the voting
power of the Investor or (v) Aburdene shall no longer qualify to be a director
of FNB under the regulations of the Office of the Comptroller of the Currency.
Immediately after the occurrence of any of the events listed in clauses (i)
through (v) of the preceding sentence, Aburdene shall immediately resign as a
director of FNB, and any resulting positions thereof.
71
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ARTICLE X
MISCELLANEOUS
Section 10.1 No Waiver; Modifications in Writing. No failure
or delay on the part of the Company or the Investor in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company or to the Investor at law
or in equity or otherwise. No waiver of or consent to any departure by the
Company from any provision of this Agreement shall be effective unless signed
in writing by the party entitled to the benefit thereof, provided that notice
of any such waiver shall be given to each party hereto as set forth below.
This Agreement sets forth the entire understanding of the parties, and
supersedes all prior agreements, arrangements and communications, whether oral
or written, with respect to the subject matter hereof. Except as otherwise
provided herein, no amendment, modification or termination of any provision of
this Agreement shall be effective unless signed in writing by or on behalf of
each party. Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by either party from the terms of any provision of
this Agreement, shall be effective only in the specific instance and for the
specific purpose for which made or given.
Section 10.2 Notices. All notices, demands and other
communications provided for hereunder shall be in writing, and shall be deemed
given when received, by registered or certified mail, return receipt requested,
telex, telegram, telecopy, courier service or personal delivery, addressed to:
if to the Company:
Franklin Bancorporation, Inc.
1722 I (Eye) Street, N.W.
Washington, D.C. 20006
Attention: Robert P. Pincus
Telephone: (202) 331-2718
Fax: (202) 872-0512
with a copy to:
Tucker, Flyer & Lewis, P.C.
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Attention: Lawrence T. Yanowitch
Telephone: (202) 429-3254
Fax: (202) 429-3231
if to the Investor or to Aburdene:
Rock Creek Corporation
c/o Elias F. Aburdene
4615 Linnean Avenue, N.W.
Washington, D.C. 20008
Telephone: (202) 966-0534
Fax: (202) 364-6653
72
<PAGE> 10
with a copy to:
Storch & Brenner
1001 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Richard S. Kraut, Esquire
Telephone: (202) 452-0900
Fax: (202) 452-0930
Section 10.3 Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses regardless of the
termination of this Agreement or the failure to consummate the transactions
contemplated hereby; provided, however, that immediately upon consummation of
the Closing, the Investor shall pay all reasonable legal fees and expenses of
the Company that are in the aggregate in excess of $15,000 in connection with
the preparation, execution and delivery of this Agreement and the transactions
contemplated hereby.
Section 10.4 Execution of Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
Section 10.5 Binding Effect: Assignment. The rights and
obligations of the parties under this Agreement may not be assigned to any
other person. Except as expressly provided in this Agreement, this Agreement
shall not be construed so as to confer any right or benefit upon any person
other than the parties to this Agreement. This Agreement shall be binding upon
and inure to the benefit of the Company and the Investor and its respective
successors and assigns.
Section 10.6 Governing Law. This agreement shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of that state, without
regard to principles of conflicts of law. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the District of Columbia in any
action or proceeding arising out of or relating to this Agreement.
Section 10.7 Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
appropriate jurisdiction.
Section 10.8 Headings. The Article and Section headings used
or contained in this Agreement are for convenience of reference only and shall
not affect the construction of this Agreement.
Section 10.9 Publicity. No party to this Agreement shall
make any press release or other public statements with respect to the
transactions contemplated hereby, except as required by applicable law or
governmental entity or by order of a court of competent jurisdiction.
Section 10.10 Gender. The use of any gender herein shall be
deemed to be or include the other genders and the use of singular herein shall
be deemed to include the plural (and vice versa), wherever appropriate.
Section 10.11 Force Majeure. Neither party shall be in
default if failure to perform any obligation hereunder is caused solely by
supervening conditions beyond that party's control, including acts of God,
civil commotions, strikes, labor disputes, and suspension of trading on the
national stock exchanges.
Section 10.12 Further Assurances. The parties hereto shall
from time to time execute and deliver all such further documents and do all
acts as the other party may reasonably require to effectively carry out the
full intent and meaning of this Agreement.
73
<PAGE> 11
Section 10.13 Specific Performance. Each of the parties
hereto acknowledges and agrees that in the event of any breach of this
Agreement, the non-breaching party would be irreparably harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties
hereto will waive the defense in any action for specific performance that a
remedy at law would be adequate and that the parties hereto, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of this Agreement in any action
instituted in any court of the United States or any state thereof having
subject matter jurisdiction of such action.
74
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FRANKLIN BANCORPORATION, INC.
By: Robert P. Pincus
------------------------------------------
Name: Robert P. Pincus
Title: President and Chief Executive Officer
ROCK CREEK CORPORATION
By: Elias F. Aburdene
-------------------------------------------
Name: Elias F. Aburdene
Title: President
Elias F. Aburdene
---------------------------------------------
Elias F. Aburdene
75
<PAGE> 1
EXHIBIT 10.21
THIS LEASE, made this 28th Day of May, 1996, by and between BAY
LIMITED PARTNERSHIP, a Maryland limited partnership (hereinafter "Landlord"),
and FRANKLIN NATIONAL BANK OF VIRGINIA, a national bank, t/a Franklin National
Bank (hereinafter "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, together with use of the Common Area subject to the
conditions set forth hereafter, for the uses set forth and for the term and at
the rent reserved herein.
SECTION 1. SPECIFIC PROVISIONS
1.1 DEMISED PREMISES
(a) Space Description: That retail space on the first or street
level of the Building located immediately to
the right of the primary entrance to the
building from Wisconsin Avenue.
(b) Floor Area: Approximately 2,962 square feet, as outlined
in red on the plan attached hereto as Exhibit A.
(C) Building: Artery Plaza
(d) Address of Demised Premises: 7200 Wisconsin Avenue
Bethesda, Maryland 20814
1.2 TERM OF LEASE: Ten (10) years, commencing on the earlier of (a) the date
which is sixty (60) Days after the Office of the Comptroller of the Currency
('OCC") gives approval for Tenant's branch in the Demised Premises, or (b) July
1, 1996, and expiring at 11:59 p.m. on the day preceding the tenth (10th)
anniversary of the Lease Commencement Date.
1.3 RENT START DATE: Lease Commencement Date.
1.4 MINIMUM ANNUAL RENT:
(a) Ninety-Seven Thousand Seven Hundred Forty-Six and 00/100 Dollars
($97,746.00), payable in equal monthly installments of Eight Thousand One
Hundred Forty-Five and 50/100 Dollars ($8,145.50), for each twelve month period
during a thirty-six (36) month period commencing on the third (3rd) anniversary
of the Rent Start Date.
(b) One Hundred Two Thousand One Hundred Eighty-Nine and 00/100 Dollars
($102,189.00), payable in equal monthly installments of Eight Thousand Five
Hundred Fifteen and 75/100 Dollars ($8,515.75), for each twelve month period
during a thirty-six (36)month period commencing on the third (3rd) anniversary
of the Rent Start Date.
2
<PAGE> 2
(C) One Hundred Six Thousand Six Hundred Thirty-Two and 00/100 Dollars
($106,632.00), payable in equal monthly installments of Eight Thousand Eight
Hundred Eighty-Six and 00/100 Dollars ($8,886.00), for each twelve month period
during a forty-eight (48) month period commencing on the sixth (6th)
anniversary of the Rent Start Date.
1.5 PERCENTAGE RENT: None.
1.6 REAL ESTATE TAXES:
(a) Beginning Date: First (1st) anniversary of the Rent Start Date.
(b) Tenant's share: One and Fourteen Hundredths Percent (1.14%) (based on
259,991 rentable square feet of office and retail space in the Building).
(C) Base Year: The twelve month period commencing on the Rent Start Date.
1.7 SECURITY DEPOSIT: None.
1.8 USE OF DEMISED PREMISES: For the operation of a full service branch
banking facility and related uses. Tenant
shall not offer any other goods or services
unless previously approved by Landlord in
writing.
1.9 UTILITIES/HEATING AND COOLING:
(a) To be provided at Landlord's expense: water for purposes of heating
and chilled water for the purpose of cooling from the HVAC system in the
Demised Premises.
(b) To be provided at Tenant's expense: Tenant shall pay for its use and
demand of electricity, gas, trash removal from the Demised Premises, water, and
all other utilities (except as set forth in Section 1.9 (a) above) either by
direct payment to the utility company or other provider thereof, or in the
event separate metering of utility services tot he Demised Premises is not
possible, by monthly payments to Landlord as Additional Rent. In the latter
event, the cost of use and demand for electricity and other utilities consumed
within the Demised Premises shall be established via the installation of a
submeter by Landlord at its expense, in which event Tenant shall pay a
reasonable service charge to Landlord related to administration of meter
reading and invoicing.
1.10 ADDRESSES FOR NOTICES:
a. NOTICES TO TENANT:
Franklin National Bank of Virginia
1722 Eye Street, N.W.
3
<PAGE> 3
Washington, DC 20006
Attn: Linda Johnson, Senior Vice President
b. NOTICES TO LANDLORD:
Bay Limited Partnership
c/o Charles E. Smith Management, Inc.
2345 Crystal Drive
Arlington, VA 22202
1.11 EXHIBITS TO LEASE:
Exhibit A- Plan delineated in red.
1.12 SPECIAL PROVISIONS:
Section 26. Minimum Annual Rent
Section 27. Percentage Rent Deleted
Section 28. Real Estate Taxes
Section 29. Security Deposit
Section 30. Office Building Common Areas- Operating Costs
Section 31. Possession and Rent Start Date
Section 32. Assignment and Subletting
Section 33. Fixturing and Alterations
Section 34. Utilities and Services
Section 35. Tenant Repairs and Maintenance
Section 36. Use and Upkeep of Premises
Section 37. Access
Section 38. Liability
Section 39. Fire or Casualty Damage
Section 40. Condemnation
Section 41. Waiver of Jury Trial
Section 42. Facilities Nondiscrimination
Section 43. Trash Removal
Section 44. Bankruptcy
Section 45. Defaults and Remedies
Section 46. Subordination
Section 47. Delivery at End of Lease Term
Section 48. Notices
Section 49. Hazardous Substances
Section 50. Returned Checks
Section 51. Mutual Mistakes
Section 52. ADA Compliance
4
<PAGE> 4
Section 53. Parking
Section 54. Renewal Option
Section 55. Fair Market Value
Section 56. Cancellation Option
Section 57. Brokers and Commissions
Section 58. Mutual Representation of Authority
Section 59. Use
Section 60. Landlord's Default
IN WITNESS WHEREOF, Landlord has caused this Lease, comprised of
Specific Provisions, General Provisions, Special Provisions, and Exhibits, to
be signed and sealed by one or more of its Officers, General Partners, Trustees
or Agents, and Tenant has caused this Lease, as described above, to be signed
in its corporate name by its duly authorized officer and its corporate seal to
be hereto affixed and duly attested by its Secretary.
WITNESS: LANDLORD: BAY LIMITED PARTNERSHIP
BY: Phoenix Associates #5, Inc.
General Partner
By: (SEAL)
- -------------------------- ----------------------------------
Name:
Title:
ATTEST: TENANT: FRANKLIN NATIONAL BANK OF
VIRGINIA
LINDA B. JOHNSON By: ROBERT B. PINCUS (SEAL)
- ------------------------------- ----------------------
(Corporate Seal) Secretary Name:
Title:
5
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. SPECIFIC PROVISIONS..........................................................................2-5
2. RENT..........................................................................................10
2.1 Minimum Annual Rent........................................................................10
2.2 Percentage Rent............................................................................10
(a) Quarterly Payment......................................................................10
(b) Gross Sales............................................................................10
(c) Monthly Statements.....................................................................10
(d) Annual Statements......................................................................10
(e) Inspection of Records..................................................................11
(f) No Partnership.........................................................................11
(g) Partial Year...........................................................................11
2.3 Real EstateTaxes...........................................................................12
2.4 Rent Tax...................................................................................12
2.5 Survival of Rent Obligation................................................................12
2.6 Late payment Penalty.......................................................................12
2.7 Other Tenant Costs and Expenses............................................................12
3. SECURITY DEPOSIT..............................................................................12
4. POSSESSION....................................................................................13
4.1 Possession.................................................................................13
4.2 Occupancy Permits..........................................................................13
4.3 Rent Start Date............................................................................13
4.4 Commencement of Business...................................................................13
5. FESTERING AND ALTERATIONS.....................................................................13
5.1 Tenant Improvements........................................................................13
5.2 Signs......................................................................................14
5.3 Alterations................................................................................14
5.4 Mechanic's Liens...........................................................................14
6. UTILITIES AND SERVICES........................................................................14
6.1 Utilities/Heating and Cooling..............................................................14
6.2 Cleaning...................................................................................14
6.3 Security...................................................................................14
7. REPAIRS AND MAINTENANCE.......................................................................15
8. USE AND UPKEEP OF PREMISES....................................................................15
8.1 Use........................................................................................15
</TABLE>
6
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<TABLE>
<S> <C>
8.2 Illegal and Prohibited Uses................................................................15
8.3 Insurance Rating...........................................................................15
8.4 Excessive Floor Load.......................................................................16
8.5 Moving and Deliveries......................................................................16
8.6 Rules and Regulations......................................................................16
8.7 Window Displays............................................................................17
8.8 Condition of Premises Upon Surrender.......................................................17
9. ACCESS........................................................................................17
10. LIABILITY....................................................................................17
10.1 Personal Property..........................................................................17
10.2 Criminal Acts of Third Parties.............................................................18
10.3 Public Liability...........................................................................18
10.4 Tenant Insurance...........................................................................18
11. FIRE OR CASUALTY DAMAGE......................................................................19
11.1 Fire or Casualty Damage....................................................................19
11.2 Rent Abatement.............................................................................19
12. CONDEMNATION.................................................................................19
13. BANKRUPTCY...................................................................................20
13.1 Events of Bankruptcy.......................................................................20
13.2 Landlord's Remedies........................................................................20
(a) Termination of Lease...................................................................20
(b) Suit for Possession....................................................................20
(c) Non-Exclusive Remedies.................................................................20
(d) Assumption or Assignment by Trustee....................................................21
(e) Adequate Assurance of Future Performance...............................................21
(f) Failure to Provide Adequate Assurance..................................................21
14 Default Remedies..............................................................................21
14.1 Default....................................................................................21
14.2 Remedies...................................................................................21
14.3 Landlord's Right to Relet..................................................................22
14.4 Recovery of Damages........................................................................22
14.5 Non-Waiver.................................................................................22
14.6 Anticipatory Repudiation...................................................................23
14.7 Tenant Abandonment of Premises.............................................................23
(a) Abandonment............................................................................23
(b) Landlord Right to Enter and to Relet...................................................23
(c) Right to Dispose of Tenant Property....................................................23
</TABLE>
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<TABLE>
<S> <C>
(d) Transfer of Tenant Property to Creditors...............................................23
15. SUBORDINATION................................................................................24
15.1 Subordination..............................................................................24
15.2 Estoppel Certificates......................................................................24
15.3 Attornment.................................................................................24
16. DELIVERY AT END OF LEASE TERM................................................................25
16.1 Surrender of Premises......................................................................25
16.2 Holding Over...............................................................................25
17. ASSIGNMENT AND SUBLETTING....................................................................25
18. QUIET ENJOYMENT..............................................................................25
19. SUCCESSORS...................................................................................26
20. PRONOUNS.....................................................................................26
21. NOTICES......................................................................................26
21.1 Addresses for Notices......................................................................26
21.2 Effective Date of Notice...................................................................26
22. EXHIBITS; SPECIAL PROVISIONS.................................................................26
22.1 Incorporation In Lease.....................................................................26
22.2 Conflicts..................................................................................26
23. CAPTIONS.....................................................................................26
24. ENTIRE AGREEMENT; MODIFICATION...............................................................27
25. SEVERABILITY.................................................................................27
SPECIAL PROVISIONS
26. MINIMUM ANNUAL RENT..........................................................................27
27. PERCENTAGE RENT DELETED......................................................................27
28. REAL ESTATE TAXES............................................................................27
29. SECURITY DEPOSIT.............................................................................28
30. OFFICE BUILDING COMMON AREA-OPERATING COSTS..................................................29
31. POSSESSION AND RENT START DATE...............................................................30
32. ASSIGNMENT AND SUBLETTING....................................................................30
33. FESTERING AND ALTERATIONS....................................................................31
</TABLE>
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<TABLE>
<S> <C>
34. UTILITIES AND SERVICES......................................................................32
35. TENANT REPAIRS AND MAINTENANCE..............................................................32
36. USE AND UPKEEP OF PREMISES..................................................................32
37. ACCESS......................................................................................32
38. LIABILITY...................................................................................33
39. FIRE OR CASUALTY DAMAGE.....................................................................34
40. CONDEMNATION................................................................................34
41. WAIVER OF JURY TRIAL........................................................................34
42. FACILITIES NONDISCRIMINATION................................................................34
43. TRASH REMOVAL...............................................................................34
44. BANKRUPTCY..................................................................................35
45. DEFAULTS AND REMEDIES.......................................................................38
46. SUBORDINATION...............................................................................39
47. DELIVERY AT END OF LEASE TERM...............................................................41
48. NOTICES.....................................................................................41
49. HAZARDOUS SUBSTANCES........................................................................41
50. RETURNED CHECKS.............................................................................43
51. MUTUAL MISTAKES.............................................................................43
52. ADA COMPLIANCE..............................................................................44
53. PARKING.....................................................................................44
54. RENEWAL OPTION..............................................................................44
55. FAIR MARKET VALUE...........................................................................44
56. CANCELLATION OPTION.........................................................................45
57. BROKERS AND COMMISSIONS.....................................................................45
58. MUTUAL REPRESENTATION OF AUTHORITY..........................................................45
59. USE.........................................................................................45
60. LANDLORD'S DEFAULT..........................................................................45
</TABLE>
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2. RENT
2.1 MINIMUM ANNUAL RENT. Tenant shall pay the first monthly installment of
Minimum Annual Rent upon execution of this Lease, and Landlord shall credit it
against Tenant's rent obligations coming due upon the Rent Start Date. Tenant
shall pay the remaining monthly installments of Minimum Annual Rent specified
in section 1.4 in advance without deduction or demand, on the first day of each
and every calendar month throughout the remaining term of the Lease, as
specified in section 1.2, to and at the office of Landlord's Agent, Charles E.
Smith Management, inc. 1735 Jefferson Davis Highway, Arlington, Virginia
22202, or to such other person or at such other place as Landlord may hereafter
designate in writing. Any rent payable fore a portion of a month shall be
prorated based upon the number of days in the applicable calender month.
2.2 PERCENTAGE RENT.
(a) QUARTERLY PAYMENT. In addition to Minimum Annual Rent, Tenant
shall pay Landlord percentage rent for each calendar year in an amount equal to
the percentage rent rate stipulated 1.5 (a) multiplied by the amount of annual
gross sales (as defined below) made during such calender year in excess of the
amount stipulated in section 1.5 (b). Tenant shall pay to Landlord within ten
(10) days after March 31, June 30, September 30, and December 31, the amount
determined by multiplying the gross sales of such quarter in excess of the
quarterly gross sales stipulated in section 1.5 (c) by the percentage rent rate
stipulated in section 1.5 (a).
(b) GROSS SALES. The term "gross sales" as used herein means the
gross receipts realized by Tenant and any person operating any department or
concession, in upon or from the Demised Premises, whether for cash or credit
from the sale of merchandise and all the performance or rendering of any
services; and including, without limiting the generality of the foregoing, all
proceeds from all automatic or coin operated machines, dispensing facilities,
or devices including telephone, whether or not owned and operated by Tenant, if
any shall be permitted under the terms of this Lease in the Demised Premises.
Each sale made by charge, upon installment or credit shall be treated as a sale
for the full price in the month during which such charge or sale is made, and
shall be includible regardless of collection. The amount of a deposit on a
lay-away sale, or any other deposit not refunded, shall be included within
gross sales. Gross sales shall not include sales taxes and/or excise taxes
collected from the customers as a separate item and paid to a taxing authority,
or refunds to customers, provided the amount was previously included in gross
sales.
(c) MONTHLY STATEMENTS. Commencing with the tenth (10th) day of the
second month, on or before the tenth (10th) day of each month during the term
of this Lease and on or before the tenth (10th) day of the month following the
expiration of this Lease, Tenant shall deliver to Landlord a correct statement
of all gross sales made and services rendered in, upon or from the Demised
Premises during the preceding month.
(d) ANNUAL STATEMENTS. Within thirty (30) days following the
expiration of each calendar year, Tenant shall deliver to Landlord a statement
recapitulating the gross sales during the previous
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year, and Tenant and Landlord shall adjust the percentage rental, if any, paid
to Landlord. The annual statement of gross sales shall be prepared by Tenant's
chief financial officer, who shall certify that the statement is equal in
amount to gross sales reflected in Tenant's book and record and that Tenant's
books and records are maintained on a consistent basis and in accordance with
generally-accepted accounting principles. If Landlord shall make an audit of
Tenant's records, and Tenant's gross sales statement shall be found to be
understated by more than three percent (3%), then Tenant shall be required, at
Landlord's option, to have all future annual statements prepared by a Certified
Public Accountant. If Tenant is delinquent in delivering annual gross sales
statements, Landlord shall have the right to conduct an examination or audit of
Tenant's books and records ,at Tenant's expense, to be paid to Landlord as
additional rent upon demand together with any percentage rent then due.
(e) INSPECTION OF RECORDS. For the purpose of permitting verification
by Landlord of any rent due, Tenant will keep and preserve for at least three
(3) years a true and accurate record of all sales and business transacted in,
upon, and from the Demised Premises. Landlord, its agents, employees or
representatives, shall have the right, after advance notice to Tenant, at any
reasonable time during business days to examine the books and records of Tenant
relating to sales and business in the Demised Premises. If, as a result of
Landlord's examination of Tenant's books and records, it is determined that the
annual statement submitted to Landlord by Tenant has understated Tenant's gross
sales, Tenant agrees to pay Landlord promptly the rent deficiency based on the
corrected gross sales. In the event that the gross sales were understated by
two percent (2%) or more, Tenant shall pay to Landlord in addition to the rent
deficiency, the cost of the examination of Tenant's books and records made by
Landlord or its representatives. Landlord shall hold all sales figures and
related information obtained from Tenant' records in confidence except a s may
be necessary for the enforcement of Landlord's rights under this Lease or
except pursuant to any legal requirements. The failure to furnish an accurate
statement or the furnishing by Tenant of any fraudulent or willfully inaccurate
statement of gross sales may be deemed, at Landlord's option, a breach and
default under this Lease.
(f) NO PARTNERSHIP. Notwithstanding the agreement made for the
payment by Tenant of rent based upon a percentage of sales, it is expressly
understood that Landlord is not a partner or associate of Tenant in the conduct
of its business. It is further expressly understood and agreed that the
relationship between the parties hereto is and at all times shall remain that
of Landlord and Tenant.
(g) PARTIAL YEAR. In any portion of a calender year less than twelve
(12) months, either at the commencement or end of the lease term, or due to
rent having been abated for a period of time, the Annual Gross Sales specified
in section 1.5 (b) for such Partial Year shall be reduced pro rata on a daily
basis based upon a year of 360 days.
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2.3 REAL ESTATE TAXES.
(A) Beginning on the date specified in section 1.6, for each tax year or
portion thereof during the term of this Lease, Tenant shall pay to Landlord as
additional rent, Tenant's share, as indicated in section 1.6, of any increase
in real estate taxes of Landlord over the real estate taxes for the tax year
specified in section 1.6. The term "real estate taxes:" shall mean all taxes,
general and special, levied or assessed on the land and the building
improvements of which the Demised Premises is a part. The term "real estate
taxes" shall also include any tax, excise and/or assessment, other than an
income or franchise tax, levied, assesses or imposed upon or against the rent
or any part of it, under any present or future law, ordinance or regulation by
way of substitution (in whole or in part) for any existing tax on land and
buildings.
(B) After the end of each tax year, Landlord will as soon as practicable submit
to Tenant a statement of the increases incurred in real estate taxes for the
preceding year over such costs for the Base Year and Tenant's share of such
increases. Tenant shall pay any additional rent due with the installment of
rent due for the month following submission of Landlord's statement. A tax
bill issued by the appropriate governmental authorities shall be conclusive
evidence of the amount of said real estate taxes.
2.4 RENT TAX. Tenant shall be responsible for payment of any tax, excise
and/or assessment, other than an income or franchise tax, levied, assessed or
imposed upon or against the rent paid by Tenant, or any part of it, under any
present or future law, ordinance or regulation in addition to any existing tax
on land and buildings. At its election, Landlord may pay such tax, and Tenant
shall reimburse Landlord for the amount thereof within fifteen (15) days of
demand as the case may be.
2.5 SURVIVAL OF RENT OBLIGATION. The obligation of Tenant with respect to the
payment of minimum rent, percentage rent, or additional rent shall survive the
termination of this Lease.
2.6 LATE PAYMENT PENALTY. In the event of rent, parentage rent or additional
rent due hereunder is not paid within ten (10 calender days after it is due,
then Tenant shall also pay to Landlord as additional rent a late payment fee
equal to five percent (5%) of such delinquent rent for each and every month or
part thereof that such rent remains unpaid.
2.7 OTHER TENANT COSTS & EXPENSES. All costs and expenses which Tenant assumes
or agrees to pay to Landlord pursuant to this Lease shall be deemed additional
rent and, in the event of non-payment thereof, Landlord shall have all the
rights and remedies herein provided for in case non-payment of rent.
3. SECURITY DEPOSIT
Upon the signing of this Lease, Tenant agrees to deposit as security
with Landlord the amount set forth in section 1.7, which shall be returned to
Tenant thirty(30) days after possession of the Demised Premises is surrendered
to Landlord at the end of the tenancy, provided Tenant is
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not in default. In the event of Tenant's default, said security deposit shall
be applied, as a partial payment, on account of damages and loss or rent
sustained by Landlord due to Tenant's default.
4. POSSESSION
4.1 POSSESSION
(A) Landlord shall use its best efforts to tender Tenant possession of
the Demised Premises upon the commencement date of the lease term specified in
section 1.2. It is understood and agreed that Tenant has inspected and accepts
the Demised Premises in its "as is" condition. Tenant's taking possession
shall be conclusive evidence that the Demised Premises specified in section 1.1
are in good and satisfactory condition at the time Tenant takes possession.
(B) If Landlord is unable to tender possession of the Demised Premises
by the date specified in section 1.2, Landlord shall not be liable to Tenant
for damages or any other claim resulting from failure to tender possession, and
this Lease shall not be void or voidable.
4.2 OCCUPANCY PERMITS. Tenant shall be responsible for obtaining occupancy
permits and any other permits or licenses necessary for its lawful occupancy of
the Demised Premises.
4.3 RENT START DATE. Rent shall start on the date set forth in section 1.3 or
sixty (60) days after possession of the Leased Premises is tendered, whichever
is later ("Rent Start Date").
4.4 COMMENCEMENT OF BUSINESS. Tenant agrees to commence operation of its
business in the Demised Premises, fully fixtured and merchandised not later
than the Rent Start Date.
5. FESTERING AND ALTERATIONS
5.1 TENANT IMPROVEMENTS. (a) Within fifteen (15) working days after
notification by Landlord, Tenant shall submit to Landlord Preliminary Design
Drawings (hereinafter referred to as "PDD" ) of the Leased Premises including
store from changes, if contemplated. Landlord shall approve or disapprove such
PDD within five (5) working days. If Landlord disapproves, Tenant shall have
an additional five (5) working days to submit revised PDD and Landlord shall
approve or disapprove such revised PDD within three (3) working days. PDD
shall include:
(1) Partition and fixture plan
(2) New storefront elevation, if changes are contemplated:
(3) A sample board indicating proposed interior wall and floor
finishes and lighting fixtures.
(B) Within thirty (30) days after approval of PDD by Landlord, Tenant will
complete Construction Working Drawings prepared so as to be acceptable to local
regulatory agencies for issuance of necessary Building Permits. Working
Drawing shall be submitted for approval simultaneously to Landlord and the
appropriate local agencies. It is understood that Landlord's approval will be
issued with five (5) working days, provided that Tenant's drawings accurately
reflect the approved PDD. Based upon the work to be performed, the set of
Working Drawings should include:
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1) Architectural Drawings (including store finishes);
2) Electrical drawings;
(3) Drawings showing any revisions to heating, ventilation, and a/c
system and plumbing.
(C)Tenant, at its sole cost, shall be responsible for remodeling, renovating,
securing all necessary permits, and installing such fixtures as are necessary
for its occupancy of the Leased Premises, as shown in the approved PPD and
Working Drawing, by the Rent Start Date.
5.2 SIGNS. Tenant shall not erect or maintain on the exterior or interior of
the building any sign or signs without the prior written consent of Landlord.
Tenant shall not affix any paper or other type of temporary sign or other form
of advertising in or on any show window and other exterior portions of the
Demised Premises.
5.3 ALTERATIONS.
(A) Tenant will not make any alterations, additions or changes, in or
to the Demised Premises, including the store front, if any, without first
obtaining the prior written consent of Landlord. If Landlord's consent is
obtained, all work performed by Tenant must be done at Tenant's sole cost and
expense, in a good and workmanlike manner, by duly licensed contractors, in
accordance with plans approved by Landlord and all applicable laws, ordinances,
rules and regulations.
(B) All improvements and alterations made to the Demised Premises and
any equipment installed therein (except for Tenant's trade fixtures) shall
immediately become the property of Landlord and shall remain attached tot he
Demised Premises upon the expiration or other termination of this Lease and
shall not be removed by Tenant.
5.4 MECHANIC'S LIENS. In the event any mechanic's lien shall at anytime,
whether before, during or after the lease term, be filed against any part of
the building by reason of work, labor, services or materials performed for or
furnished to Tenant, Tenant shall forthwith cause the lien to be discharged of
record or bonded off to the satisfaction of Landlord. If Tenant shall fail to
cause such lien to be discharged or bonded off after being notified of the
filing thereof, then, in addition to any other right or remedy of Landlord,
Landlord may discharge the lien, shall be due and payable by Tenant to Landlord
as additional rent on the first day of the next following month, or if the
lease term has expired, upon demand.
6. UTILITIES AND SERVICES
6.1 UTILITIES/ HEATING AND COOLING
(A) Landlord agrees at its expense to furnish to the Demised Premises
the utilities and/or service specified in section 1.9 (a) on the same days and
during the same hours as furnished for other tenants of the building.
(B) Tenant agrees to pay all costs for the utilities and/or services
specified in section 1.9 (b)
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used in the Demised Premises. Tenant must make all arrangements, including
installation of separate meters, if required, and any required deposits for
such service, and must pay for all such service promptly directly to the
utility company.
(C) In no event shall Landlord be liable to Tenant for damages due to
temporary lack of utilities, heat, chilled water or their services due to
breakdown or other failure of the public utility lines, building equipment
and/or machinery, or any other cause whatsoever, Landlord will, however, use
its best efforts to restore said service without unreasonable delay if Landlord
is responsible for furnishing such services.
6.2 CLEANING. In no event shall Landlord be required to provide any cleaning
service in the Demised Premises.
6.3 SECURITY. Any security measures that Landlord may undertake are for
protection of the building only and shall not be relied upon by Tenant to
protect Tenant, Tenant's property, employees, invitees or their property.
7. REPAIRS AND MAINTENANCE
Tenant shall at its own expense make all repairs to the Interior of
the Demised Premises, including repairs to heating, air-conditioning and
ventilating equipment in the Demised Premises and will also keep the Demised
Premises properly painted and decorated. Tenant further covenants and agrees
that it will replace all broken or cracked plate glass windows and doors and
its own expense, with glass of similar kind, size and quality, and to obtain
and keep in effect plate glass insurance for this purpose. Notwithstanding the
provisions hereof, in the event that repairs required to be made by Tenant
become immediately necessary to avoid possible injury or damage to persons or
property, Landlord may, but shall not be obligated to, make such repairs at
Tenant's expense. Within ten (10) days after Landlord renders a bill for the
cost of said repairs, Tenant shall reimburse Landlord.
8. USES AND UPKEEP OF PREMISES
8.1 USE. Tenant shall use and occupy the Demised Premises for the
purposes specified in section 1.8 and for no other purpose whatsoever.
8.2 ILLEGAL AND PROHIBITED USES. Tenant will not use or permit the
Demised Premises or any part thereof to be used for any disorderly, unlawful or
extra hazardous purpose and will not manufacture any commodity therein. Tenant
will not use or permit the Demised Premises to be used for any purposes that
interfere with the use and enjoyment by other tenants of the Building nor
which, in Landlord's opinion, impair the reputation of the Building of which
the Demised Premises form a part. Tenant shall refrain from and discontinue
such use upon receipt of written notice from Landlord or no later than three
(3) days after mailing thereof.
8.3 INSURANCE RATING. Tenant will not do or permit anything to be
done in the Demised Premises or the Building of which they form a part or bring
or keep anything therein which shall in
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any way increase the basic rate of fire or other insurance in said Building, or
on the property kept therein, or conflict with the fire laws or regulations, or
with any insurance policy upon said Building or any part thereof, or with any
statutes, rules or regulations enacted or established by the appropriate
governmental authority. For purposes of definition herein, the "basic rate"
shall be such a rate as published by the said appropriate agency, exclusive,
however, of any excess or surcharges appended thereon by virtue of or directly
attributable to so-called faults of management. If Tenant's activities in the
Demised Premises form a part, over and above the basic rate for construction of
this type occupied for the purposes permitted hereunder, Tenant, upon notice by
Landlord or its agent, shall immediately take all necessary steps to eliminate
the excess charge attributable to such fault of management. Should Tenant
refuse or fail to take such action as may be necessary to eliminate the cause
for said excess charges, Tenant shall pay to Landlord on demand as additional
rent, that portion of the aforesaid fire and extended coverage insurance
premium carried by such excess charge on all outstanding insurance carried on
the Building of which the Demised Premises is a part.
8.4 EXCESSIVE FLOOR LOAD. Landlord shall have the right to prescribe
the weight and method of installation and position of safes or other heavy
fixtures or equipment. Tenant will not install in the Demised Premises any
fixtures, equipment or machinery that will place a load upon the floor
exceeding the designed floor load capacity. All damage done to the Building by
installing or removing a safe or any other article of Tenant's equipment , or
due to its being in the Demised Premises, shall be repaired at the expense of
Tenant.
8.5 MOVING AND DELIVERIES. All moving of merchandise and equipment
requiring use of the elevators shall be under the direct control and
supervision of Landlord, who shall, however, not be responsible for any damage
to, loss of, or charges for moving same. Tenant shall promptly remove from the
public area in or adjacent to the building any of Tenant's property delivered
or deposited there.
8.6 RULES AND REGULATIONS. Tenant shall, and shall insure that
Tenant's agents, servants, employees, invitees and guests, faithfully keep,
observe and perform the following rules and regulations, and such other and
further reasonable rules and regulations as Landlord may make, and which in
Landlord's judgement are needful for the general well being, safety, care and
cleanliness of the Demised Premises and the Building of which they are a part,
together with their appurtenances, unless waived in writing by the Landlord:
(A) The sidewalks, entries, passages, elevators, public corridors,
stairways, and other parts of the Building shall not be obstructed or used for
any other purpose than ingress or egress.
(B) Tenant shall not install or permit the installation of any
awnings, shades, mylar films or sunfilters on windows or the like.
(C) Tenant shall not construct, maintain, use or operate within said
Demised Premises or elsewhere in the Building of which the Demised Premises
form apart or on the outside of the Building, any equipment or machinery which
produces music, sound or noise which is audible beyond the Demised Premises.
(D) Bicycles, motor scooters or any other type of vehicle shall not be
brought into the lobby
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or elevators of the Building, except as required by law.
(E) No animal shall be permitted in the lobby or elevators of the
Building at any time, except as required by law.
(F) Tenant shall not permit refuse to accumulate on the Demised
Premises, but will remove the same at its own expense not less often than three
(3) times weekly and transfer such refuse to the building trash room, from
where it will be removed by Landlord at Landlord's expense.
(G) Tenant will not cause or permit objectionable odors to emanate or
be dispelled from the Demised Premises.
(H) Landlord shall have the right to prohibit any advertising by
Tenant, which in Landlord's opinion tends to impair the reputation of the
Building or its desirability as a retail location, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
(I) Canvassing, soliciting, and peddling in the Building is prohibited
and each Tenant shall cooperate to prevent the same. Tenant shall not render
any kind of curb service, nor permit anyone to sell, display or dispense
merchandise or service from outside of the Demised Premises.
8.7 WINDOW DISPLAYS. Any show window displays shall be of an esthetic
and dignified type, in keeping with the high standards of the Building.
Landlord shall at all times have the right to cause Tenant to remove any show
window displays that are not in keeping with standards of the Building that
Landlord finds objectionable.
8.8 CONDITION OF PREMISES UPON SURRENDER. Tenant agrees that it will
keep the Demised Premises and fixtures therein in good order and condition and
will, at the expiration or other termination of the term hereof, surrender and
deliver up the same in like good order and condition as the Premises shall be
at the commencement of the term of this Lease, ordinary wear and tear, and
damage by the elements, fire, and other unavoidable casualty excepted.
9. ACCESS
Landlord its agent or employees, shall have the right to enter the
Demised Premises (including security areas with representatives of Tenant)
during regular business hours (a)to make inspections or to make repairs to the
Demised Premises or to make such repairs to other premises as Landlord may deem
necessary; (b) to exhibit the premises to prospective tenants during the last
three (3) months of the term of this Lease; and (c) for any purpose whatsoever
relating to the safety, protection or preservation of the Building of which the
Demised Premises form a part.
10. LIABILITY
10.1 PERSONAL PROPERTY. All personal property of Tenant in the
Demised Premises or in the Building of which the Demised Premisses is a part
shall be there at the sole risk of Tenant. Neither Landlord nor Landlord's
Agent shall be liable for any accident to or damage to Tenant, its agents,
employees or to other persons or to their property, caused by fire, explosion,
water, gas, electricity, leaks from the roof or other portions of the Building,
the heating, cooling, electrical or plumbing apparatus, or by any act of
neglect of other tenants or occupants of the building, or due to any cause
whatsoever. Tenant hereby expressly releases Landlord from any liability
incurred or claimed by reason of damages to Tenant's property. Landlord shall
not be liable in damages, nor shall this Lease be affected, for conditions
arising or resulting, and which affect the building of which the
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Demised Premises is a part, due to construction or contiguous premises. Tenant
shall give immediate notice to Landlord in case of fire or accident in the
Demised Premises, or of any defects, damage or injury therein to any fixtures
or equipments.
10.2 CRIMINAL ACTS OF THIRD PARTIES. Landlord shall not be liable in
any manner to Tenant, its employees or invitees for any injury or damage to
Tenant, Tenant's employees or invitees or their property caused by the criminal
or intentional misconduct of third parties. All claims against Landlord for
any such damage or injury are hereby expressly waived by Tenant, and Tenant
hereby agrees to hold harmless and indemnify Landlord from all such damages and
the expense of defending all claims made by Tenant's employees or invitees
arising out of such acts.
10.3 PUBLIC LIABILITY. Landlord assumes no liability or
responsibility whatsoever with respect to the conduct and operation of the
business to be conducted in the Demised Premises. Landlord shall not be liable
for any accident to or injury to any person or persons or property in or about
the Demised Premises which are caused by the conduct and operation of said
business or by virtue of equipment or property of Tenant in said premises.
Tenant agrees to hold Landlord harmless against all such claims.
10.4 TENANT INSURANCE.
(A) Tenant at its cost shall maintain, as named insured, during the
term of this Lease, comprehensive general liability insurance with at least a
single combined liability limit of $1,000,000.00 insuring against all liability
of Tenant and its authorized representatives arising out of and in connection
with Tenant's use or occupancy of the Demised Premises. Landlord and
Landlord's Agent shall be named as additional insured. The policy shall
contain a cross-liability coverage endorsement and a contractual liability
coverage endorsement that refers expressly to this Lease. All liability
insurance shall also insure performance by Tenant of the indemnity provisions
of sections 10.1,10.2, and 10.3. If, after this Lease is in effect, in the
opinion of the mortgage of the Building or Landlord's insurance agent, the
amount of comprehensive general insurance coverage is not adequate, Tenant
shall increase its insurance coverage as required, but not more frequently than
each three (3) years.
(B) Tenant shall maintain at all times during the term of this Lease
physical damage coverage (fire and all risk insurance) on improvements and
betterments equal to at least 90% of replacement value of the improvements and
betterments to the Demised Premises. Tenant shall also maintain plate glass
insurance, where applicable.
(C) All insurance required under this Lease shall be issued by
insurance companies authorized to do business in the jurisdiction where the
building of which the Demised Premises is a part is located. Such companies
shall have a policyholder rating of at least "A" and a financial size rating of
at least "Class XIV" as rated in the most recent edition of "Best's Key Rating
Guide" of insurance companies. Each policy shall contain an endorsement
requiring thirty (30) days' written notice form the insurance company to
Landlord before cancellation or any change in the coverage, scope, or amount of
any policy. Each policy, or a certificate showing it is in effect, together
with evidence of payment of premiums, shall be deposited with Landlord at the
commencement of the term, and renewals of any policy shall be delivered to
Landlord at least thirty (30) days prior to the
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expiration date of any policy.
(D) Notwithstanding the fact that any liability of Tenant to Landlord
may be covered by Tenant's insurance, Tenant's liability shall in no way be
limited by the amount of its insurance recovery.
11. FIRE OR CASUALTY DAMAGE
11.1 FIRE OR CASUALTY DAMAGE. In the event of damage or destruction
of the Demised Premises by fire or any other casualty, this Lease shall not be
terminated, but the Demised Premises shall be promptly and fully repaired and
restored as the case may be by Landlord at its own cost and expense. The
building and improvement on the Demised Premises shall be rebuilt or
reconstructed in such manner that the same shall be in all respects
substantially equal to the premises damaged or destroyed, and the frontage,
area, character and appearance thereof shall be substantially the same as
immediately prior to the happening of any such contingency. Due allowance,
however, shall be given for reasonable time required for adjustment and
settlement of insurance claims, and for such other delays as may result from
government restrictions, and controls on construction, if any, and for strikes,
national emergencies and other conditions beyond the control of Landlord. It
is agreed that in any of the aforesaid events, this Lease shall continue in
full force and effect.
11.2 RENT ABATEMENT. If the condition referred to in section 11.1 is
such so as to make the entire premises unusable for Tenant's business, then the
rental which tenant is obligated to pay hereunder shall abate as of the date of
the occurrence until the Demised Premises have been fully and completely
restored by Landlord. Any unpaid or prepaid rent for the month in which said
condition occurs shall be prorated. If the premises are partially damaged or
destroyed, and if Tenant can reasonably continue to operate the remaining
portion thereof for its business, then during the period that Tenant is
deprived of the use of the damaged portion of said premises, the rental
whichTenant shall be required to pay shall be reduced in proportion to the
rental value of the space which it is unable to use. In the event the premises
are substantially or totally destroyed by fire or other casualty so as to be
entirely unusable for Tenant's business, and it shall require more than ninety
(90) days for Landlord to commence restoration of same, then either party
hereto, upon written notice to the other party, may terminate this Lease, in
which case the rent shall be apportioned and paid to the date of said fire or
other casualty. No compensation, or claim, or diminution of rent will be
allowed or paid by Landlord by reason of inconvenience, annoyance, or injury to
business, arising from the necessity of repairing the Demised premises or any
portion of the Building of which they are a part.
12. CONDEMNATION
Tenant agrees that if the said Demised Premises, or any part thereof,
shall be taken or condemned for public or quasi-public use or purpose by any
competent authority, Tenant shall have no claim against Landlord and shall not
have any claim or right to any portion of the amount that may be awarded as
damages or paid as a result of any such condemnation. All rights of Tenant to
damages therefor, if any, are hereby assigned by Tenant to Landlord. Upon such
condemnation or
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taking, the term of this Lease shall cease and terminate from the date of such
governmental taking or condemnation. Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease.
13. BANKRUPTCY
13.1 EVENTS OF BANKRUPTCY. The following shall be Events of
Bankruptcy under this Lease:
(a) Tenant's becoming insolvent, as that term is defined in Title 11
of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq.
(The "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all of
Tenant's property or assets, or the institution of a foreclosure action upon
any of Tenant's real or personal property;
(c) The filing of a voluntary petitition under the provisions of the
Bankruptcy Code or Insolvency Laws:
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either
not dismissed within thirty (3) days of filing, or results in the issuance of
an order for relief against the debtor, whichever is later; or
(e) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
13.2 LANDLORD'S REMEDIES.
(a) Termination of Lease. Upon occurrence of an Event of
bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this section 13.2 (a) shall
have no effect while a case in which Tenant is the subject debtor under the
Bankruptcy Code is pending, unless Tenant or its Trustee is unable to comply
with the provisions of section13.2(d) and(e) below. AT all other times this
Lease shall automatically cease and terminate, and Tenant shall be immediately
obligated to quite the premises upon the giving of notice pursuant to this
section 13.2(a). Any other notice to quite, or notice of Landlord's intention
to re-enter is hereby expressly waived. If Landlord elects to terminate this
Lease, everything contained in this Lease on the part of the Landlord to be
done and performed shall cease without prejudice, subject, however, to the
right of Landlord to recover from Tenant all rent and any other sums accrued up
to the time of termination of recovery of possession by Landlord, whichever is
later, and any other monetary damages or loss of reserved rent sustained by
Landlord.
(b) Suit for Possession. Upon termination of this Lease
pursuant to section 13.2(a), Landlord may proceed to recover possession under
and by virtue of the provisions of the laws of any applicable jurisdiction, or
by such other proceedings, including reentry and possession, as may be
applicable
(c) Non-Exclusive Remedies. Without regard to any action by
Landlord as authorized by section 13.2(a) and (b) above, Landlord may at its
discretion exercise all the additional provisions set forth below in section
14.
(d) Assumption or Assignment by Trustee. In the event Tenant
becomes the subject debtor in a case pending under the Bankruptcy Code,
Landlord's right to terminate this Lease pursuant to section 13.2(a) shall be
subject to the rights of the Trustee in Bankruptcy to assume or
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assign this Lease. The Trustee shall not have the right to assume or assign
this Lease unless the Trustee (I) promptly cures all defaults under this Lease,
(ii) promptly compensates Landlord for monetary damages, incurred as a result
of such default, and (iii) provides adequate assurance of future performance on
the part of Tenant as debtor in possession or on the part of the assignee
Tenant.
(e) Adequate Assurance of Future Performance. Landlord and
Tenant hereby agree in advance that adequate assurance of future performance,
as used in section 13.2(d) above, shall mean that all of the following minimum
criteria must be met: (I) Tenant's gross receipts in the ordinary course of
business during the thirty (30)-day period immediately preceding the initiation
of the case under the Bankruptcy Code must be at least two times greater than
the next payment of rent due under this Lease; (ii) Both the average and median
of Tenant's gross receipts in the ordinary course of business during the six
(6)-month period immediately preceding the initiation of the case under the
Bankruptcy Code must be at least two times greater than the next payment of
rent due under the Lease; (iii) Tenant must pay its estimated pro rata share of
the cost of all services provided by Landlord (whether directly or thought
agents or contractors and whether or not previously included as part of the
base rent), in advance of the performance or provision of such services; (iv)
The Trustee must agree that Tenant's business shall be conducted in a first
class manner, and that no liquidating sales, auctions, or other non-first class
business operations shall be conducted on the premises; (v) The Trustee must
agree that the use of the premises as stated in this Lease will remain
unchanged and that no prohibited use shall be permitted: and (vi) the Trustee
must agree that the assumption or assignment of this Lease will not violate or
affect the rights of other tenants in the Building.
(f) Failure to Provide Adequate Assurance. In the event
Tenant is unable to (I) cure its defaults, (ii) reimburse the Landlord for its
monetary damages, (iii) pay the rent due under this Lease on time (or within
five (5) days of the due date), or (iv) meet the criteria and obligations
imposed by section 13.2(e) above, Tenant agrees in advance that it has not met
its burden to provide adequate assurance of future performance, and this Lease
may be terminated by Landlord in accordance with section 13.2(a) above.
14. DEFAULTS AND REMEDIES
14.1 DEFAULT. Tenant shall be in default if Tenant shall fail to
pay the rent, or any installments thereof as aforesaid, at the time the same
shall become due and payable and/or any additional rent as herein provided
although no demand shall have been made for the same; or if Tenant shall
violate or fail or neglect to keep and perform any of the covenants, conditions
and agreements herein contained on the part of Tenant to be kept and performed.
14.2 REMEDIES. In each and every such event set forth in
section 14.1 above, from thenceforth and at all times thereafter, at the option
of the Landlord, Tenant's right of possession shall thereupon cease and
terminate, and Landlord shall be entitled to the possession of the Demised
Premises and to re-enter the same without demand of rent or demand of
possession of said premises and may forthwith proceed to recover possession of
the Demised Premises by process of law, any
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notice to quit hereby expressly waived by Tenant. In the event of such re-entry
by process of law or otherwise, Tenant nevertheless agrees to remain answerable
for any and all damage, deficiency or loss of rent which Landlord may sustain
by such re-entry, including reasonable attorney's fees and court costs. If,
under the provisions hereof, seven (7) days summons or other applicable summary
process shall be served, and a compromise or settlement therefor shall be made,
such action shall not be constituted as a waiver of any breach of any covenant,
condition or agreement herein contained. No waiver of any breach of any
covenant, conditions or agreement, herein contained, on one or more occasions
shall operate as a waiver of the covenant, condition or agreement itself, or of
any subsequent breach thereof. No provision of this Lease shall be deemed to
have been waived by Landlord unless such waiver shall be in writing signed by
Landlord.
14.3 LANDLORD'S RIGHT TO RELIEF. Should this Lease be terminated
before the expiration of the term of this Lease by reason of Tenant's default as
provided in sections 13 or 14, or if Tenant shall abandon or vacate the premises
before the expiration or termination of the term of this Lease, the premises may
be relet by Landlord for such rent and upon such terms as are reasonable under
the circumstances. If the rent reserved under this Lease (and any of the costs,
expenses or damages indicated below) shall not be realized by Landlord, Tenant
shall be liable for all damages sustained by Landlord, including, without
limitation, deficiency in rent, reasonable attorney's fees, brokerage fees, and
expenses of placing the premises in first class rentable condition. Landlord,
in putting the premises in good order or preparing the same for re-rental may,
at Landlord's option, make such alterations, repairs, or replacements in the
premises as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of reletting the premises, and the making or such
alterations, repairs, or replacements shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to relet the premises, or in
the event that the premises are relet, for failure to collect the rent thereof
under such reletting. In no event shall Tenant be entitled to receive any
excess, if any, of such net rent collected over the sums payable by Tenant to
Landlord hereunder.
14.4 RECOVERY OF DAMAGES. Any damage or loss of rent sustained by
Landlord may be recovered by Landlord, at Landlord's option at the time of the
reletting, or in separate actions, from time to time, as said damage shall have
been ascertained by successive relettings, or, in a single proceeding deferred
until the expiration of the term of this Lease (in which event Tenant hereby
agrees that the cause of action shall not be deemed to have accrued until the
date of expiration of said term), or in a single processing prior to either the
time or reletting or the expiration of the term of this Lease, in which event
Tenant agrees to pay Landlord the difference between the present value of the
rent reserved under this Lease on the date of breach, discounted at ten percent
(10%) per annum, and the fair market value of the Lease on the date of breech.
In the event Tenant becomes the subject debtor in a case under the Bankruptcy
Code, the provisions of this section 14.4 may be limited by the limitations of
damage provisions of the Bankruptcy Code.
14.5 NON-WAIVER. No payment by Tenant or receipt by Landlord or
lesser amounts of rent than those herein stipulated shall be deemed to be other
than on account of the earliest unpaid stipulated rent. No endorsement or
statement on any check or any letter accompanying any check
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or payment as rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or pursue any other remedy provided in this Lease.
14.6 ANTICIPATORY REPUDIATION. If, prior to the commencement of
the term of this Lease, Tenant notifies Landlord of or otherwise unequivocally
demonstrates an intention to repudiate this Lease, Landlord may, at its option,
consider such anticipatory repudiation a breach of this Lease. In addition to
any other remedies available to it hereunder or at law or inequity, Landlord
may retain all rent paid upon execution of the Lease and the security deposit,
if any, to be applied to damages of Landlord incurred as a result of such
repudiation, including without limitation, attorney's fees, brokerage fees,
costs of reletting, loss of rent, etc. It is agreed between the parties that
for the purpose of calculating Landlord's damages, in a building which has
other equivalent space available at the time of Tenant's breach, the premises
covered by this Lease shall be deemed the last space rented, even though the
premises may be re- rented prior to such other vacant space. Tenant shall pay
in full for all tenant improvements constructed or installed within the Demised
Premises to the date of the breach, and materials ordered at its request for
the Demised Premises.
14.7 TENANT ABANDONMENT OF PREMISES.
(a) Abandonment. If the Demised Premises shall be deserted
or vacated by Tenant for Thirty (30) consecutive days or more without notice to
Landlord, and Tenant shall have ailed to make the current rental payment, the
premises may be deemed abandoned. Landlord may consider Tenant in default
under this Lease and may pursue all remedies available to it under this Lease
or at law.
(b) Landlord Right to Enter and to Relet. Landlord may, at
its option, enter into the Demised Premises without being liable for any
prosecution therefor or for damages by reason thereof. In addition to any
other remedy, Landlord, as agent of Tenant, may relet the whole or any part of
the premises for the whole or any part of the then unexpired lease term. For
the purpose of such reletting, Landlord may make any alterations or
modifications of the premises considered desirable in its sole judgment.
(c) Right to Dispose of Tenant Property. If Tenant vacates
or abandons the premises as defined above, any property that Tenant leaves on
the premises shall be deemed to have been abandoned and may either be retained
by Landlord as the property of Landlord or may be disposed of at public or
private sale in accordance with applicable law as Landlord sees fit. The
proceeds of any public or private sale of Tenant's property, or the then
current fair market value of any property retained by Landlord, shall be
applied by Landlord against (I) the expenses of Landlord for removal, storage
or sale of the property; (ii) the arrears of rent or future rent payable under
this Lease; and (iii) any other damages to which Landlord may be entitled
hereunder.
(d) Transfer of Tenant Property to Creditors. If Tenant
vacates or abandons the premises, as defined above, Landlord may, upon
presentation of evidence of a claim valid upon its face of ownership or of a
security interest in any of Tenant's property abandoned in the premises, turn
over such property to the claimant with no liability to Tenant.
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15. SUBORDINATION
15.1 SUBORDINATION. This Lease is subject and subordinate to all
ground or underlying leases and to all mortgages and/or deeds of trust which
may now or hereafter affect such leases or the real property of which the
Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required by
any mortgagee or trustee.
15.2 ESTOPPEL CERTIFICATES. In confirmation of such subordination,
Tenant shall execute and return within ten (10) days any certificate that
Landlord may request stating that this Lease is unmodified and in full force
and effect, or in full force and effect as modified, and stating the
modification. The certificate also shall state the amount of base monthly rent
and the dates to which the rent has been paid in advance, and the amount of any
security deposit or prepaid rent; that there is no present default on the part
of Landlord, or attach a memorandum stating any such instance of default; that
Tenant has no right to setoff and no defense or counterclaim against
enforcement of its obligations under the Lease; and that Tenant has no other
notice of any sale, transfer or assignment of this Lease or of the rentals.
Failure to deliver the certificate within the ten (10) days shall be conclusive
upon Tenant for the benefit of Landlord and any successor to landlord that this
Lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate. If Tenant fails to
deliver the certificate within the ten (10) days, Tenant by such failure
irrevocably constitutes and appoints Landlords as its special attorney-in-fact
to execute and deliver the certificate to any third party. Notwithstanding the
foregoing, the party secured by any such deed of trust shall have the right to
recognize this Lease and, in the event of any foreclosure sale under such deed
of trust, this Lease shall continue in full force and effect at the option of
the party secured by such deed of trust or the purchaser under any such
foreclosure sale. Tenant covenants and agrees that it will, at the written
request of the party secured by any such deed of trust, execute, acknowledge
and deliver any instrument that has for its purpose and effect the
subordination of said deed of trust to the lien of this Lease. At the option
of any Landlord under any ground or underlying lease to which the lease is now
or may hereafter become subject or subordinate, Tenant agrees that neither the
cancellation nor termination of such ground or underling lease shall, b
operation of law or otherwise, result in cancellation or termination of this
Lease or the obligations of Tenant hereunder.
15.3 ATTORNMENT. Tenant covenants and agrees to attorn to any
successor to landlord's interest in any ground or underlying lease, and in that
event this Lease shall continue as a direct Lease between Tenant herein and
such landlord or its successor. In any case, such landlord or successor under
such ground or underlying lease shall not be bound by any prepayment on the
part of Tenant of any rent for more than one month in advance, so that rent
shall be payable under this Lease in accordance with its terms, from the date
of the termination of the ground or underlying lease, as if such prepayment had
not been made. Neither shall such landlord or successor under such ground or
underlying lease by bound by this Lease or any amendment or modification of
this Lease unless, prior to the termination of such ground or underlying lease,
a copy of this Lease or amendment or modification thereof, as the case may be,
shall have been delivered to such landlord
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or successor.
16. DELIVERY AT END OF LEAST TERM
16.1 SURRENDER OF PREMISES. On the expiration date stipulated in
section 1.2, Tenant shall quit and surrender the Demised Premises broom clean
and in good condition and repair, together with all alterations, installations,
additions, and improvements which may have been made in or attached to the
Demised Premises. Upon surrender, Tenant shall remove its trade fixtures and
repair any damage to the Demised Premises caused thereby. Any property of
Tenant not promptly removed shall be deemed to have been abandoned by Tenant
and to have become the property of Landlord and may be retained by Landlord or
disposed of at Tenant's expense (Tenant hereby agreeing to remain liable for
the cost thereof even though this Lease shall have terminated) as Landlord
shall so desire.
16.2 HOLDING OVER. If Tenant or any party claiming under Tenant
remains in possession of the Demised Premises or any part thereof, after any
termination of this Lease, no tenancy or interest in the Demised Premises shall
result therefrom, unless Landlord elects as hereinafter provided, but such
holding over shall be an unlawful detainer and all such parties shall be
subject to immediate eviction and removal. If, without the consent of
Landlord, Tenant or any party claiming under Tenant remains in possession of
the Demised Premises, or any part thereof, after any termination of this Lease,
Landlord may, in addition to its other rights, elect at its sole option and
discretion to treat such holding over by Tenant as the creation of a
month-to-mon th tenancy, except that the minimum monthly rent applicable to the
last month (as defined in section 1.4) shall be tripled. Percentage Rent, if
any, shall not be affected by this provision. If Tenant or any party claiming
under Tenant shall hold over with landlord's written consent, obtained at least
thirty (30) days prior to the expiration of the term of this Lease, then such
holding over shall be on such terms as Landlord and Tenant shall determine.
The period of any holding over by Tenant as aforesaid, whether on a
month-to-month basis or otherwise, shall be deemed an automatic extension of
the term of this Lease for a period concurrent therewith.
17. ASSIGNMENT AND SUBLETTING
Tenant shall not transfer or assign this Lease, or sublet Demised
Premises, in whole or part, without Landlord's prior written consent. Consent
of Landlord to any assignment or subletting shall not operate as a waiver of
the necessity for a consent to any subsequent assignment or subletting, and the
terms of such consent shall be binding upon any person holding by, under or
through Tenant. Such consent shall not relieve Tenant from liability hereunder
for the payment of rent or performance and observance of any of the terms and
conditions of this Lease. A violation by Tenant of the provisions of this
section 17 shall constitute a breach of this Lease.
18. QUIET ENJOYMENT
So long as Tenant shall observe and perform the covenants and
agreements binding on it here
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thereunder. Tenant shall at all times during the term herein granted,
peacefully and quietly have and enjoy possession of the premises without any
encumbrance or hindrance by, from or through Landlord, except as provided for
elsewhere under this Lease.
19. SUCCESSORS
All rights, remedies and liabilities herein given to or imposed upon
either of the parties hereto, shall extend to their respective heirs,
executors, administrators, successors and assigns. This provision shall not be
deemed to grant Tenant any right to assign this lease or to sublet the
premises.
20. PRONOUNS
Feminine or neuter pronouns shall be substituted for those of
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution
or substitutions. Landlord and Tenant herein for convenience have been
referred to in neuter form.
21. NOTICES
21.1 ADDRESSES FOR NOTICES. All notices required or desired to be
given hereunder by either party to the other shall be given by certified or
registered mail and addressed as specified in section 1.10. Either party may,
by like written notice, designate a new address to which such notices shall be
directed.
21.2 EFFECTIVE DATE OF NOTICE. Notice shall be deemed to be
effective when mailed unless otherwise stipulated herein.
22. EXHIBITS; SPECIAL PROVISIONS
22.1 INCORPORATION IN LEASE. It is agreed and understood that any
Exhibits and Special Provisions referred to in sections 1.11 and 1.12,
respectively, and attached hereto, form an integral part of this Lease and are
hereby incorporated by reference.
22.2 CONFLICTS. If there is a conflict between a Special Provision
hereto and the General Provisions of the Lease, the Special Provision shall
govern.
23. CAPTIONS
All section and paragraph captions herein area for the convenience of
the parties only, and neither limit nor amplify the provisions of this Lease.
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24. ENTIRE AGREEMENT; MODIFICATION
This Lease, all Exhibits hereto, and Special Provisions incorporated
herein by reference contain all the agreements and conditions made between the
parties and may not be modified orally or in any other manner than by an
agreement in writing, signed by the parties hereto.
25. SEVERABILITY
The unenforceability, invalidity, or illegality of any provision
herein shall not render any other provision herein unenforceable, invalid, or
illegal.
SPECIAL PROVISIONS
26. MINIMUM ANNUAL RENT
26.1 Section 2.1 shall be amended by deleting the first sentence in
ins entirety; by inserting at the beginning of the second sentence "Commencing
with the Rent Start Date,"; by deleting in line three 'remaining'; and by
deleting "1735 Jefferson Davis Highway" in line five and substituting "2345
Crystal Drive".
26.2 In Section 2.5 delete', percentage rent' in lines one and two;
and in the second line after the second 'rent' insert "accruing during the term
of this Lease".
26.3 In Section 2.6 delete', percentage rent' in line one; and I
the second lien before 'it' insert "notice that".
27. PERCENTAGE RENT DELETED
Section 2.2 shall be deleted in its entirety.
28. REAL ESTATE TAXES
Section 2.3 shall be amended by adding the following subsection:
"(c) Tenant shall make estimated monthly payments to
Landlord on account of the increase in real estate taxes that are expected to
be incurred during each calendar year. The amount of such monthly payments
shall be determined as follows. At the beginning of the Term of this Lease and
at the beginning of each calendar year thereafter, Landlord shall submit to
Tenant a statement setting forth Landlord's reasonable estimation of the
increase in real estate taxes that are expected to be incurred during such
calendar year and the computation of Tenant's percentage of such estimated
increase in real estate taxes. Tenant shall pay to Landlord on the first day
of each month following receipt of such statement during such calendar year an
amount equal to one-twelfth
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(1/12) of Tenant's percentage share of such estimated increase in real estate
taxes. Within approximately one hundred twenty (120) days after the expiration
of each calendar year, or as soon thereafter as is feasible, landlord shall
submit to Tenant a statement showing (I) Tenant's percentage of the increase in
real estate taxes during the preceding calendar year, and (ii) the aggregate
amount of the estimated payments, if any, made by Tenant on account of such
increase in real estate taxes. If such statement indicates that the aggregate
amount of such estimated payments, if any, exceeds Tenant's actual liability
with respect to such increase in real estate taxes, Tenant shall deduct the net
overpayment from its next estimated payment(s) pursuant to this Section or, at
Tenant's request, Landlord shall refund the overpayment to Tenant. If such
statement indicates that Tenant's actual liability with respect to such
increase in real estate taxes exceeds the estimated payments, if any, made by
Tenant, then Tenant shall pay to landlord the amount of such excess as
Additional Rent due hereunder.".
29. SECURITY DEPOSIT
Section 3 is hereby deleted in its entirety.
30. OFFICE BUILDING COMMON AREAS - OPERATING COSTS
30.1 Commencing on the Rent Start Date, Tenant shall pay to Landlord
at the times set forth in this Section Tenant's share [equal to One and
Fourteen Hundredths Percent (1.14%}] of Landlord's operating costs (defined
below) for the Building in which the Demised Premises are located, in excess of
operating costs for the twelve month period commencing on the Rent Start Date.
30.2 Landlord's operating costs include, without limitation, all costs
of any kind paid or incurred by Landlord for on-site employees' wages, social
security and unemployment insurance contributions, union benefits, trash and
rubbish removal from common areas and dumpsters, snow removal, grounds
maintenance, janitorial and general supplies for common areas, redecorating,
miscellaneous repairs and maintenance, management fee (not to exceed three
percent (3%) of the gross rents received by the Building), legal fees, tax
appeals expenses, union registration fees, miscellaneous taxes and licenses,
depreciation on maintenance and other equipment installed to reduce operating
costs, Building security, common sewer and water charges, premiums for public
liability and property damage and fire and extended coverage insurance for the
Building, and repairs and maintenance to Building exterior, interior common
areas, and Building systems including elevators. These costs shall include all
costs except those properly charged as a capital expense and depreciation of
the original cost of construction of the Building. All chargeable capital
expenditures shall be amortized over the useful life of the improvement with
only the annual portion included each year. Operating costs shall not include
any of the following; (I) Payments of principal, interest, or other finance
charges made on any debt, or the amortization of funds borrowed by landlord;
(ii) Ground rent or other rental payments made under any ground lease or
underlying lease; (iii) Any costs, fines, or penalties incurred due to the
violation by landlord of any governmental rule or regulation; (iv) Any other
expense for which Landlord actually receives reimbursement from
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insurance, condemnation awards, other tenants or any other source; (v) Costs
incurred in connection with disputes with tenants, or costs and expenses
incurred in connection with negotiations or disputes with employees,
consultants, management agents, leasing agents, purchasers or mortgagees of the
Building; (vii) Costs incurred in connection with the original construction of
the Building; (viii) Costs of repairing replacing or otherwise correcting
defects (including latent defects) in or inadequacies of (But not the costs of
ordinary and customary repair for normal wear and tear) the initial design or
construction of the Building; (ix) Costs incurred in connection with the sale,
financing, refinancing, mortgaging, selling or change of ownership of the
Building; (x) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to the late payments of taxes, utility bills and other
costs incurred by Landlord's failure to make such payments when due; (xi) Costs
incurred by Landlord which are associated with the operation of the business of
the legal entity which constitutes Landlord as the same is separate and apart
from the cost of the operation of the Common Areas, including legal entity
formation and legal entity accounting (excluding accounting fees relating to
the operation of the Building; (xii) Costs incurred to correct violations by
landlord of any law, rule, order of regulation which was in effect as of the
Lease Commencement Date; (xiii) Costs arising from the presence of hazardous
materials or substances in or about or below the land or the Building,
including without limitation, hazardous substances in the groundwater or soils;
(xiv) Cost incurred for any item to the extent covered by a manufacturer's,
materialman's, vendor's or contractor's warranty; (xv) Non-cash items, such as
deductions for depreciation and amortization of the Building and the Building
equipment (except as provided above), interest on capital invested, bad debt
losses, rent losses and reserves for such losses; (xvi) Services provided and
costs incurred in connection with the operation of retail or other ancillary
operations owned or operated by Landlord; (xvii) Consulting costs and expenses
paid by Landlord unless they relate exclusively to the management or operation
of the Building; and (xviii) Reserves.
30.3 In order to provide for current monthly payments of Additional
Rent pursuant to Section 30.1, Landlord shall submit to Tenant prior to January
1st of each year a statement of operating costs, together with the amount of
Tenant's Additional Rent which is estimated to result from such increases.
Commending on the Rent Start Date, and continuing throughout the remaining term
of this Lease, Tenant shall pay each month one-twelfth (1/12th) of Tenant's pro
rata share of Landlord's estimate of the increase in each year for operating
costs.
30.4 Within thirty (30) days after the end of each calendar year,
landlord shall furnish to Tenant a statement of the total operating costs for
the calendar year and of Tenant's share of the increase in such costs above the
base amount. If Tenant's share of the increase in operating costs for that
calendar year exceeds the monthly payments made by Tenant, Tenant shall pay
Landlord the deficiency within ten (10) days after receipt of the statement. If
Tenant's payments made during the calendar year exceed Tenant's share of
operating costs, Landlord shall pay Tenant the excess at the time Landlord
furnishes the statement to Tenant.
30.5 Landlord shall keep full and accurate books of account covering
Landlord's operating costs, and the statement to Tenant shall accurately
reflect the total operating costs and Tenant's share. The Books of account
shall be retained by landlord for a period of at least twenty-four (24)
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months after the expiration of each calendar year. Tenant shall have the right
during the Term to inspect the books of account upon prior notice to Landlord,
at such place as Landlord shall designate and during regular business hours.
31. POSSESSION AND RENT START DATE
31.1 Provided Landlord has obtained a release from the prior tenant
of the Demised Premises, and provided such work by Tenant or Tenant's
contractors does not interfere with Landlord's construction work, if any,
Tenant shall have the right to enter the Demised Premises within five (5) days
after this Lease is fully executed by landlord and Tenant to make Tenant
installation pursuant to construction plans approved by Landlord, without
liability for rent during such period, but subject in all other terms,
covenants, conditions and provisions of this Lease. In connection with such
entry, Tenant hereby agrees to indemnify and hold Landlord harmless for al
loss, liability and expense incurred by Landlord in connection with Tenant's
early entry upon the Demised Premises and also in connection with Tenant's
performance of its construction and fit-up work in the Demised Premises. In
the event Tenant shall cancel this Lease pursuant to Section 6, then Tenant, at
Landlord's sole option, but at Tenant's sole expense, shall immediately restore
the Demised Premises to its condition prior to the commencement of Tenant's
construction and it-up work.
31.2 Provided Landlord has obtained a release from the prior tenant
of the Demised Premises, Landlord shall tender the Demised Premises to Tenant
with the existing fixtures, including but not limited to vaults, night
depository, teller cash boxes and similar items, in place. Such fixtures shall
remain the property of Landlord, and Tenant shall insure and maintain such in
good order and condition and shall surrender same to landlord upon the
expiration or earlier termination of this Lease.
31.3 In Section 4.1(a), in the third line, change the period to a
comma and insert "subject to Section 31.2".
31.4 In Section 4.3 delete ' or sixty (60)...is later'.
32. ASSIGNMENT AND SUBLETTING
32.1 If Tenant is a corporation, unincorporated association or
partnership, and if at any time during the Term of this Lease, Tenant shall,
without the prior written consent of Landlord, transfer, assign or hypothecate
(or consent to or acknowledge any transfer, assignment or hypothecation of) any
stock or interest in such corporation, association or partnership so as to
result in a change I the present control by the person, persons or entities now
owning a controlling interest in Tenant, then Landlord shall have the option to
terminate this Lease at any time after actual notice of such change by giving
Tenant at least sixty (60) days prior written notice. The mere receipt by
Landlord or rent from a party other than Tenant shall not be deemed actual
notice of any change in control or ownership of Tenant.
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32.2 In the event Tenant elects to assign this Lease or sublet the
Demised Premises, or in the event of any transfer of any interest in Tenant,
Tenant will pay Charles E. Smith Management, Inc. ("Landlord's Agent") a
reasonable review fee not to exceed One Thousand Five Hundred and No/100
Dollars ($1,500.00), determined by Landlord's Agent in its sole discretion, to
be submitted with the executed assignment, sublease or transfer agreement
submitted for review pursuant to Sections 17 and 32.1.
32.3 Notwithstanding the requirement to the contrary in Section 17
and 32.1, provided Tenant is not then in default of any of the terms or
conditions of this Lease, Tenant shall not be required to obtain Landlord's
consent to assign this Lease or to sublet all of the Demised Premises to any
parent, subsidiary or affiliated company, or to any company or entity merging
with Tenant or acquiring Tenant, but Tenant shall furnish Landlord with written
notice and a fully-executed copy of any such sublease, assignment, merger or
acquisition agreement. Any such subletting, assignment, merger or acquisition
shall be subject to the remaining provisions of Section 17 and 32.1.
33. FESTERING AND ALTERATIONS
33.1 In Section 5.1(a), in the first line, delete 'notification by
Landlord, and substitute "execution of this Lease by Tenant,".
33.2 In Section 5.1(b), in the second line, change the period to a
comma and insert "if required.".
33.3 In Section 5.2, after the second sentence, insert: "Tenant
shall be permitted to erect or affix standard banking regulatory sign age and
temporary signs which are professionally prepared and typically used at all
branches of Tenant. Landlord reserves and retains the right to remove
immediately from the Demised Premises, or the front thereof, any sign age not
specifically approved by Landlord or prohibited hereunder. In addition to any
other right or remedy under the terms of this Lease, after one (1) initial
warning of a violation of this provision from Landlord, Tenant shall pay to
Landlord liquidated damages of Fifty Dollars ($50.00) per day so long as a
violation continues, which amount shall be increased in Twenty-Five Dollars
($25.00) increments for each successive new violation of the terms of this
covenant.".
33.4 Tenant shall install, at Tenant's expense, Tenant's sign in
the sign band above the entrance to the Demised Premises and a lighted sign at
a location on the Wisconsin Avenue side at the Demised Premises, which signs
shall be of a design, size and color acceptable to Landlord and Tenant.
33.5 In Section 5.3(a), in the second line, change the period to a
comma and insert "which shall not be unreasonably withheld, conditioned or
delayed with respect to alterations, additions or changes which do not affect
the Building's structure, systems or exterior appearance.".
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33.6 In Section 5.3(b), in the second line, after 'fixtures' insert
",furniture and personal property".
33.7 In Section 5.4, in the fourth line after "off insert "within
fifteen (15) days".
34. UTILITIES AND SERVICES
34.1 In Section 6.1(a), in the second line, after 'Building' insert
"(as of the Lease Commencement Date, 8:00 a.m. to 6:00 p.m. Monday to Friday,
8:00 a.m. to 1:00 p.m. Saturday).
34.2 In Section 6.1(c), in the third line after 'whatsoever' insert
"unless the Demised Premises are untenantable for ten (10) consecutive business
days due to landlord's negligence, in which event Tenant may abate paying rent
until such service is restored".
35. TENANT REPAIRS AND MAINTENANCE
Section 7 of the Lease is hereby amended by inserting the following at
the end of the first sentence: "Tenant shall provide at Landlord's request
copies of all maintenance contracts for such equipment, lines, conduits, ducts
and facilities which shall be with reputable contractors approved by Landlord
in its reasonable discretion. With twenty-four (24) hours prior notice to
Tenant (except in emergencies), Landlord shall have the right to enter the
Demised Premises to inspect such equipment and, in the event maintenance,
repairs and replacement are not performed in a first-class manner, then in the
event Tenant fails to correct such deficiencies within thirty (30) days after
notice from Landlord (except that in emergencies no notice shall be required),
Landlord, at is option, but without obligation to do so, may cause such
equipment to be maintained, repaired or replaced at Tenant's expense, and
Tenant shall reimburse Landlord the cost of such work within thirty (30) days
after demand therefor by Landlord"; and in the fifth line, change the period to
a semicolon and insert "provided, however, Tenant may self-insure damage to
plate glass.".
36. USE AND UPKEEP OF PREMISES
36.1 In Section 8.2, in the fourth line insert "reasonable" before
"opinion'.
36.2 In Section 8.6, in the third line after "make" insert "and
give notice thereof to Tenant".
36.3 In Section 8.6(c), in the second line after 'machinery' insert
"(other than any permitted automated teller machine and night deposit drawer).
36.4 Section 8.6.(h) is deleted in its entirety.
36.5 In Section 8.6(I), in the second line after the first
"service' insert "Other than any permitted automated teller machine and night
deposit drawer)".
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36.6 Landlord shall use commercially reasonable efforts to enforce
rules and regulations uniformly as to all tenants.
37. ACCESS
37.1 In Section 9, in the second line after 'hours' insert "and
after twenty-four (24) hours prior notice to Tenant (except in emergencies)".
37.2 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Landlord's access to the Demised Premises shall be
subject to Tenant's security regulations and made upon reasonable notice,
except if such access is required for emergency purposes, repairs, maintenance
or inspections.
38. LIABILITY
38.1 Tenant hereby waives any right tit may have against Landlord
or Landlord's Agent on account of any loss or damage occasioned to Tenant, its
property, the Demised Premises or its contents arising from any risk generally
covered by fire and extended coverage insurance, whether or not such a policy
shall be in force. Landlord hereby waives any rights it may have against
Tenant on account of any loss or damage occasioned to Landlord, its property,
or to the Building of which the Demised Premises are a part arising from any
risk generally covered by fire and extended coverage insurance, whether or not
such a policy shall be in force.
38.2 Nothing contained in Section 10 shall be construed to require
Tenant to indemnify and hold harmless Landlord, its agents or employees, from
Landlord's liability to third parties for its negligent acts or omissions or
willful misconduct.
38.3 At all times during the term of this Lease and during such
other time that Tenant occupies the Demised Premises or any part thereof,
Landlord shall at its cost and expense, but nevertheless to be included in
operating costs, obtain and maintain (or cause to be obtained and maintained)
insurance policies providing at least the following coverages:
(a) Comprehensive general liability insurance (including
automobile liability) on a per occurrence basis with a combined single limit of
One Million Dollars ($1,000,000.00) per occurrence and endorsed to insure the
contractual liability assumed by Landlord and covering Landlord as insured.
(b) All risk property damage insurance (including theft)
covering Landlord's real and personal property in the Building in a minimum
amount that is at least eighty percent (80%) of replacement value.
38.4 In Section 10.4(a), in the eighth line, delete 'adequate' and
substitute "commercially reasonable".
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38.5 In Section 10.4(b), in the third line, after 'applicable'
insert "or it may self insure damage to plate glass".
39. FIRE OR CASUALTY DAMAGE
In section 11.2, in the tenth line, delete 'No' and insert "Except as
provided above, no".
40. CONDEMNATION
In section 12, in the third line insert "to Landlord" after 'awarded';
and delete the second sentence in its entirety and substitute "Tenant shall
have the right to pursue a separate claim against the condemning authority,
provided that no aware to Tenant diminishes the amount compensable to
Landlord.".
41. WAIVER OF JURY TRAIL
Landlord and Tenant hereby expressly waive trail by jury in any
action, proceeding or counterclaim, brought by either of them against the
other, on any matter whatsoever arising out of or in any way connected with
this Lease, their relationship as Landlord and Tenant, Tenant's use and
occupancy of the Demised Premises, and/or any claim of injury to damage.
42. FACILITIES NONDISCRIMINATION
Tenant understands that Landlord leases or may lease to the United
States Government (hereinafter called "Government") other spaces in the
Building or complex of which the Demised Premises are a part, and that Landlord
is or may be required by the said lease(s) to impose upon the within Tenant, as
well as other lessees furnishing facilities of a public nature, and obligation
to keep, perform and observe the provisions of the "facilities
nondiscrimination" laws and/or regulations of the United States of America.
Accordingly, Tenant hereby covenants and agrees for itself, its successors and
assigns, that Tenant will not discriminate by segregation or otherwise against
any person or persons because of race, color, religion, sex, disability,
national origin or any other trait hereafter deemed to be a protected class by
such laws and/or regulations, in furnishing, or by refusing to furnish, to such
person or persons the use of any facility, including any and all services,
privileges, accommodations and activities provided in the Demised Premises. It
is agreed that Tenant's noncompliance with the provisions of this Section 42
shall constitute a material breach of this Lease.
43. TRASH REMOVAL
43.1 Tenant shall keep any garbage and trash in rodent-proof
containers within the interior of the Demised Premises and shall deposit any
garbage and trash on a daily basis in designed receptacles/dumpsters provided
by Landlord and separated as provided in Section 43.2 below. In the event that
the Demised Premises are such that said removal of trash and garbage by Tenant
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therefrom can be achieved only through a Common Area, Tenant shall remove such
trash and garbage only at times which are before the Building is open or after
the Building is closed. In the event Tenant fails to so remove any
accumulation of trash or garbage within twenty-four (24) hours after notice to
remove same, Landlord shall have the right, but not the obligation, to remove
the same, in which event the cost thereof shall be paid by Tenant.
43.2 Without limiting the foregoing, Tenant covenants and agrees,
at its sole cost and expense, to comply with all present and future laws,
orders, and regulations of the federal, county, municipal, and local
governments, departments, commissions, agencies and boards regarding the
collection, sorting, separation, and recycling of trash and garbage relating
solely to Tenant's use and occupancy of the Demised Premises. Tenant shall
sort and separate its trash and garbage into such categories as are provided by
law. Each separately sorted category of trash and garbage shall be placed in
separate receptacles as directed by Landlord, subject to bank regulatory
guidelines affecting Tenant. Landlord reserves the right to refuse to
collector accept from Tenant any trash or garbage that is not separated and
sorted as required by law, and to require Tenant to arrange for such collection
at Tenant's sole cost and expense, utilizing a contractor satisfactory to
landlord. Tenant shall pay all costs, expenses, fines, penalties, or damages
that may be imposed on Landlord or Tenant shall pay all costs, expenses, fines,
penalties, or damages that may be imposed on Landlord or Tenant by reason of
Tenant's failure to comply with the provisions of this Section 43.2, and
Tenant, at Tenant's sole cost and expense shall indemnify, defend and hold
Landlord harmless from and against any actions, claims, and suits (including
legal fees and expenses) arising from such noncompliance, utilizing counsel
reasonably satisfactory to Landlord.
44. BANKRUPTCY
SECTION 13 IS HEREBY DELETED AND THE FOLLOWING SUBSTITUTED THEREFOR:
'13.1 Events of Bankruptcy. The following shall be Events of
Bankruptcy under this Lease:
(a) Tenants's becoming insolvent, as that term is defined in
Title 11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec 101 et
seq. (The "Bankruptcy Code"), or under the insolvency laws of any State,
District, Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all
of Tenant's property or assets, or the institution of a foreclosure action upon
any of Tenant's real or personal property;
(c) The filing of a voluntary petition under the provision of
the Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as
the subject debtor under the Bankruptcy code or Insolvency Laws, which is
either not dismissed within thirty (30 days) of
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filing, or results in the issuance of an order for relief against the debtor,
whichever is earlier; or
(e) Tenant's making or consenting to an assignment for the
benefit of creditors or a common law composition of creditors.
13.2 LANDLORD'S REMEDIES.
(a) Termination of Lease, Upon occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this right to terminate shall
have no effect while a case in which Tenant is the subject debtor under the
Bankruptcy Code is pending, unless Tenant or Trustee is unable to comply with
the provisions of Sections 13.2 (d) and (e) below or any provision of the
Bankruptcy Code or Insolvency Laws which permit such termination. At all other
times this lease shall automatically cease and terminate, and Tenant shall be
immediately obligated to quit the Demised Premises upon the giving of notice
pursuant to this Section 13.2(a). Any other notice to quit, or notice of
Landlord's intention to enter is hereby expressly waived. If Landlord elects
to terminate this Lease, everything contained in this Lease on the part of
Landlord to be done and performed shall cease without prejudice, subject,
however, to the rights of Landlord to recover from Tenant all Minimum Annual
Rent, Percentage Rent, Additional Rent and any other sum accrued up to the time
of termination or recovery of possession by Landlord, whichever is later, and
any other monetary damages sustained by Landlord.
(b) Suit for Possession. Upon termination of this Lease
pursuant to Section 13.2(a), Landlord may proceed to recover possession of the
Demised Premises under and by virtue of the provisions of the laws of any
applicable jurisdiction, or by such other proceedings, including re-entry and
possession, as may be applicable, or by direct order from any court having
jurisdiction over Tenant/Debtor, including any Bankruptcy Court.
(c) Non-Exclusive Remedies. Without regard to any action by
Landlord, as authorized by Sections 13.2(a) and (b) above, Landlord may at its
discretion exercise all the additional provisions set forth below in Section
13.
(d) Assumption or Assignment by Trustee. In the event Tenant
becomes the subject debtor in a case pending under the Bankruptcy Code,
Landlord's right to terminate this Lease pursuant to Section 13.2 (a) shall be
subject to the rights of the Trustee in Bankruptcy to assume or assign this
Lease. In addition to all other objections Landlord may raise to assumption
and/or assignment, and in addition to all other requirements of any Bankruptcy
Court and the Bankruptcy Code, the Trustee shall not have the right to assume
or assign this Lease unless the Trustee (I) has timely performed all Lease
obligations of the Tenant/Debtor arising from and after the filing of any
voluntary bankruptcy petitition by Tenant or, in the case of an involuntary
petition by Tenant or, in the case of an involuntary petition, the date of
entry of the Order for Relief, (ii) promptly cures all defaults under this
Lease, (iii) promptly compensates Landlord for monetary damages incurred as a
result of such defaults, and (iv) provides adequate assurance of future
performance on the part of Tenant or on the part of the assignee of Tenant or
the Trustee.
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(e) Adequate Assurance of Future Performance. Landlord and
Tenant hereby agree in advance that adequate assurance of future performance,
as used in Section 13.2(d) above, shall means that all of the following minimum
criteria must be met:
(i) Tenant's gross revenues in the ordinary course
of business during the thirty (30 day) period immediately preceding the
initiation of the case under the Bankruptcy Code must be at least (2) times
greater than the next installment of Minimum Annual Rent, Percentage Rent and
Additional Rent due under this Lease.
(ii) Both the average and median of Tenant's gross
revenues in the ordinary course of business during the six (6) month period
immediately preceding the initiation of the case under the Bankruptcy Code must
be at least two (2) times greater than the next six (6) installments of Minimum
Annual Rent, Percentage Rent and Additional Rent due under this Lease.
(iii) Tenant must pay (and continue to pay on a
timely basis throughout the Lease Term) Minimum Annual Rent, Percentage Rent,
additional Rent and all other sums payable by Tenant hereunder in advance and
as a condition precedent to the performance of Landlord's obligations
hereunder.
(iv) The Trustee must agree that Tenant's business
shall be conducted in a first class manner, and that no liquidating sales,
auctions, or other non-fist class business operations shall be conducted on or
about the Demised Premises and/or Building.
(v) The source of Minimum Annual Rent, Percentage
Rent, Additional Rent and other consideration due under this Lease, and in the
case of an assignment, the financial condition and operating performance of the
proposed assignee and its guarantors, if any, shall be similar to the source of
such rents and consideration, and to the financial condition and operating
performance of the Tenant and its guarantors, if any, as of the time the Tenant
became the lessee under this Lease.
(vi) That any Percentage Rent due under this Lease
will not decline substantially from the highest levels of Percentage Rent due
under this Lease prior to the bankruptcy..
(vii) That the use of the Demised Premises as stated
in this Lease will remain unchanged and that no prohibited use shall be
permitted.
(viii) That assumption or assignment of this Lease
is subject to all the provisions hereof, including (but not limited to)
provisions such as radius, location, use, and exclusivity provisions, and will
not breach any such provision contained in any other lease, financing
agreement, or agreement relating to the Building.
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(ix) That assumption or assignment of this Lease
will not disrupt any tenant mix or balance in the Building.
(f) Failure to Provide Adequate Assurance. In the event the
Trustee or Tenant is unable to (I) comply with the requirements of Section
13.2(d) above, or (ii) meet the criteria and obligations imposed by Section
13.2(e) above, Tenant agrees in advance that it has not met its burden to
provide adequate assurance of future performance, and this Lease may be
terminated by Landlord in accordance with Section 13.2(a) above.
13.3 GUARANTORS. For purposes of this Section 13, any action or
adjudication by or on behalf of, or against, or with respect to the property or
affairs of, any guarantor or guarantors (if any) of this Lease, or any of them,
which, if taken by, against or with respect to Tenant, Tenant's property,
Tenant's leasehold improvements, or Tenant's affairs, would entitle Landlord to
exercise any remedy specified herein, may be treated, at Landlord's sole option
and discretion, as though it were taken by, against or with respect to Tenant.
13.4 DAMAGES. IN the event of cancellation and termination of this
Lease pursuant to Section 13.1 (b) above, Landlord will, notwithstanding any
other provisions of this Lease to the contrary, be entitled to promptly recover
damages from Tenant determined in accordance with the provisions set forth in
Section 14 of this Lease as provided for in the case of default by Tenant.".
45. DEFAULTS AND REMEDIES
45.1 Notwithstanding anything to the contrary in Section 2.1 and 14.1,
if Tenant defaults in the payment of rent, or defaults in the performance of
any other covenants, conditions and agreements, or rules and regulations herein
contained, Landlord shall give Tenant written notice of such default. If
Tenant fails to cure any rent (or additional rent) default within ten (10)
days, or fails to cure any other default within twenty (20) days after such
notice (or if such other default is of such nature that it cannot be completely
cured within said twenty (20) days, if Tenant fails to commence to cure within
said twenty (20) days and thereafter proceed with reasonable diligence and in
good faith,), then Landlord in addition to all other remedies set forth in this
Lease, may terminate this Lease on not less than ten (10) days notice to
Tenant. On the date specified in such notice, the term of this Lease shall
terminate, and Tenant shall then quit and surrender the Demised Premises to
Landlord. If this Lease shall have been so terminated by Landlord, Landlord
may at any time thereafter take possession of the Demised Premises by any
lawful means and remove Tenant or other occupants and their effects.
Nevertheless, in the event Tenant fails to pay rent or otherwise defaults in
the performance of any of the covenants, conditions and agreements or rules and
regulations herein contained, more than two (2) times in any twelve (12) month
period to send written notice before proceeding with its remedies under Section
14. Tenant acknowledges that the purpose of the preceding sentence is to
prevent repetitive defaults by Tenant under the Lease, which work a hardship
upon Landlord and deprive Landlord of the timely performance by Tenant
hereunder.
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45.2 In Section 14.2, in the first line before 'from insert 'After
notice and expiration of any applicable cure period,"; and in the third line
before 'demand' insert "further".
45.3 In Section 14.3, in the sixth and seventh lines, delete "first
class"l and at the end of the Section insert "Tenant shall not be deemed to
have abandoned the Demised Premises in the event the Demised Premises are
vacated by Tenant after a casualty (which shall be subject to the terms of
Section 11 of this Lease), condemnation (which shall be subject to the terms of
Section 12) or during any remodeling period approved by Landlord in advance.".
45.4 Section 114.4 of the Lease is hereby amended by deleting 'at the
time of the reletting, or' in line two and "by successive relettings,' in line
three.
46. SUBORDINATION
46.1 Sections 15.1, 15.2 and 15.3 of this Lease are hereby deleted in
their entirety and the following are substituted in lieu thereof:
15.1 Subordination. This Lease is subject and subordinate to all
ground or underlying Leases and to all mortgages and/or deeds of trust and/or
other security interests which may now hereafter affect the real property of
which the Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required to
effect this subordination. Notwithstanding the foregoing, in confirmation of
such subordination, Tenant shall at Landlord's request execute and deliver to
Landlord within fifteen (15) business days after Landlord's request, any
requisite or appropriate certificate, subordination agreement or other document
that may be reasonably requested by Landlord or any other party requiring such
certificate, subordination agreement or document. Notwithstanding the
foregoing subordination, Tenant agrees that any landlord under any ground or
underlying lease, and any mortgagee or trustee under any security agreement to
which this Lease is now, or may hereafter, become subject or subordinate, may
elect to continue this Lease and Tenant agrees that in such event neither the
cancellation or termination or any ground or underlying lease, nor the
foreclosure under any mortgage or deed of trust, nor the sale at foreclosure,
nor the transfer by a deed in lieu of foreclosure, shall, by operation of law
or otherwise, result in cancellation or termination of this Lease or the
obligations of Tenant hereunder and this Lease shall continue as a direct lease
between Tenant and such landlord, mortgagee, purchaser or trustee.
15.2 ESTOPPEL CERTIFICATES. Tenant shall execute and return within
fifteen (15) business days after receipt of request therefor any certificate
that Landlord may request from time to time, stating that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. The certificate also shall state (a)
the amount of Minimum Annual Rent, Additional Rent, Percentage Rent and the
dates to which said rent has been paid in advance; (b) the amount of any
security deposit or prepaid rent; (C) to the best of Tenant's knowledge, that
there is no present default on the part of Landlord, or attach a memorandum
stating any such instance of
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default; (d) that Tenant has no right to set-off and no defense or counterclaim
against enforcement of its obligations under this Lease except as otherwise
provided in this Lease; (e) that Tenant has no other notice of any sale,
transfer or assignment of this Lease or of the rentals; (f) to the best of
Tenant's knowledge, that all work required of Landlord has been completed and
that the work is accepted as satisfactory; (g) that Tenant is in full and
complete possession of the Demised Premises; (h) the date on which rent
commenced and the date to which it is paid; (I) that Tenant has not advanced
any amounts to or on behalf of Landlord which have not been reimbursed; (j)
that Tenant understands that this Lease has been collaterally assigned to
Landlord's mortgagee or trustee as security for a loan to Landlord; (k) that
rent may not be prepaid without the prior written approval of Landlord's
mortgagee or trustee; and (l) such other items as Landlord may reasonably
request. Failure to deliver the certificate within the ten (10) business days
shall be conclusive evidence against Tenant for benefit of landlord and any
successor to Landlord that this Lease is in fullforce and effect and has not
been modified except as may be represented by the party requesting the
certificate. Landlord shall, within fifteen (15) days after Tenant's request,
execute and deliver to Tenant a comparable estoppel certificate.
15.3 ATTORNMENT. Tenant covenants and agrees that, in the event of
any foreclosure under any mortgage or deed of trust, or any renewals,
modification, consolidation, replacement or extension thereof, or in the event
of any acceptance of any deed in lieu of foreclosure, which may now or
hereafter affect the real property of which the Demised Premises are a part,
Tenant shall attorn to the party secured by such mortgage or deed of trust, or
any renewal, modification, consolidation, replacement or extension thereof, and
to any purchaser at any foreclosure sale or party taking a deed in lieu of
foreclosure. Tenant covenants and agrees to attorn to any successor to
Landlord's interest in any ground or underlying lease. In any case, such
Landlord or successor under such ground or underlying lease or such secured
party or purchaser at foreclosure sale or party taking a deed in lieu of
foreclosure shall not be bound by any prepayment on the part of Tenant of any
rent for more than one month in advance, so that rent shall be payable under
this Lease in accordance with its terms, from the date of the termination or
transfer of the ground or underlying lease or the foreclosure under such
mortgage or deed of trust, or the date of foreclosure sale or transfer by deed
in lieu of foreclosure, as if such prepayment had not been made. Further, such
landlord or successor in interest shall not be liable for damages for any act
or omission of Landlord or any prior landlord or be subject to any offsets or
defenses which Tenant may have against Landlord or any prior Landlord. Tenant
shall, upon request of such Landlord or successor Landlord, execute and deliver
an instrument or instruments confirming Tenant's attornment.
15.4 MORTGAGEE RIGHTS.
(a) Tenant shall, at its own expense, comply with all
reasonable notices of Landlord's mortgagee or other financial institution
providing funds which are secured by a mortgage or deed of trust placed on the
whole or any part of the real property of which the Demised Premises are a
part, respecting all matters of occupancy, use, condition or maintenance of the
Demised Premises, provided the same shall not unreasonably interfere with the
conduct of Tenant's business nor materially limit or affect the rights of the
parties under this Lease.
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(b) Tenant agrees to give Landlord's mortgagee and any trustee
named or secured by a mortgage or deed of trust a copy of any notice of default
served upon Landlord by Tenant, provided that prior to such notice Tenant has
been notified in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise ) of addresses of such mortgagees and trustees. Notice shall be
provided to the mortgagees and trustees by registered mail. Tenant further
agrees that if Landlord shall have failed to cure such default within the cure
period provided in this Lease, if any, then the mortgagees and/or trustees
shall have an additional thirty (30) days within which to cure such default, of
ir such default cannot be cured within that time , then such additional time as
may be necessary if within such thirty (30) days any mortgagee and/or trustee
has commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings
if necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being diligently pursued.".
46..2 Notwithinstanding anything to the contrary in Section 15.1,
Landlord agrees to use reasonable efforts to obtain a nondisturbance agreement
from any future (but not current) mortgagees, which agreement would grant unto
Tenant the right to continue peacefully in possession of the Demised Premises
in the event of foreclosure under any future deed of trust or transfer of the
Building or the Demised Premises or any land or improvements associated
therewith by deed in lieu of foreclosure, as long as Tenant is not in default
under this Lease. Such agreement shall be contingent upon Tenant's agreement
to attorn to and recognize any purchaser at any foreclosure sale, and any
transferee on any deed in lieu of foreclosure, and their successors or assigns,
as the successor-in-interest to Landlord in the event of foreclosure or
transfer by deed in lieu of foreclosure.
47. DELIVERY AT END OF LEASE TERM
47.1 In Section 16.1, in the third line, after 'Premises" insert
"other than Tenant's furniture, fixtures and equipment".
47.2 In Section 16.2, in the ninth line, delete 'tripled.' and
substitute "increased by fifty percent (50%) for purposes of the holdover
period."; and delete the third sentence in its entirety.
48. NOTICES
48.1 In Section 21.1, in the second line, after 'mail' insert "or by
reliable overnight courier'.
48.2 In Section 21.2, after 'effective' insert "upon receipt or the
date of first refusal of receipt." and delete the rest of the sentence.
49. HAZARDOUS SUBSTANCES
49.1 HAZARDOUS SUBSTANCES. The Term "Hazardous Substances", as used
in this Lease, shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity,
41
<PAGE> 41
pollutants, contaminants, hazardous wastes, toxic substances or related
materials, petroleum and petroleum products, and substances declared to be
hazardous or toxic under any law or regulation now or hereafter enacted or
promulgated by any governmental authority.
49.2 TENANT'S RESTRICTIONS. Tenant shall not cause or permit to
occur:
(a) Any violations of any federal, state, or local law,
ordinance, or regulation now or hereafter enacted, related to environmental
conditions on, under or about the Demised Premises, or arising from Tenant's
use or occupancy of the Demised Premises, including, but not limited to, soil
and ground water conditions; or
(b) The use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous Substance on,
under, or about the Demised Premises, or the transportation to or from the
Demised Premises of any Hazardous Substance.
49.3 ENVIRONMENTAL CLEAN-UP.
(a) Tenant shall, at Tenant's own expense, comply with
all laws regulating the use, generation, storage, transportation, or disposal
of Hazardous Substances ("Laws"), in connection with its use of the Demised
Premises.
(b) Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required by, and comply with all
requirements of all governmental authorities (the "Authorities") under the Laws
relating to Tenant's use of the Demised Premises.
(c) Should Landlord, any Authority or any third party
demand that a clean-up plan be prepared and that a clean-up be undertaken
because of any deposit, spill, discharge, or other release of Hazardous
Substances that occurs solely as a result of Tenant's use or occupancy of the
Demised Premises, then Tenant shall, at Tenant's own expense, prepare and
submit the required plans and all related bonds and other financial assurances,
and Tenant shall carry out all such clean-up plans.
(d) Tenant shall promptly provide all information
regarding the use, generation, storage, transportation, or disposal of
Hazardous Substances that is requested by Landlord. If Tenant fails to fulfill
any duty imposed under this Section 49.3 within a reasonable time, Landlord may
do so; and in such case, Tenant shall cooperate with Landlord in order to
prepare all documents Landlord deems necessary or appropriate to determine the
applicability of the Laws to the Demised Premises and Tenant's use thereof, and
for compliance therewith, and Tenant shall execute all documents promptly upon
Landlord's request. No such action by Landlord and no attempt made by Landlord
to mitigate damages under any law shall constitute a waiver of any of Tenant's
obligations under this Section 49.3
(e) Tenant's obligations and liabilities under this
Section 49.3 survive the expiration of this Lease.
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<PAGE> 42
49.4 TENANT'S INDEMNITY.
(a) Tenant shall indemnify, defend, and hold harmless
Landlord, the manager of the Building, and their respective officers,
directors, beneficiaries, shareholders, partners, agents, and employees from
all fines, suits, procedures, claims, and actions of every kind, and all costs
associated therewith (including attorneys' and consultants' fees) arising out
of or in any way connected with any deposit, spill, discharge, or other release
of Hazardous Substances caused by Tenant, its employees, agents, or contractors
which arises at any time from Tenant's use or occupancy of the Demised
Premises, or from its failure to provide all information, make all submissions,
and take all steps required by all Authorities under the Laws and all other
environmental laws.
(b) Tenant's obligations and liabilities under this
Section 49.4 shall survive for a period of three (3) years from the expiration
of this Lease.
49.5 LANDLORD'S INDEMNITY.
(a) Landlord shall indemnify, defend, and hold harmless
Tenant, and its officers, directors, beneficiaries, shareholders, partners,
agents, and employees from all fines, suits, procedures, claims, and actions of
every kind, and all costs associated therewith (including attorney's and
consultants fees) arising out of or in any way connected with any violations of
any laws on or about the Demised Premises caused by Landlord, its employees,
agents, or contractors or from its failure in regard to operation of the
Building to provide all information, make all submissions, and take all steps
required by all Authorities under the Laws and all other environmental laws.
Tenant acknowledges that Landlord routinely uses Hazardous Substances (such as
fungicides, biocides and drain cleaners) in the normal operation of the
Building.
(b) Landlord's Obligations and liabilities under this
Section 49.5 shall survive for a period of three (3) years from the expiration
of this Lease.
50. RETURNED CHECKS
In the event any check from Tenant is dishonored, Tenant shall pay to
Landlord a penalty equal to Twenty-Five Dollars ($25.00) for each check so
dishonored.
51. MUTUAL MISTAKES
In the event of any mutual mistake in the preparation of this Lease
(including but not limited to arithmetic errors) made by Landlord and Tenant
which can be reasonably documented, then Landlord and Tenant agree to execute
instruments amending this Lease to correct such mutual mistakes.
43
<PAGE> 43
52. ADA COMPLIANCE
Tenant shall, at Tenant's sole expense, cause the Demised Premises,
including storefront access, to confirm at all times during the Term of this
Lease to all requirements of The Americans with Disabilities Act and all
amendments, modifications, extensions, and replacements thereto, and to all
regulations, directives and orders issued in connection therewith.
53. PARKING
Landlord agrees to arrange for parking in the garage of the Building
for up to three (3) automobiles of Tenant or Tenant's employees at the
prevailing monthly rate for such service.
54. RENWAL OPTION
54.1 Subject to Section 54.2, provided that Tenant is in compliance
with all of the terms and conditions of this Lease, and further provided that
Tenant gives written notice to Landlord on or before the ninth (9th)
anniversary of the Lease Commencement Date, time being of the essence, Tenant
shall have the right to extend the term of this Lease for a further term of
five (5) years. This provision shall be contingent upon Tenant occupying the
Demised Premises upon the commencement date of the extended term. Such
extension shall be under the same terms and conditions as set forth in this
Lease, except that the minimum annual rent for the extended term shall be the
then fair market value maximum annual rent for the extended term.
54.2 Within thirty (30) days after receipt of Tenant's notice of
intention to renew, Landlord may reject Tenant's renewal in the event (a)
Landlord had elected to demolish the Building during the period of years
included in the renewal term, or (b) requires the Demised Premises for another
tenant occupying or planning to occupy at least twenty-five percent of the
Building.
55. FAIR MARKET VALUE
For the purposes of the Renewal Option in Section 54, fair market
value minimum annual rent shall be defined as the prevailing base rental rate,
expressed in dollars per rentable square foot on a net basis, that would be
received by Landlords renting comparable retail space on a renewal basis in
comparable buildings in the Downtown Bethesda, Maryland, area to tenants as of
the date a determination of market rent is required, less any and all rental
abatements and other such rent and cash concessions then prevalent in such
comparative transactions. If the Landlord and Tenant fail to agree on the Fair
market value minimum annual rent within three (3) months after Landlord's
receipt of Tenant's notice of intention to renew, then the Landlord shall have
no further obligation to the Tenant to renew this Lease.
44
<PAGE> 44
56. CANCELLATION OPTION
Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Tenant shall have the right to cancel this Lease if
the Office of the Comptroller of the Currency fails to approve an opening date
of September 1, 1996, or earlier, for the Tenant's branch in the Demised
Premises. Tenant shall use diligent, best faith efforts to obtain such
approval no later than July 1, 1996. In the event such approval is not granted
and Tenant elects to cancel this Lease, then Tenant shall provide a written
cancellation notice to the Landlord no later than September 1, 1996, time being
of the essence.
57. BROKERS AND COMMISSIONS
Landlord and Tenant hereby represent and warrant to the other that, in
connection with this Lease, the party so representing and warranting as not
dealt with any real estate broker, agent or finder, and there is no commission,
charge, or other compensation due on account thereof in regard thereto,
excepting only Barnes, Morris, Pardoe & Foster and Charles E. SMITH
Management, Inc., whose commissions are the responsibility of Landlord. Each
party hereto shall indemnify and hold harmless the other against and from any
inaccuracy in such party's representation and warranty, and the rights,
obligations, warranties and representations of the parties hereto under the
provisions of this Section shall survive the expiration of the term, or the
sooner termination of this Lease pursuant to the other provisions hereof.
58. MUTUAL REPRESENTATION OF AUTHORITY
Landlord and Tenant represent and warrant to each other that they have
full right, power and authority to enter into this Lease without the consent or
approval of any other entity or person and make these representations knowing
that the party will reply thereon. The signatories on behalf of Landlord and
Tenant further represent and warrant that they have full right, power, and
authority to act for and on behalf of Landlord and Tenant, respectively, in
entering into this Lease.
59. USE
Notwithstanding, anything to the contrary in Section 6.2, Landlord
acknowledges that the use of the Demised Premises set forth in Section 1.8 is a
legal and permitted use. Landlord hereby acknowledges that the permitted use
set forth in Section 1.8 does not violate the terms of the first sentence of
Section 8.3, nor do the layout or installations in the Demised Premises as of
the date of this Lease exceed the designed floor load capacity of the Demised
Premises.
60. LANDLORD'S DEFAULT
60.1 The occurrence of any one or more of the following matters
constitutes a Default by Landlord under this Lease:
45
<PAGE> 45
Failure by landlord to pay, within thirty (30) days after receipt of
written notice from Tenant to Landlord, any monies required to be paid
by landlord under this Lease; or
Failure by Landlord to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such failure shall
continue for thirty (30) days after receipt of written notice from
Tenant to Landlord, except that if such default cannot be cured within
such thirty (30) day period and Landlord proceeds diligently
thereafter to effect such cure.
60.2 If a Default by Landlord occurs, Tenant shall have any rights and
remedies available at law or in equity to specifically enforce Landlords's
obligations, including after a judgment at law, the right to set off against
any amounts due from Tenant to Landlord the amount reasonably required to cure
any Default by Landlord. Tenant shall be permitted to cure any Default by
Landlord only if as a result of such Default Tenant is completely unable to
operate its business in the Demised Premises and Landlord refused to cure such
default.
46
<PAGE> 1
EXHIBIT 10.22
AGREEMENT OF SUBLEASE
This Agreement of Sublease (the "Sublease") dated as of the 29 of March, 1996,
is entered into by and between THOMAS COOK CURRENCY SERVICES INC., a Delaware
corporation, (the "Sublessor") and FRANKLIN NATIONAL BANK (the "Sublessee").
WHEREAS, by Lease dated May 29, 1992 and subsequent Amendment to Lease, copies
attached as Exhibit A, (the "Head Lease"), the Sublessor leases from THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA (the "Dead Landlord") certain premises
at 1800 K STREET N.W,, 9TH FLOOR, WASHINGTON D.C. 20006 containing 1821 square
feet of floor area and designated as suite 929, and more particularly described
in the Head Lease (the "Head Lease Premises").
WHEREAS, Sublessor is willing to Sublease to Sublessee and Sublessee is willing
to Sublease from Sublessor a portion of the Head Lease Premises as more fully
described herein, on the terms and conditions set forth herein.
NOW, THEREFORE, Sublessor and Sublessee agree as follows:
1. PREMISES: Sublessor hereby Subleases to Sublessee and Sublessee hereby
Subleases and takes from Sublessor the Sublease Premises containing
approximately 1821 square feet, as shown by red lines on Exhibit B attached
hereto and made part of hereof (the "Sublease Premises").
2. TERM: The term of this Sublease shall commence on APRIL 15, 1996
(the "Commencement Date") and shall expire on JANUARY 14, 1998 (the
"Termination Date"), unless terminated sooner pursuant to the provisions set
forth herein. THE SUBLESSEE SHALL HAVE ACCESS TO THE PREMISES MARCH 15, 1996
IN ORDER THAT SUBLESSEE MAY COMPLETE ITS RENOVATIONS (THE "FIXTURING PERIOD")
PROVIDED THAT THE SUBLEASE SHALL BE EXECUTED AND ALL APPROVALS SHALL BE
OBTAINED BY THE SUBLESSEE PRIOR TO ANY ACCESS TO THE PREMISES BY THE SUBLESSEE.
3. HEAD LEASE INCORPORATED:
Except as set forth herein, this subletting shall be on the
same terms and conditions as are contained in the Head Lease, to the extent
that such Head Lease terms are appropriate to the Sublease. Further, Sublessee
acknowledges and agrees that this Sublease shall be deemed to confer upon
Sublessee any rights which are in conflict with the Head Lease, as the same may
be altered or amended from time to time. Sublessee shall not do or permit to
be done any act or thing which would contravene the terms of the Head Lease and
the Head Lease shall govern in the event of a conflict with this Sublease. In
the event that the Head Lease is canceled or terminated for any reason, the
term of this Sublease shall automatically terminate simultaneously therewith
4. USE: During the term hereof, Sublessee shall use and occupy the
Sublease Premises for the following purposes: GENERAL OFFICES AS PROVIDED FOR
IN THE HEAD LEASE,
<PAGE> 2
PAGE TWO
and for no other purpose.
5. RENT/DEPOSITS/DEFAULT INTEREST/LATE PAYMENTS:
A) Rent/Deposits. As rental for the Sublease Premises,
Sublessee shall pay to sublessor as base rental of $-***SEE PAGE ONE A (the
"Base Rental"), without set-off or deduction, due and payable in advance on the
first day of each month during the term hereof, which Base Rental is in
addition to additional rents as described in Section 6 of this Sublease.
Except for base rent, rental due hereunder shall be subject to adjustment for
any changes made to the rental due under the Head Lease, or for any increase in
Sublessor's costs in providing maintaining or operating the Head Lease
Premises, and Sublessor shall notify Sublessee in writing of any such
adjustment. Any adjustment in rental shall be effective simultaneously with
the increase of Sublessor's costs. In the event this Sublease commences or
terminates on other than the last day of any particular month, all rentals
hereunder shall be prorated.
B) Default. If Sublessee shall default in its payment of any rent
or other amounts or charges required to be paid pursuant to this Sublease, such
unpaid amount shall bear interest from the date of default at the maximum
lawful rate. Sublessor agrees to forward any copies of notices of default by
Sublessor, that it receives.
C) Late Payment. Sublessee acknowledges that the late payment by
Sublessee if any installment of rent or other charges will cause Sublessor to
incur certain costs and expenses not contemplated under this Sublease, the
exact amount of which coasts are difficult or impractical to determine.
Therefore, if any such amount owing is not received by Sublessor within five
(5) days following the due date thereof, Sublessee shall immediately pay to
Sublessor late charge equal to 10% or such amount owing. To the extent that
any late charge provided for hereunder is determined to constitute interest, in
no event shall such late charges, plus any other interest due on sums owed to
sublessor hereunder, ever exceed the maximum rate, then the amount owed to
Sublessor shall automatically be reduced to equal the maximum amount permitted
by law.
6. UTILITIES, SERVICES AND ADDITIONAL COSTS:
Sublessor shall furnish the Sublease Premises with utilities
and services to the extent that they are furnished to Sublessor under the Head
Lease, except that Sublessor assumes no responsibility for interruption of such
services for any reason whatsoever, and Sublessee agrees to pay Sublessor for
any extraordinary electrical, gas or water consumption to the Sublease Premises
at the rate payable by Sublessor for that utility. Sublessor shall invoice
Sublessee separately for such services, which amounts shall be payable in
addition to Base Rental.
Utilities, Services and Additional Costs are described
hereunder:
INCLUDED IN BASE RENT.
7. ACCEPTANCE OF PREMISES:
Sublessee has inspected the Sublease premises and accepts the
Sublease Premises
<PAGE> 3
PAGE ONE A
RENTS PAYABLE BY SUBLESSEE TO SUBLESSOR:
APRIL 15, 1996 TO JULY 02, 1996 $0.000.00
JULY 03, 1996 TO JULY 14, 1996 $1,365.75
JULY 15, 1996 TO APRIL 14, 1997 $3,490.25 PER MONTH/$41,895 PER
ANNUM/$23 PER SQUARE FOOT OF
RENTABLE AREA
APRIL 15, 1997 TO JANUARY 14, 1998 $3,642.00 PER MONTH/$43,642 PER
ANNUM/$24 PER SQUARE FOOT OF
RENTABLE AREA
SUBLESSEE SHALL DEPOSIT WITH TENANT UPON SUBLESSEE'S EXECUTION OF THE SUBLEASE
PROPOSAL:
COMMITMENT DEPOSIT $3490.25 TO BE APPLIED TO FIRST
MONTHS RENTS DUE UNDER THIS
SUBLEASE
SECURITY DEPOSIT $3490.25 TO BE APPLIED TO LAST
MONTHS RENTS DUE UNDER THIS
SUBLEASE
RENTAL PAYMENTS SHALL BE PAYABLE TO THE SUBLESSOR AT:
THOMAS COOK CURRENCY SERVICES INC.
ATTENTION: MARU LEICHT, OPERATIONS MANAGER
CHEVY CHASE PAVILION
5335 WISCONSIN AVENUE NEW
SUITE 300
WASHINGTON, DC
20015
<PAGE> 4
PAGE THREE
AS-IS and acknowledges that, except as otherwise contained herein, Sublessor
has made no representations as to the condition thereof.
8. REPAIRS AND MAINTENANCE:
The Sublessee, at its sole cost and expense, shall construct
and keep the Sublease Premises in a clean, neat and orderly condition at all
times and shall maintain the Sublease Premises in accordance with the terms of
the Head Lease. Further, Sublessee shall, at its own expense, make all
necessary interior, non-structural repairs to the Sublease premises so as to
maintain the Sublease Premises in good order and condition, reasonable wear and
tear and damage by fire or other casualty excepted. In the event that
Sublessee fails to make any repair within ten (10) days after notice by
Sublessor or Head Landlord that such repair is needed, Sublessor, without
obligation to do so, may make such repairs and Sublessee shall thereafter
promptly reimburse Sublessor of all expenses incurred on account thereof, plus
an administration fee equal to 15% of the cost of all such expenses.
9. TAXES: Sublessee agrees to pay, before they become
delinquent, all taxes (both general and special), assessments or governmental
charges of any kind whatsoever (the "Taxes"), levied or assessed against the
Sublease Premises or any property of Sublessee located thereon or any business
conducted by Sublessee thereon. In the event that Sublessor shall be assessed
for Taxes on the Sublease Premises or any or all of Sublessee's leasehold
improvements, equipment, furniture, fixtures, personal property or Sublessee's
business operations, Sublessee shall pay to Sublessor the amount of the Taxes
within ten (10) days after delivery to Sublessee by Sublessor of a written
statement. On demand by Sublessor, Sublessee shall furnish Sublessor with
satisfactory evidence that the payments required to be made by the Sublessee
hereunder have been made. NOTWITHSTANDING THE CONTENT OF THIS SUBLEASE OR THE
LEASE, REALTY TAXES SHALL BE INCLUDED IN PAYMENT OF BASE RENT.
10. ALTERATIONS: Sublessee may not make any alteration, addition, or
improvement tot he Sublease Premises without the prior written approval of
Sublessor and Head Landlord. Sublessee shall prepare and submit at its costs
such professional drawings as are required by Sublessor and Head Landlord.
Unless Sublessor elects otherwise, all alterations , additions or improvements
to the Sublease Premises shall become the property of Sublessor upon the
expiration or earlier termination of this Sublease. In the event Sublessor so
elects, such alterations, additions or improvements shall be removed by
Sublessee at its own costs and expense, prior to expiration of the term of this
Sublease, and Sublessee shall repair any damage to the Sublease Premises caused
by such removal, all in accordance with the terms and conditions of the Head
Lease.
11. RIGHT OF ENTRY: Sublessor shall have the right to enter the Sublease
Premises for any reasonable purpose, upon prior notice except for emergencies,
including to gain access to and egress from those portions of the Head Lease
Premises or the Building not leased to Sublessee hereunder and to perform such
functions as may be necessary or convenient for the maintenance and operation
thereof. Sublessor shall use reasonable efforts not to interfere with the
business
<PAGE> 5
PAGE FOUR
of the Sublessee.
12. COMPLIANCE WITH LAW:
Sublessee will comply with all applicable statutes,
ordinances, rules, regulations, orders, and directives or any governmental
authority applicable to the Sublease Premises or to Sublessor's or Sublessee's
use or occupancy thereof and perform, at its own expenses, all obligations
imposed thereby.
13. CASUALTY: In the event that the Sublease Premises or any
portion thereof should be damaged or destroyed by fire, or other casualty,
Sublessor, at its option, may either terminate this Sublease or diligently
proceed to cause the repair of the damage to the Sublease Premises. If
Sublessor elects to repair or rebuild, and if the Sublease Premises are so
damaged that Sublessee is unable to occupy the Sublease premises or a portion
thereof during such repair or reconstruction, then the rental hereunder shall
be appropriately abated until the Sublease Premises can be occupied by
Sublessee. Sublessor shall in no event be required to rebuild, repair, or
replace any improvements, fixtures or personal property of Sublessee.
Notwithstanding the foregoing, in the event the Building or the Sublease
Premises or the Head Lease Premises are damaged or destroyed through negligence
or willful misconduct of Sublessee, its officers, directors, employees, agents,
customers, concessionaires, vendor, contractor or invitees, then Sublessee
shall pay to Sublessor upon demand, the cost of repairing any such damage.
14. RELEASE AND INDEMNITY:
A) Release. Sublessee hereby agrees that Sublessor shall not be
liable for any loss or any damage to any property (including the property of
Sublessee, its officers, directors, employees, agents, customers,
concessionaires, vendors, contractors or invitees) or the death or injury of
any persons (including Sublessee, its officers, directors, employees, agents,
customers, concessionaires, vendors, contractors or invitees) occasioned by
theft, fire, acts of God, public enemy, injunction, riot, strike, insurrection,
war, or any other action of any governmental body or authority, by other
tenants of the Head Lease Premises or the Building or any other matter beyond
the control of Sublessor, or for any injury damages or inconvenience which may
arise through repair or alteration of any part of the Sublease Premises or the
Head Lease Premises or the Building, or failure to make repairs, or for any
cause whatsoever except the negligence or willful misconduct of Sublessor.
B) Indemnity. Sublessee hereby releases and will defend, indemnify,
and hold harmless Sublessor and the Head Landlord, their respective officers,
directors, employees, agents, concessionaires, vendors, and contractors
(the"Indemnified Parties") from and against any and all liability, claims,
penalties, fines, causes of action, suits, liens, losses, loss of use, damages,
costs and expenses of any kind (including legal fees and litigation costs)
which may be suffered by, accrued against, charged to or recoverable from the
Indemnified Parties by reason of 1) any occurrence in, upon, or at the Sublease
Premises, however caused, including without limitation, occurrences caused, in
whole or in part, by the negligence or misconduct or Sublessee, its officers,
directors, employees, agents, customers, concessionaires, vendors, contractors
or
<PAGE> 6
PAGE FIVE
invitees; or 2) any occupancy, use or misuse or the Sublease Premises or the
service areas parking areas, pedestrian areas, pedestrian walks or driveways in
or around the Sublease Premises, by Sublessee, its officers, directors,
employees, agents, customers, concessionaires, vendors, contractors or
invitees; or 3) any occurrence elsewhere in the Head Lease Premises or the
Building occasioned in whole or in part by the act or omission of Sublessee; or
4) any occurrence occasioned by the violation of any law, regulation or
ordinance by Sublessee or its officers, directors, employees, agents,
customers, concessionaires, vendors, contractors or invitees.
15. INSURANCE: During the term of this Sublease, Sublessee, at its
own cost and expense, shall maintain with insurers acceptable to sublessor and
Head Landlord, all of the coverage's required in the Head Lease.
A) Form and Certificates.
The liability policies shall : 1) name Sublessor and
Head Landlord as additional insured; 2) specifically insure the liability
assumed by Sublessee hereunder; 3) be primary without right of contribution
from any insurance carried by Sublessor or Head Landlord hereunder; and 4)
provide for thirty (30) day written notice to Sublessor and Head Landlord prior
to cancellation and to the extent possible, providing notice of material
change. Certificates evidencing the above coverage's and special endorsements
shall be provided to Sublessor and Head Landlord on or before the date
Sublessee takes possession of the Sublease Premises.
C) Waiver of Subrogation.
Sublessee, on behalf of itself and its insurers,
hereby waives any claim or right of recovery from Sublessor or Head Landlord,
their officers, directors, employees, agents, concessionaires and contractors,
for loss or damage to Sublessee or its property or the property of others under
Sublessee's control, to the extent that such loss is covered by valid insurance
policies. Sublessee shall provide notice of this waiver of subrogation to its
insurers.
16. LIENS: Sublessee hereby agrees to keep the Sublease
Premises, and the improvements thereon, free and clear of mechanics' liens and
other liens for labor, services, equipment or materials. In the event such a
lien is filed or recorded, Sublessee shall take all action required to remove
the same within fifteen (15) days of the filing or recordation. In the event
that Sublessee fails to take such action to remove the lien, then Sublessor may
do so and all costs associated therewith shall be due to Sublessor from
Sublessee upon demand.
17. CONDEMNATION:
A) Total Taking. If during the term of this Sublease or any extension
or renewal thereof, all or a substantial art of the Sublease Premises should be
taken for any public or quasi-public use under any governmental law, ordinance,
or regulation or by right of eminent domain, or should be sold tot he
condemning authority under threat of condemnation, this Sublease shall
terminate and the rent hereunder shall be abated during the unexpired portion
of this Sublease, effective form the date of taking of the Sublease Premises by
the condemning authority.
<PAGE> 7
PAGE SIX
B) Partial Taking.
If less than a substantial part of the Sublease
Premises is taken for public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, Sublessor, at its option,
may by written notice terminate this Sublease or shall forthwith at its sole
expense restore the Sublease Premises (other than leasehold improvements make
by Sublessee), in order to make the same reasonably tenable and suitable for
the uses for which the Sublease Premises are subleased. The rent payable
hereunder during the unexpired portion of this Sublease shall be adjusted
equitably.
C) Awards. Sublessor and Sublessee shall be entitled to seek and
receive and retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation proceedings.
The termination of this Sublease shall not affect the rights of the respective
parties to such awards.
18. DEFAULTS: The occurance of any of the following shall
constitute a default by Sublessee under this Sublease:
a) Sublessee fails to pay any sum as required hereunder and such
failure continues for five (5) days after due date;
b) Sublessee abandons or vacated the Sublease Premises;
c) Sublessee fails to observe and perform any other provisions of
this Sublease, and such failure continues for thirty (30) days after written
notice thereof by Sublessor;
d) Sublessee: 1) fails to pay its bills when due; or 2) takes any
steps leading to its cessation as a going concern or ceases or suspends
operations for reasons other than a strike or regulatory closing; or 3) becomes
insolvent or makes transfers in fraud of creditors or makes an assignment for
the benefit of creditors; or 4) files a petition for protection under any state
or federal bankruptcy act or a trustee or receiver is appointed for all or
substantially all of Sublessee's assets.
19. REMEDIES UPON DEFAULT:
Upon the occurrence of an event of default hereunder,
Sublessor may take any one or more of the following actions:
a) Maintain this Sublease in full force and effect and recover
any and all rents and other monetary charges as they becomes due, without
terminating Sublessee's right to possession, regardless of whether Sublessee
shall have abandoned the Sublease Premises. If Sublessor elects not to
terminate this Sublease, Sublessor shall have the right to attempt to relet the
Sublease Premises on behalf of Sublessee upon such conditions and for such a
term and to do all acts necessary to maintain or preserves the Sublease
Premises as Sublessor deems reasonable and necessary, including the removal of
all persons and property from the Sublease Premises, without being deemed to
have elected to terminate this Sublease. Any property so removed may be
disposed of or stored in a public warehouse or elsewhere, at Sublessor's
election, at the cost of and for the account of Sublessee. Notwithstanding
that Sublessor fails to
<PAGE> 8
PAGE SEVEN
elect to terminate this Sublease initially, Sublessor at any time thereafter
may elect to terminate this Sublease as a result of such previous and then
existing default of Sublessee.
B) Terminate this Sublease by written notice to Sublessee, in
which event this Sublease shall be ended as to Sublessee and all persons
holding under Sublessee, and all of Sublessee's rights shall be forfeited and
lapsed, as fully as if this Sublease had expired by lapse of time. In such
event, Sublessee shall be required to vacate the Sublease Premises immediately
and surrender same to Sublessor. If Sublessee fails to surrender the Sublease
Premises immediately to Sublessor, Sublessor, without prejudice to any other
remedy, may enter upon and take possession of the Sublease Premises or any part
thereof, without being liable for prosecution or any other claims of damages.
In the event of termination in accordance with this provision, the rental or
any other sums payable by Sublessee pursuant to this Sublease that have accrued
hereunder but are unpaid shall be immediately due and payable by Sublessee to
Sublessor. In addition, Sublessee agrees to pay Sublessor upon demand the
amount of all loss and damages which Sublessor may suffer by reason of such
termination, whether through inability to relet the Sublease Premises on
satisfactory terms or otherwise, including, without limitation,: 1) all
expenses incurred by Sublessor, including court costs and attorney's fees, in
recovering possession of the Sublease Premises or enforcing Sublessor's rights
under this Sublease; 2) all costs and charges for care of the Sublease Premises
to a good condition; 3) all reasonable costs associated with Sublessor's
efforts to relet the Sublease Premises; and 4) the difference between the total
rental that would have accrued to Sublessor under the Sublease for the
remainder of the term had the Sublease not been terminated and the rentals
received as the result of the Sublease Premises being relet. The failure of
Sublessor to relet the Sublease Premises or any part of parts thereof shall not
release or effect Sublessee's liability for damages hereunder;
c) Cure the default on the behalf of the Sublessee, in which
event the Sublessee shall, upon demand by Sublessor, pay all sums expended by
Sublessor in accomplishing such cure;
d) Exercise any right available to Sublessor in law or in equity.
20. CUMULATIVE RIGHTS:
Sublessor's rights and remedies hereunder shall be cumulative
and shall not be exclusive of one another, and Sublessor shall have the right
to pursue any one or more of them Sublessor's acceptance of any rent or other
payments due hereunder or Sublessor's failure to take any action on account of
any rent or other payments due hereunder or Sublessor's failure to take any
action on account of a default if such default persists or is repeated, shall
not be deemed a waiver of any default. Sublessor's consent to any act by
Sublessee requiring Sublessor's consent or approval shall not be deemed to
waive or render unnecessary Sublessor's consent or approval to any subsequent
or similar acts by Sublessee.
21. SURRENDER OR PREMISES/HOLDING OVER:
At the expiration or earlier termination of this Sublease,
Sublessee shall
<PAGE> 9
PAGE EIGHT
surrender the Sublease Premises to Sublessor in good condition, broom clean,
reasonable wear and tear, damage by fire or other casualty excepted. Should
Sublessee remain in possession of the Sublease Premises, or any portion
thereof, after the termination of this Sublease (whether by expiration of the
term of this Sublease or otherwise), without execution of a new Sublease,
Sublessee shall become a tenant from month to month and shall be liable to pay
monthly rental at double the rate provided hereunder. Such tenancy shall be
subject to all terms and conditions of this Sublease.
22. ASSIGNMENT AND SUBLEASE:
Sublessee shall not assign this Sublease or any right
hereunder or sublet the Sublease Premises during the term of this Sublease,
without the prior written consent of Sublessor, provided however that, subject
to the rights of the Head Landlord and the terms of the Head Lease, Sublessor's
consent shall not be unreasonably withheld. Sublessor's acceptance of rent
from any person other than Sublessee shall not be deemed to be a waiver of this
provision. Consent to one assignment or subletting shall not be deemed to be
consent to any subsequent assignment or subletting.
23. ACCORD AND SATISFACTION:
No payment or receipt by Sublessor of a lesser amount than the
rent or other charges herein stipulated shall be deemed to be other than on
account of the rent or such charges. Further, no endorsement or statement on
any check or any letter accompanying any check or payment without prejudice to
Sublessor's right to recover the balance of such rent or other charges or
pursue any other remedy provided in this Sublease.
24. FORCE MAJEURE: Neither party shall be deemed to be in breach of this
Sublease by reason of a failure to perform any of its obligations hereunder tot
he extent that such failure is caused by strike or labor troubles,
unavailability of materials or utilities, riots, rebellion, insurrection,
invasion, war, action or interference of governmental authorities, acts of God,
or any other cause whether similar or dissimilar to the foregoing which is
reasonable beyond the control of the parties; provided, however, this clause
shall not apply to Sublessee's obligation to pay rent or other sums due
hereunder, such obligation being absolute and unconditional.
25. ATTORNEY'S FEES: In the event that Sublessee defaults in the
performance of any of the terms, conditions or agreements contained IN THE
Sublease and Sublessor places the enforcement of all or part of this Sublease
in the hands of an attorney for enforcement, including the filing of a suit
upon the same, Sublessee agrees to pay all of Sublessor's reasonable attorney's
fees and costs.
26. GOVERNING LAW: THIS SUBLEASE SHALL BE GOVERNED BY AND CONSTRUED UNDER
THE LAWS OF THE STATES IN WHICH THE DEMISED PREMISES IS LOCATED.
27. ENTIRE AGREEMENT:
This Sublease constitutes the complete agreement between the
parties with respect
<PAGE> 10
PAGE NINE
to the subject matter hereof and supersedes all previous agreements,
representation and understandings concerning the same, whether written or oral.
The provisions of the Sublease may be modified, amended or waived only by
written instrument, executed by Sublessor and Sublessee.
28. WAIVER: A waiver by either party to this Sublease of any
breach of the covenants, conditions or agreements contained herein shall not be
construed as a waiver of any succeeding breach of the same or other covenants,
conditions or agreements.
29. SEVERABILITY: If any provision or term of this Sublease shall be
determined to be illegal, invalid or unenforceable, the remainder of this
Sublease shall not be affected and shall remain valid and enforceable to the
fullest extent permitted by law.
30. APPROVAL BY LANDLORD:
This Sublease is conditional upon written consent being
obtained from the Landlord. In the event the Landlord does not give its
consent, either or the undersigned parties may, at its option, rescind its
signature and this Sublease shall thereafter be of no force or effect.
31. NOTICES:
To the Sublessor:
Thomas Cook Currency Services Inc.
Attention: B.Zeng
Vice President and General Manager
Chevy Chase Pavilion
5335 Wisconsin Avenue NW
Suite 300
Washington, DC 20015
with a copy to:
Thomas Cook Group (Canada) Limited
Facilities Department
100 Yonge Street, 14th floor
Toronto, Ontario
M5C 2W1
To the Sublessee:
MRS. LINDA B. JOHNSON
SENIOR VICE PRESIDENT
FRANKLIN NATIONAL BANK
1722 EYE STREET, NW
WASHINGTON, DC 20006
Either party from time to time, may change its address by written notice to the
other party.
<PAGE> 11
PAGE TEN
Notices hereunder shall be deemed effective when delivered by hand delivery or
overnight courier, or three days after deposit in the United States mail or
Canada Post, first class, postage prepaid.
32. QUIET ENJOYMENT:
Upon Sublessee's payment of all sums due hereunder and
provided that Sublessee is not otherwise in default hereunder, Sublessee shall
peaceably and quietly hold, occupy and enjoy the Sublease Premises for the term
of this sublease without hindrance, ejection or interruption by Sublessor, or
persons lawfully claiming through Sublessor.
33. BINDING EFFECT: Subject to prohibitions against assignment, this
Sublease shall be binding upon the parties, their personal representative,
successors and assigns.
WITNESS the signatures of the parties as of the date first written above.
SUBLESSOR
THOMAS COOK CURRENCY SERVICES INC.:
BY: BERNARD P. ZENG
-----------------------------------------------------------------
NAME: BERNARD P. ZENG
-----------------------------------------------------------------
TITLE: VICE PRESIDENT
-----------------------------------------------------------------
I/WE HAVE THE AUTHORITY TO BIND THE CORPORATION
SUBLESSEE
BY: ROBERT P. PINCUS
-------------------------------------------------------------------
NAME: ROBERT P. PINCUS
-------------------------------------------------------------------
TITLE: PRESIDENT & CEO
-------------------------------------------------------------------
I/WE HAVE THE AUTHORITY TO BIND THE CORPORATION
LANDLORD
BY:
------------------------------------------------------------------------
NAME:
------------------------------------------------------------------------
TITLE:
------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE:
Primary and fully diluted earnings per share for the years ended December 31
are computed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 4,523 $ 3,383 $ 2,431
Primary earnings (A) 4,523 3,383 2,431
Fully diluted earnings (B) 4,523 3,383 2,431
Weighted average shares outstanding 6,337,322 6,095,273 5,614,877
Dilutive common stock equivalents for primary
earnings per share 274,018 205,090 ---------(1)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares and common equivalent shares
outstanding for primary earnings per share (C) 6,611,340 6,300,363 5,614,877
Additional equivalent shares assuming full dilution 75,638 77,354 ---------(1)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares and common equivalent shares
outstanding for fully diluted earnings per share (D) 6,686,978 6,377,717 5,614,877
Earnings per share
- -------------------------------------------------------------------------------------------------------------------------
Primary (A)/(C) $ 0.68 $ 0.54 $ 0.43
Fully diluted (B)/(D) $ 0.68 $ 0.53 $ 0.43
=========================================================================================================================
</TABLE>
(1)Diluted securities have been less than a 3% dilutive effect in these
periods.
225
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements on Form S-8 of Franklin Bancorporation, Inc. pertaining to the
Franklin Bancorporation, Inc. Stock Option Agreement for William J. Ridenour
and on Form S-8 of Franklin Bancorporation, Inc. pertaining to the Franklin
Bancorporation,Inc. Stock Option Agreement for Leslie T. Proctor, of our
report dated February 7, 1997, on our audits of the consolidated financial
statements of Franklin Bancorporation as of December 31, 1996 and 1995 and for
the years then ended, which report is included in this Annual Report on Form
10-K of Franklin Bancorporation, Inc. for the year ended December 31, 1996.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-8 of our report dated February 3, 1995
appearing on page 58 of Franklin Bancorporation, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996.
Price Waterhouse L.L.P.
Washington, D.C.
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,122
<INT-BEARING-DEPOSITS> 346
<FED-FUNDS-SOLD> 71,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,160
<INVESTMENTS-CARRYING> 66,956
<INVESTMENTS-MARKET> 65,447
<LOANS> 232,581
<ALLOWANCE> 3,842
<TOTAL-ASSETS> 497,817
<DEPOSITS> 363,427
<SHORT-TERM> 99,093
<LIABILITIES-OTHER> 3,404
<LONG-TERM> 0
0
0
<COMMON> 649
<OTHER-SE> 31,244
<TOTAL-LIABILITIES-AND-EQUITY> 497,817
<INTEREST-LOAN> 18,838
<INTEREST-INVEST> 8,113
<INTEREST-OTHER> 2,389
<INTEREST-TOTAL> 29,340
<INTEREST-DEPOSIT> 8,596
<INTEREST-EXPENSE> 11,050
<INTEREST-INCOME-NET> 18,290
<LOAN-LOSSES> 27
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 12,652
<INCOME-PRETAX> 7,381
<INCOME-PRE-EXTRAORDINARY> 4,523
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,523
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 7.77
<LOANS-NON> 908
<LOANS-PAST> 128
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,443
<CHARGE-OFFS> 509
<RECOVERIES> 881
<ALLOWANCE-CLOSE> 3,842
<ALLOWANCE-DOMESTIC> 3,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 868
</TABLE>
