As filed with the Securities and Exchange Commission on April 15, 1998
Registration No. 333-_______
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware
-------------------------
(State or Jurisdiction of
Incorporation or Organization)
6060
----------------------------
(Primary Standard Industrial
Classification Code Number)
13-3699013
---------------------------------
(IRS Employer Identification No.)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212) 757-7300
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
----------------------------------------------------------------
(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
---------------------------------------------------------
(Name, Address and Telephone Number of Agent For Service)
-----------------
with copies to:
Thomas E. Willett, Esq. William L. Kreienberg, Esq.
Harris Beach & Wilcox Harter Secrest & Emery
130 East Main Street 700 Midtown Tower
Rochester, New York 14604 Rochester, New York 14604
Approximate Date of Proposed Sale to the Public: As soon as practicable.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
Title of Each Class of Amount to be Proposed Maximum Proposed Amount of
Securities to be Registered Offering Price Per Maximum Registration
Registered Unit(1) Offering Price Fee(2)
- -------------------------------------------------------------------------------------------------------------------
Series __/__/98
Convertible
Subordinated Debentures $6,000,000 $10,000 $6,000,000 $1,819.00
- -------------------------------------------------------------------------------------------------------------------
Class A Common Stock,
par value $1.00 per share 428,572(1) $14.00 $6,000,000 $0.00
- -------------------------------------------------------------------------------------------------------------------
Total $1,819.00
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</TABLE>
(1) Estimated solely for purposes of calculating the Registration Fee. The
shares of Class A Common Stock are issuable upon conversion of the
Debentures and the offering price is based on the closing sale price on
the NASDAQ SmallCap Market on April 7, 1998.
(2) As permitted Rule 457(i), no additional fee is payable for the
securities issuable upon conversion.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date the Commission, acting pursuant to said Section 8(a) may
determine.
1
<PAGE>
Information contained herin is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solictation or sale would be unlawful prior to
registration or qualification under the securities of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 14, 1998
PROSPECTUS
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank)
Maximum $6,000,000
Minimum $5,000,000
SERIES __/__/98 CONVERTIBLE SUBORDINATED DEBENTURES
Due July 1, 2008
--------------------------------------
Intervest Bancshares Corporation (the "Company") is offering up to
$6,000,000 aggregate principal amount of its Series __/__/98 Convertible
Subordinated Debentures due July 1, 2008 (the "Debentures"). As more fully
described under "Description of Debentures," the Debentures are convertible at
any time before April 1, 2008, unless previously redeemed, into shares of Class
A Common Stock, par value $1.00 per share, of the Company (the "Class A Common
Stock") at an initial conversion price to be determined at closing based on the
average closing prices of the Class A Common Stock on the Nasdaq Stock Market's
SmallCap Market (Symbol: IBCA) during the 20 trading days prior to closing, less
$.50 and rounded down to the nearest quarter dollar. See "Market for Class A
Common Stock and Dividends." The conversion price will be subject to adjustment
annually as described in more detail under "Description of Debentures."
Interest on the Debentures will accrue each calendar quarter at a fixed
rate, which rate will be fixed at the closing date and will reflect the prime
rate of Chase Manhattan Bank on that date less one-half of one percent. In
addition, interest will accrue each calendar quarter on the balance of the
accrued interest as of the last day of the preceding calendar quarter at the
same interest rate. All accrued interest on the Debentures will be payable at
the maturity of the Debentures whether by acceleration, redemption or otherwise.
The Debentures are redeemable by the Company, in whole or in part, at
any time and from time to time, at the option of the Company at fixed redemption
prices as set forth herein, together with accrued interest to the redemption
date. The Debentures will be issued only in denominations of $10,000 and
multiples thereof, with a minimum purchase of $10,000.
The Debentures will be unsecured general obligations of the Company
subordinate in right of payment to all existing and future senior indebtedness
(as defined herein) of the Company. See "Description of Debentures -
Subordination." The Company currently has no senior indebtedness.
Prospective investors should consider the information
discussed under "Investment Considerations and
Risk Factors" on page 10.
-----------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(1)(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture 100% 8% 92%
- --------------------------------------------------------------------------------------------------------------------------
Total Minimum(2) $5,000,000 400,000(4) $4,600,000
- --------------------------------------------------------------------------------------------------------------------------
Total Maximum(2) $6,000,000 480,000(4) $5,520,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
(1) The Debentures are being offered on a "best efforts" basis by Sage,
Rutty & Co., Inc. (the "Underwriter"), and by other participating
broker/dealers who are members of the National Association of
Securities Dealers, Inc. The Company will pay the Underwriter a
commission of 7% of the purchase price of each Debenture which is sold
by the Underwriter or participating broker/dealers. In addition, the
Company will pay the Underwriter a fee equal to 1% of the aggregate
gross amount of Debentures sold, such fee to be paid upon completion of
the Offering. The Company has agreed to indemnify the Underwriter and
participating broker/dealers against certain civil liabilities,
including certain liabilities under the Securities Act of 1933, as
amended. See "Plan of Distribution."
(2) If at least $5,000,000 of Debentures are not sold within 75 days after
the date this Registration Statement is declared effective by the
Securities and Exchange Commission (the "Offering Termination Date"),
all subscription documents and funds (together with any interest earned
thereon) will be promptly refunded to subscribers and the Offering will
terminate. If at least $5,000,000 of Debentures are sold prior to the
Offering Termination Date, the Company may close the offering as to
those subscribers and continue the offering of unsold Debentures for up
to 150 additional days. Until the Closing, all funds received from
subscribers will be held in escrow by Manufacturers and Traders Trust
Company, for the benefit of subscribers.
(3) In addition to the underwriting fees and commissions, expenses of the
Offering payable by the Company are estimated to be approximately
$120,000. See "Use of Proceeds."
(4) Includes the payment by the Company of the underwriter's fee of 1% of
the aggregate gross amount of Units sold.
SAGE, RUTTY & CO., INC.
The date of this Prospectus is _________________, 1998
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder, and in accordance therewith, files
reports, and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, and other information can be inspected and copied
at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Securities and Exchange Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that site is: "http://www.sec.gov".
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system with respect to the securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement including the exhibits
filed as a part thereof, which may be inspected at the principal or regional
offices of the Commission, without charge.
The Company will furnish annual reports to its shareholders which will
contain audited financial statements certified by its independent public
accountants. The Company may distribute unaudited quarterly reports and other
interim reports to its shareholders as it deems appropriate.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents referred to above that have been incorporated into this
Prospectus by reference. Written or oral requests for such copies should be
directed to: Mr. Lawrence G. Bergman, Intervest Bancshares Corporation, 10
Rockefeller Plaza, New York, New York 10020; (212) 757-7300.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
The Company
Intervest Bancshares Corporation (the "Company") is a bank holding
company incorporated under the laws of the State of Delaware whose only
subsidiary is Intervest Bank (the "Bank"), a Florida chartered bank which is a
member of the Federal Reserve System. The Company owns approximately 99% of the
issued and outstanding shares of the Bank. The Bank is a community-oriented,
full service, commercial bank serving the Clearwater area of the State of
Florida.
The principal business of the Bank is to attract deposits and to loan
or invest those deposits on profitable terms. The Bank offers a variety of
deposit accounts which are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per depositor. The lending of the Bank consists
primarily of real estate loans, commercial loans and consumer loans. The Bank is
one of several providers of funds for such purposes in its market area, and its
lending policies, deposit products and related services are intended to meet the
needs of individuals and businesses in its market area.
As of December 31, 1997, the Company had consolidated assets and
deposits of $150.7 million and $131.2 million, respectively. The Company's
stockholders' equity at December 31, 1997 was $17.6 million. Unless the context
otherwise requires, references herein to the Company include the Company and its
subsidiary, the Bank, on a consolidated basis.
The Offering
Securities Offered.................. Up to $6,000,000 in principal amount of
Series __/__/98 Convertible Subordinated
Debentures due July 1, 2008.
Interest Accrual and Payment....... Interest on the principal amount of the
Debentures will accrue each calendar
quarter at a fixed rate, reflecting the
prime rate of Chase Manhattan Bank less
one-half of one percent on the date of
closing. In addition, interest will accrue
each calendar quarter on the balance of
the accrued interest at the same interest
rate. All accrued interest is payable at
maturity, provided, that, commencing July
1, 2003, holders can elect by prior
written notice to be paid all accrued
interest and to receive quarterly payments
of interest thereafter.
Convertibility...................... The Debentures are convertible into Class
A Common Stock at any time before April 1,
2008 or redemption at an initial price to
be determined at closing based on the
average of the closing prices of the
shares of Class A Common Stock for the 20
previous trading days, less $.50, rounded
down to the nearest quarter dollar,
subject to increase annually in specified
amounts and subject to adjustment in
certain events.
Mandatory Redemption............... None
Optional Redemption..................The Debentures are redeemable, in whole or
in part, at any time and from time to time
at the option of the Company on not less
than 30 days' notice, at fixed redemption
prices as set forth herein, together with
accrued interest to the redemption date.
See "Description of the Debentures."
Subordination....................... The payment of principal and premium, if
any, and interest on the Debentures is
subordinated to all existing and future
Senior Indebtedness (as defined herein).
The Company currently has no Senior
Indebtedness. The Indenture (as defined
herein) does not limit
4
<PAGE>
the occurrence of indebtedness, including
Senior Indebtedness, by the Company. See
"Description of the Debentures -
Subordination."
Class A Common Stock............... The Class A Common Stock is listed on the
Nasdaq Stock Markets SmallCap Market under
the symbol "IBCA." At March 31, 1998,
2,136,675 shares of Class A Common Stock
were outstanding.
Use of Proceeds..................... The Company intends to apply the net
proceeds of this Offering to the Company's
capital for the Company's general corporate
purposes, including without limitation, the
financing of the expansion of the Company's
operations through acquisitions, and the
infusion of capital to the Bank and any
future subsidiaries of the Company. See
"Use of Proceeds."
Investment Considerations........... Prospective investors in the Debentures
should consider the information discussed
under the heading "Investment
Considerations and Risk Factors."
5
<PAGE>
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share figures)
As of or for the
- ------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
------------ ------------ ------------ ------------
Income Statement Summary:
<S> <C> <C> <C> <C>
Interest income $ 9,347 6,381 4,190 2,158
Interest expense 5,894 3,745 2,225 803
Net interest income 3,453 2,636 1,965 1,355
Provision for loan losses (352) (250) (233) (124)
Net interest income
after provision
for loan losses 3,101 2,386 1,732 1,231
Other Income 136 106 89 112
Other expense (1,906) (1,551) (1,415) (1,054)
Earnings before
income taxes 1,331 941 406 289
Provision for income
taxes (487) (383) (136) (108)
Net Earnings 844 558 270 181
Per Share Data:
Basic Earnings Per Share .49 .34 .16 .11
Cash dividends -- -- -- --
Book value (1) 7.27 5.91 5.57 5.38
Shares outstanding at
period-end(2) 2,424,415 1,650,000 1,650,000 1,650,000
Period-End Balance Sheet Summary:
Total assets $ 150,755 105,196 68,942 40,117
Securities 58,821 34,507 19,630 8,638
Loans (net of unearned
income) 76,825 60,310 37,058 22,754
Allowance for loan losses 1,173 811 593 369
Deposits 131,167 93,447 58,601 30,092
Stockholders' equity 17,620 9,747 9,189 8,884
</TABLE>
- -----------------------
(1) Represents stockholders' equity divided by the number of outstanding
shares of Class A and Class B Common Stock at period-end.
(2) Represents issued and outstanding shares of Class A Common Stock and
Class B Common Stock.
6
<PAGE>
<TABLE>
<CAPTION>
As of or for the
--------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Selected Financial Ratios:
Return on average
assets .63% .67% .51% .61%
Return on average
equity 4.35% 5.91% 3.01% 3.02
Dividends declared to
net earnings -- -- -- --
Loans (net of unearned
income) to deposits 58.57% 64.54% 63.24% 75.61%
Net charge-offs to
loans at period-end (.01%) .05% .02% .03%
Ratio of Allowance for loan
losses to loans
at period-end .015 .013 .016 .016
Average stockholders'
equity to average total
assets 14.57% 11.29% 16.89% 20.05%
Ratio of Allowance for Loan
losses to nonperforming loans -- -- 1.05
- ------------------------------
</TABLE>
7
<PAGE>
THE COMPANY AND THE BANK
Intervest Bancshares Corporation
- --------------------------------
The Company, a Delaware corporation organized in 1993, is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Company's principal asset is its ownership interest of
approximately 99.8% of the issued and outstanding shares of the Bank. The
Company, through its ownership of the Bank, is engaged in the commercial banking
business and its primary source of earnings is derived from income generated by
its ownership and operation of the Bank. As of December 31, 1997, the Company,
on a consolidated basis, had total assets of $150.7 million, net portfolio loans
of $75.6 million, total deposits of $131.2 million, and stockholders' equity of
$17.6 million. Unless the context otherwise requires, references herein to the
Company include the Company and its majority-owned subsidiary, the Bank, on a
consolidated basis.
The Company is a legal entity, separate and distinct from the Bank.
There are various legal limitations with respect to the Bank's financing or
otherwise supplying funds to the Company. In particular, under federal banking
law, the Bank may not declare a dividend that exceeds undivided profits. In
addition, the approval of the Federal Reserve Bank of Atlanta (the "Atlanta
FRB"), as well as the Florida Department of Banking and Finance, is required if
the total amount of all dividends declared in any calendar year exceeds the
Bank's net profits, as defined, for that year, combined with its retained net
profits for the proceeding two years. The Atlanta FRB also has the authority to
limit further the payment of dividends by the Bank under certain circumstances.
In addition, federal banking laws prohibit or restrict the Bank from extending
credit to the Company under certain circumstances.
Intervest Bank
- --------------
The Bank is a Florida chartered banking corporation which was organized
in December, 1987. The Bank engages in commercial banking from five offices,
four of which are located in Clearwater, Florida and one of which is in South
Pasadena, Florida.
The Bank primarily focuses on providing personalized banking services
to businesses and individuals within its market area. The Bank originates
commercial loans to businesses, collateralized and uncollateralized consumer
loans, and real estate loans (primarily commercial real estate loans).
The Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on securities,
short-term investments and other services. The Bank's income is also affected by
provisions for loan losses. Its principal expenses are interest paid on deposits
and operating expenses. The Bank intends to expand its deposit and loan customer
relationships at its existing offices and to examine opportunities for expansion
to new locations. The Bank's operations are also significantly affected by local
economic and competitive conditions in its market areas. Changes in market
interest rates, government legislation and policies concerning monetary and
fiscal affairs, and the attendant actions of the regulatory authorities all have
an impact on the Bank's operations.
The Bank is subject to examination and comprehensive regulation by the
Federal Reserve Board (the "FRB") and its deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent permitted by law. The
Bank is a member of the Federal Reserve System. The Bank is also subject to the
supervision of and examination by the Florida Department of Banking and Finance.
The principal executive offices of the Company are located at 10
Rockefeller Plaza (Suite 1015), New York, New York 10020, and its telephone
number is (212) 757-7300. The principal executive offices of the Bank are
located at 625 Court Street, Clearwater, Florida 34625, and its telephone number
is (813) 442-2551. In addition to its principal office, the Bank has three
branch offices in Clearwater, Florida, located at: (i) 2575 Ulmerton Road; (ii)
2175 Nursery Road; and (iii) 1875 Belcher Road North, Clearwater, and has a
fourth branch in South Pasadena, Florida at 6750 Gulfport Blvd.
8
<PAGE>
INVESTMENT CONSIDERATIONS AND RISK FACTORS
A prospective investor should review and consider carefully the
following risk factors, together with the other information contained in this
prospectus in evaluating an investment in the Debentures. The prospectus
contains certain forward-looking statements and actual results could differ
materially from those projected in the forward-looking statements as a result of
numerous factors, including those set forth below and elsewhere in the
prospectus.
Limited Operating History
- -------------------------
The principal current business activity of the Company consists of its
controlling ownership of the Bank and, accordingly, it is dependent upon the
success and profitability of the Bank. The Company was formed in February of
1993 for the purpose of acquiring a controlling interest in the Bank, which
transaction occurred in May of 1993. Prior to that transaction, the Bank had
operated under separate ownership and management. The Bank was not profitable
through its fiscal year ended December 31, 1992. The Bank achieved profitability
for the fiscal year ended December 31, 1993 and has been profitable in each year
thereafter. The Company had a small loss in 1993 and has been profitable
thereafter. In light of the relatively brief period of the Company's operations,
there can be no assurance of future profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements."
Management's Broad Discretion Over Proceeds
- -------------------------------------------
None of the proceeds of the Offering have yet been committed to
specific applications. All determinations concerning the use and investment of
the proceeds will be made by management of the Company.
Dividends
- ---------
Since its inception, the Company has not paid any dividends on its
common stock and there is no immediate prospect or contemplation of the payment
of such dividends.
Dividends paid by the Company are subject to the financial conditions
of both the Bank and the Company as well as other business considerations. In
addition, banking regulations limit the amount of dividends that may be paid by
the Bank to the Company without prior regulatory approval. The amount of
allowable dividends which could be payable by the Company are in substance
limited to net profits earned by the Company, less any earnings retention
consistent with the Company's capital needs, asset quality and overall financial
condition. Distributions paid by the Company to shareholders will be taxable to
the shareholders as dividends, to the extent of the Company's accumulated
current earnings and profits.
The payment of dividends by the Bank to the Company is regulated by
various state and federal laws and by regulations promulgated by the FRB, which
restrict the payment of dividends under certain circumstances. In addition, such
regulations also impose certain minimum capital requirements which affect the
amount of cash available for the payment of dividends by a regulated banking
institution such as the Bank. Even if the Bank is able to generate sufficient
earnings to pay dividends, there is no assurance that the Board of Directors
might not decide or be required to retain a greater portion of the Bank's
earnings in order to maintain or achieve the capital deemed necessary or
appropriate. The occurrence of any of these events would decrease the amount of
funds potentially available for the payment of dividends by the Bank to the
Company. In addition, in some cases, the FRB could take the position that it has
the power to prevent the Bank from paying dividends if, in its view, such
payments would constitute unsafe or unsound banking practices. Further, the
determination of whether dividends are paid and their frequency and amount will
depend upon the financial condition and performance of the Bank and the Company,
and other factors deemed appropriate by both of the Board of Directors of the
Bank and of the Company. Accordingly, there can be no assurance that any
dividends will be paid in the future by the Bank or the Company.
9
<PAGE>
Securities Not Insured
- ----------------------
The Debentures offered hereby are debt securities, and the shares of
Class A Common Stock into which they are convertible are equity securities.
Neither are savings accounts or deposits insured by the FDIC or any other
government agency.
Adequacy of Allowance For Loan Losses.
- --------------------------------------
There is a risk that losses may be experienced in the Company's loan
portfolio. The risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for the loan. Management maintains an allowance for loan
losses which is established through a provision for loan losses charged to
operations. Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely.
Subsequent recoveries are added to the allowance. The allowance is an amount
that management believes will be adequate to absorb possible losses inherent in
existing loans and loan commitments, based on evaluations of collectability and
prior loss experience. Management evaluates the adequacy of the allowance
monthly, or more frequently if considered necessary. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and commitments and current and anticipated economic conditions that may
affect the borrower's ability to repay.
As of December 31, 1997, the Company had a loan portfolio of
approximately $76.8 million and the allowance for loan losses was $1,173,000,
which represented 1.53% of the total amount of loans. At December 31, 1997,
there were no non-performing assets. The Bank actively manages its nonperforming
loans in an effort to minimize credit losses and monitors its asset quality to
maintain an adequate loan loss allowance. Although management believes that its
allowance for loan losses is adequate, there can be no assurance that the
allowance will prove sufficient to cover future loan losses. Further, although
management uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary if
economic conditions differ substantially from the assumptions used or adverse
developments arise with respect to the Bank's nonperforming or performing loans.
Material additions to the Bank's allowance for loan losses would result in a
decrease of the Company's net income, and possibly its capital, and could result
in the inability to pay dividends, among other adverse consequences. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality and Loan Impairment and Losses."
Supervision and Regulation
- --------------------------
Bank holding companies and banks operate in a highly regulated
environment and are subject to the supervision and examination by several
federal and state regulatory agencies. The Company is subject to the BHCA and to
regulation and supervision by the FRB. The Bank is also subject to the
regulation and supervision of the FDIC and the Florida Department of Banking and
Finance. Federal and state laws and regulations govern matters ranging from the
regulation of certain debt obligations, changes in control of bank holding
companies, and the maintenance of adequate capital for the general business
operations and financial condition of the Bank, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The FRB also possesses
cease and desist powers over bank holding companies to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
the manner by which the Bank and the Company may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. These monetary policies have had and/or are expected to continue to have
significant effects on the operating results of commercial banks. Although the
Company believes that it is in compliance in all material respects with
applicable state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations will not be adopted
in the future which could make compliance more difficult or expensive, or
otherwise affect the ability of the Bank to attract deposits and make loans. See
"Supervision and Regulation."
10
<PAGE>
No Public Trading Market
- ------------------------
Investors should be aware that there is no existing market for the
Debentures and it is not likely that such a market will develop.
The Debentures are convertible at any time before maturity, unless
previously redeemed, into shares of Class A Common Stock of the Company. There
is no assurance that an active trading market for the Class A Common Stock will
be sustained or that a holder of Class A Common Stock will have the ability to
dispose of shares in a liquid market. The Class A Common Stock commenced trading
on the Nasdaq SmallCap Market in November of 1997. As of December 31, 1997,
there were issued and outstanding 2,124,415 shares of Class A Common Stock. See
"Market for Class A Common Stock and Dividends."
Competition
- -----------
Competition in the banking and financial services industry is intense.
In its primary market area, the Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies and brokerage and investment banking firms operating locally
and elsewhere. Most of these competitors have substantially greater resources
and lending limits than the Bank and may offer certain services, that the Bank
does not provide at this time. The profitability of the Company depends upon the
Bank's ability to compete in its market areas. See "Business - Competition."
Local Economic Conditions
- -------------------------
The success of the Company and the Bank is dependent to a certain
extent upon the general economic conditions in geographic markets served by the
Bank which focuses on Pinellas County, Florida and the immediate surrounding
areas. The Bank's primary market area is particularly dependent on the economic
conditions within Clearwater, Florida. Although the Bank expects economic
conditions will continue to improve in this market area, there is no assurance
that favorable economic development will occur or that the Bank's expectation of
corresponding growth will be achieved. Adverse changes in its geographic markets
would likely impair the Bank's ability to collect loans and could otherwise have
a negative effect on the financial condition of the Company. See "Business -
Market Area."
Lack of Diversification
- -----------------------
The primary business activity of the Company consists of its ownership
and control of the capital stock of the Bank. As a result, the Company presently
lacks diversification as to business activities and market area, and any event
affecting the Bank will have a direct impact on the Company. See "Business."
Dependence on Key Personnel
- ---------------------------
The Company and the Bank are dependent upon the services of their
principal officers. If the services of any of these persons were to become
unavailable for any reason, the operation of the Company and the Bank might be
adversely affected in a material manner. The Bank presently has written
employment agreements with its President, its Vice President and its Cashier.
Neither the Company nor the Bank maintains key man life insurance policies on
its executives and do not have any immediate plans to obtain such policies. The
successful development of the Company's business will depend, in part, on its
and the Bank's ability to attract or retain qualified officers and employees.
See "Management."
Voting Control
- --------------
As of the date of this Prospectus, the three original shareholders of
the Company own 900,000 shares of Class A Common Stock or approximately 42% of
the issued and outstanding shares of Class A Common Stock of the Company. These
same persons own all of the issued and outstanding shares of Class B Common
Stock. See "Management -- Security Ownership of Certain Beneficial Owners and
Management." The shares of Class B Common Stock, as a separate class, are
entitled to elect two-thirds of the directors of the Company. As a result,
voting control will continue to rest with the three persons.
11
<PAGE>
Interest Rates
- --------------
The principal source of income for the Company is its net interest
income, which is affected by movements in interest rates. Although the Bank
monitors its interest rate sensitivity and attempts to reduce the risk of the
significant decrease in net interest income caused by a change in interest
rates, rising interest rates could nevertheless adversely affect the Bank's
results of operations.
Payment and Subordination of Debentures
- ---------------------------------------
There is no sinking fund for retirement of the Debentures at or prior
to their maturity. The Company anticipates that it will pay the Debentures at
maturity, at par, from the Company's working capital but no assurance can be
given that the Company will have sufficient available funds to make such
payment. The Debentures will be unsecured obligations of the Company, and will
be subordinated to all Senior Indebtedness of the Company, as that term is
herein defined. There is no limitation or restriction in the Debentures or the
Indenture on the creation of senior indebtedness by the Company or on the amount
of senior indebtedness to which the Debentures may be subordinated. There is
also no limitation on the creation of or the amount of indebtedness which is
pari passu (i.e., having no priority of payment over and not subordinated in
right of payment to) the Debentures. Accordingly, upon any distribution of
assets of the Company in connection with any dissolution, winding up,
liquidation or reorganization of the Company, the holders of all senior
indebtedness will first be entitled to receive payment in full of the principal
premium, if any, thereof and any interest due thereon, before the holders of the
Debentures are entitled to receive any payment upon the principal of or interest
on the Debentures, and thereafter payment to the debenture holders will be pro
rata with payments to holders of pari passu indebtedness.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Debentures offered
hereby, after deducting commissions and estimated offering expenses, is
estimated to be approximately $5.4 million, if the maximum amount is sold, or
approximately $4.5 million, if the minimum amount is sold.
The net proceeds of the Offering will become a part of the Company's
capital funds to be used for general corporate purposes, including, without
limitation, the financing of the expansion of the Company's or the Bank's
business through acquisitions, the establishment of new branches or
subsidiaries, and the infusion of capital to the Bank and any future
subsidiaries of the Company. The Company is presently in the process of
preparing an application for the chartering of a de novo national bank, which is
expected to be a wholly-owned subsidiary of the Company, with a principal office
in the City of New York. It is presently anticipated that approximately $7.5
million will be contributed to the capital of that new subsidiary. Except for
that bank, neither the Company nor the Bank currently has any plans,
understandings, arrangements or agreements, written or oral, with respect to the
establishment of any branches or subsidiaries, or with respect to any specific
acquisition prospect, and neither is presently negotiating with any party with
respect thereto.
The actual application of the net proceeds will depend on the capital
needs of the Bank, the Company's own financial requirements and available
business opportunities. None of the uses described herein constitute a
commitment by the Company to expend the proceeds in a particular manner. The
Company reserves the right to make shifts in the allocation of the proceeds from
this offering if future events, including changes in the economic climate or the
Company's planned operations, make such shifts necessary or desirable. In such
events, proceeds may be applied to the working capital requirements of the
Company or the Bank. Pending their ultimate application, the net proceeds will
be invested in such relatively short-term investments or otherwise applied as
management may determine.
MARKET FOR SECURITIES
The Company's Class A Common Stock was approved for listing on the
NASDAQ SmallCap Market (Symbol: IBCA) in November of 1997. Prior to then, there
had been no established public trading market for the securities of the Company.
The high and low sales prices for Class A Common Stock during the period from
November 25, 1997, when trading commenced, and December 31, 1997 were $12.25 and
$11.50, respectively. At December 31, 1997, there were approximately 272 holders
12
<PAGE>
of record (and approximately _________ beneficial owners) of the Company's Class
A Common Stock and three holders of record of the Company's Class B Common
Stock.
DIVIDENDS
Holders of the Company's Class A Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. No dividends may be declared or paid with respect to shares
of Class B Common Stock until January 1, 2000.
The Company has not paid any dividends on its capital stock in the past
and there is currently no contemplation of the payment of dividends on the
Company's Stock. The Company's ability to pay dividends is generally limited to
earnings from the prior year, although retained earnings and dividends from the
Bank to the Company may also be used to pay dividends under certain
circumstances.
The payment of dividends by the Bank is subject to a determination by
the Bank's Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations, the Bank's results of
operations and financial condition, tax considerations of the Bank and the
Company, the number of outstanding shares of stock, and general economic
conditions. State and federal banking laws regulate and restrict the ability of
the Bank to pay dividends to the Company. The FRB, which regulates the Bank, not
only has established certain financial and capital requirements that affect the
ability of the Bank to pay dividends, but it has also the general authority to
prohibit the Bank from engaging in an unsafe or unsound practice in conducting
its business. Depending upon the financial condition of the Bank, the payment of
cash dividends could be deemed to constitute such an unsafe or unsound practice.
See "Investment Considerations and Risk Factors -Uncertainty of Payment of
Dividend" and "Supervision and Regulation - Bank Regulation."
Both the FRB and the Florida Department of Banking and Finance, which
regulate and supervise the Bank and the Company, have publicly stated their view
that it is generally an unsafe and unsound practice to pay cash dividends except
out of current operating earnings. Under FRB policy, a bank holding company is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support each such bank. Consistent with this policy, the FRB
has stated that, as a matter of prudent banking, a bank holding company
generally should not pay cash dividends unless the available net earnings of the
bank holding company is sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the
Company's capital needs, asset quality and overall financial condition. See
"Investment Considerations and Risk Factors - Limited Operating History."
The ability of the Bank and the Company to pay cash dividends is
currently, and in the future could be further influenced by bank regulatory
policies or agreements and by capital guidelines. Accordingly, the actual
amount, if any, and timing of future dividends will depend on, among other
things, future earnings, the financial condition of the Bank and the Company,
the amount of cash on hand at the Company level, outstanding debt obligations,
if any, and the requirements imposed by regulatory authorities.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted at that date after giving effect to the
receipt of the estimated net proceeds from the sale by the Company of all of the
Debentures offered hereby.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Long-term debt:
Series __/__/98 Subordinated Convertible Debentures due
July 1, 2008 -- $ 5,400(1)
------- -------
Stockholders' Equity:
Class A Common Stock, $1.00 par value, 7,500,000 shares authorized, 2,124,415
shares issued
and outstanding(2) 2,124 2,124
Class B Common Stock, $1.00 par value, 700,000
shares authorized, 300,000 shares issued and outstanding 300 300
Additional Paid-in Capital 13,360 13,360
Retained Earnings 1,836 1,836
------- -------
Total Stockholders' Equity $17,620 $17,620
======= =======
</TABLE>
- ------------------------------
(1) Net of offering expenses.
(2) Does not include: (i) 300,000 shares of Class A Common Stock issuable
upon conversion of issued and outstanding shares of Class B Common
Stock; (ii) 150,000 shares of Class A Common Stock issuable upon
conversion of shares of Class B Common Stock issuable upon exercise of
an outstanding warrant; or (iii) 2,494,348 Class A Common Stock
issuable upon exercise of outstanding warrants.
14
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company
and the Bank. The data set forth below for the seven months ended December 31,
1993, five months ended May 31, 1993, and the years ended December 31, 1997,
1996, 1995 and 1994 are derived from the audited consolidated financial
statements of the Company or the Bank, as the case may be. The selected
financial data should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
At or for the
Seven At or for the
At or for the Years Ended Months Ended Five Months Ended
December 31, December 31, May 31,
----------------------------------------------- ----------- -------
1997 1996 1995 1994 1993(1) 1993(2)
---- ---- ---- ---- ------- -------
(Dollars in Thousands, Except Per Share Data)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 150,755 105,196 68,942 40,117 29,071 22,557
Cash and cash equivalents 9,176 6,320 8,551 6,088 5,519 2,569
Net Loans 75,652 59,499 36,465 22,385 16,224 16,163
Securities 58,821 34,507 19,630 8,638 5,231 2,958
Deposits 131,167 93,447 58,601 30,092 22,195 20,138
Borrowed funds -- -- -- -- -- --
Retained earnings
(Accumulated deficit) 1,836 992 434 164 (17) (2,050)
Total stockholders' equity 17,620 9,747 9,189 8,884 5,828 1,275
Income Statement Data:
Interest income 9,347 6,381 4,190 2,158 1,007 741
Interest expense 5,894 3,745 2,225 803 345 335
Net interest income 3,453 2,636 1,965 1,355 662 406
Provision for loan losses (352) (250) (233) (124) -- (90)
Net interest income after
provision for loan losses 3,101 2,386 1,732 1,231 662 316
Other income 136 106 89 112 59 102
Other expense (1906) (1,551) (1,415) (1,054) (738) (401)
Earnings (Loss) before
income taxes 1,331 941 406 289 (17) 17
Provision for income taxes (487) (383) (136) (108) -- --
Net earnings (Loss) 844 558 270 181 (17) 17
Per Share Data:
Net Basic earnings (Loss) .49 .34 .16 .11 (.01) .05
Book value at period end $ 7.27 5.91 5.57 5.38 3.53 3.64
</TABLE>
- ---------------------------------
(1) Includes the consolidated financial information of the Company from
June 1, 1993.
(2) Financial information of the Bank only
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
General
The Company's principal asset is its ownership of a controlling
interest in the Bank. Accordingly, the Company's results of operations are
primarily dependent upon the results of operations of the Bank. The Bank
conducts a commercial banking business which consists of attracting deposits
from the general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). The Bank's profitability depends primarily on
net interest income, which is the difference between interest income generated
from interest-earning assets (i.e., loans and investments) less the interest
expense incurred on interest-bearing liabilities (i.e., customer deposits and
borrowed funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest-rate
earned and paid on these balances. Net interest income is dependent upon the
Bank's interest-rate spread, which is the difference between the average yield
earned on its interest-earning assets and the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The interest rate spread is impacted by interest rates,
deposit flows, and loan demand. Additionally, and to a lesser extent, the Bank's
profitability is affected by such factors as the level of noninterest income and
expenses, the provision for credit losses, and the effective tax rate.
Noninterest income consists primarily of loan and other fees. Noninterest
expense consists of compensation and benefits, occupancy related expenses,
deposit insurance premiums paid to the FDIC, and other operating expenses.
Since its acquisition of control of the Bank in 1993, the Company has
sought to strengthen the operation of the Bank, to improve asset quality, to
increase the loan portfolio and to decrease nonperforming loans. During 1997,
the Company completed a public offering of 747,500 Units for gross proceeds of
$7,475,000 (the "1997 Offering"). Each Unit consisted of one share of the
Company's Class A Common Stock and one warrant to purchase an additional share
of Class A Common Stock. In connection with the 1997 Offering, the Company
issued warrants related to 145,850 shares of Class A Common Stock to the
Underwriter and participating broker/dealers. The Company has reserved a total
of 2,494,348 shares of Class A stock for issuance upon exercise of the Company's
warrants to purchase shares of Class A Common Stock.
Management believes that additional capital is the key to any expansion
program and, to this end, it will continually assess the need for capital, both
at the Bank and the Company levels. If it is determined that additional capital
is necessary to support the operations of the Company or the Bank or to support
any expansion or acquisition activities, transactions to obtain additional
financing will be considered by the Company.
The Bank's present offices are located in or near Clearwater, Florida.
Clearwater is located in Pinellas County, which is the most populous county in
the Tampa Bay area of Florida. It also has a branch office in South Pasadena,
which is also in Pinellas County. The "Tampa Bay" area is located on the West
Coast of Florida, midway up the Florida peninsula. The major cities in the area
are Tampa (Hillsborough County) and St. Petersburg and Clearwater (Pinellas
County).
The current population of the Tampa Bay area is estimated at
approximately 2,200,000, which reflects population increases of approximately
45% between 1970 and 1980, and approximately 27% between 1980 and 1990. Pinellas
is the most densely populated county in Florida, with more than 2,800 people per
square mile. The average age of the population for the region is estimated at 45
16
<PAGE>
years (as compared to 38 years for the State of Florida), and this reflects the
history of Pinellas County as a retirement area. Recent years have shown a
slight drop in average age due to an increase in office and manufacturing
employment opportunities.
The economy of Pinellas County has historically been tourist and
retirement oriented. Pinellas County has recently attracted a larger share of
new business, particularly in the high technology industries. Total per capita
personal income in Pinellas County increased from approximately $15,000 in 1984
to approximately $22,700 in 1992. Employment in the region reflects a
broad-based economy, with an emphasis on the retail trade and service
industries.
The housing market in the region remains stable in the view of
management, although housing starts have slowed from the high levels experienced
during the 1970's.
Clearwater is the county seat of Pinellas County and its second largest
city. It encompasses approximately 32 square miles and has a population of
approximately 100,000.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition and results of operations of the Company for the years ended December
31, 1997 and 1996. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere
herein.
Results Of Operations
Comparison of Year Ended December 31, 1997 and 1996.
General
- -------
Net earnings for the year ended December 31, 1997 were $844,000
compared to $558,000 for the year ended December 31, 1996. This increase in the
Company's net earnings was primarily due to an increase in net interest income
partially offset by an increase in noninterest expenses and the provision for
income taxes.
Interest Income and Expense
- ---------------------------
Interest income increased by $2,966,000 from $6,381,000 for the year
ended December 31, 1996 to $9,347,000 for the year ended December 31, 1997.
Interest income on loans increased $1,791,000 due to an increase in the average
loan portfolio balance from $49.3 million for the year ended December 31, 1996
to $68.7 million for 1997, partially offset by a decrease in the weighted
average yield of 5 basis points. Interest on securities increased $1,118,000 due
to an increase in the average securities balance from $25.6 million in 1996 to
$42.8 million in 1997 and an increase in the average yield from 5.92% in 1996 to
6.15% in 1997. Interest on other interest-earning assets increased $57,000
primarily due to an increase from $4.7 million in average other interest-earning
assets in 1996 to $6.9 million in 1997.
Interest expense increased to $5,894,000 for the year ended December
31, 1997 from $3,745,000 for the year ended December 31, 1996. Interest expense
on deposit accounts increased primarily because of a $39.0 million increase in
the average balance, in addition to an increase of 4 basis points in the average
yield paid on deposits for the year ended December 31, 1997 compared to 1996.
17
<PAGE>
Provision for Loan Losses
- -------------------------
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Bank,
industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to the Bank's market areas, and other
factors related to the collectability of the Bank's loan portfolio. The
provision increased from $250,000 for the year ended December 31, 1996 to
$352,000 for the year ended December 31, 1997. At December 31, 1997, there were
no non-performing loans. Management believes that the allowance for loan loss of
$1,173,000 is adequate at December 31, 1997.
Other Income
- ------------
Total other income increased $30,000 for the year ended December 31,
1997 compared to 1996.
Other Expenses
- --------------
Total other expenses increased $355,000 for the year ended December 31,
1997 when compared to 1996, primarily due to an increase in employee
compensation and benefits and occupancy and equipment expenses. The increase is
primarily due to additional costs for the new branches and the overall growth of
the Company.
Provision for Income Taxes
- --------------------------
In 1997 the provision for income taxes is $487,000, an effective income
tax rate of 36.6%, as compared to $383,000 and 40.7% respectively, in 1996. In
1996, a greater portion of the consolidated earnings was generated by the
holding company which has a higher state income tax rate.
Net Interest Income
Net interest income, which constitutes the principal source of income
for the Company, represents the difference between income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are securities and loans made to businesses and
individuals. Interest-bearing liabilities primarily consist of time deposits,
interest paying checking accounts ("NOW accounts"), retail savings deposits and
money market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning assets. Accordingly, net interest income depends
upon the volume of the average interest-earning assets and average
interest-bearing liabilities and the interest rates earned or paid on them.
Net interest income was $3,453,000 for the Company for the year ended
December 31, 1997 compared with $2,636,000 for the year ended December 31, 1996.
This improvement in net interest income is primarily a result of a higher level
of net interest-earning assets.
18
<PAGE>
The following tables set forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of the
Company from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average costs; (iii) net interest/dividend income; (iv) interest rate
spread; (v) net interest margin. Average balances are based on average daily
balances.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $ 68,711 6,415 9.34% $ 49,266 4,624 9.39%
Securities 42,763 2,632 6.15% 25,577 1,514 5.92%
Other interest-earning assets(2) 6,913 300 4.34% 4,730 243 5.14%
-------- ----- ---- -------- ----- ----
Total interest-earning
assets 118,387 9,347 7.90% 79,573 6,381 8.02%
----- -----
Noninterest-earning assets 14,823 4,089
------ -----
Total assets $133,210 $ 83,662
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits 18,087 816 4.51% 8,432 310 3.68%
Savings 9,128 446 4.89% 1,470 62 4.22%
Certificates of deposit 81,167 4,632 5.71% 59,437 3,371 5.67%
Other -- -- -- 34 2 5.88%
-------- ----- ---- -------- ----- ----
Total interest-bearing
liabilities 108,382 5,894 5.44% 69,373 3,745 5.40%
Noninterest-bearing liabilities 5,425 4,840
Stockholders' equity 19,403 9,449
------ -----
Total liabilities and
stockholders' equity . $133,210 $ 83,662
======== ========
Net interest/dividend income $ 3,453 $ 2,636
======== ========
Interest rate spread(3) 2.46% 2.62%
==== ====
Net interest margin(4) 2.92% 3.31%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.09 1.15
==== ====
</TABLE>
19
<PAGE>
- ------------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities. (4) Net interest margin is net interest income
divided by average interest-earning assets.
Rate/Volume Analysis
- --------------------
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
December 31,
1997 vs. 1996
----------------------------------------
Increase (Decrease) Due to
----------------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
<S> <C> <C> <C> <C>
Interest-earning assets: (Dollars in thousands)
Loans $ (25) 1,826 (10) 1,791
Securities 59 1,020 39 1,118
Other interest-earning assets (38) 112 (17) 57
Total (4) 2,958 12 2,966
Interest-bearing liabilities:
Demand, Money Market and NOW Deposits 70 356 80 506
Savings 10 323 51 384
Certificates of Deposit 24 1,228 9 1,261
Other Borrowings (2) (2) 2 (2)
Total 102 1,905 142 2,149
Net change in net interest income
before provision for credit losses $ (106) 1,053 (130) 817
Income Taxes
- ------------
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes available to offset future federal taxable income.
They were in the aggregate amount of $494,000, with specified portions expiring
in each year from 2006 through 2008. Use of the carryforwards is subject to an
annual limitation of $332,000.
20
<PAGE>
At the time of its incorporation, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires it to take into account changes in tax rates when valuing
the deferred income tax amounts carried on its balance sheets.
Asset/Liability Management
- --------------------------
A principal objective of the Bank's asset/liability management strategy is to
minimize the Bank's exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of the
Asset and Liability Committee of the Bank (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
As a part of the Bank's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors the Bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If the repricing of the Bank's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end, the ALCO
Committee reviews, on a monthly basis, the maturity and repricing of assets and
liabilities. The ALCO Committee has adopted a goal of achieving and maintaining
a six-month ratio between rate sensitive assets to rate sensitive liabilities of
.80 to 1.20.
Principal among the Bank's asset/liability management strategies has been the
emphasis on managing its interest-rate sensitive liabilities in a manner
designed to attempt to reduce the Bank's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of the Bank's
interest rate-sensitive liabilities may reduce the potential impact that a rise
in interest rates might have on the Bank's net interest income. Additionally,
21
<PAGE>
the Bank maintains a "floor," or minimum rate, on many of its floating loans.
The "floor" amount for each specific loan is determined in relation to the
prevailing market rates on the date of origination and management retains a
great deal of flexibility in connection with the establishment of floors for
particular loans. Management recognizes that floors allow the Bank to continue
to earn a higher rate when the floating rate falls below the established "floor"
rate.
22
<PAGE>
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1997
that are estimated to mature or are scheduled to reprice within the period
shown.
More than More than
One Year and Five Years and
0-3 4-12 Less than Less than
Months Months Five Years Ten Years Total
------ ------ ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Mortgage and commercial loans (1):
Commercial loans $ 2,371 386 333 191 3,281
Commercial real estate loans 4,390 10,213 55,819 111 70,533
Residential mortgage loans 275 526 1,112 1,237 3,150
Consumer loans 15 14 233 -- 262
------ ----- ------ ------ ------
Total loans 7,051 11,139 57,497 1,539 77,226
Federal funds sold 162 -- -- -- 162
Interest-bearing deposits with banks -- -- 99 -- 99
Securities (2)(3) 11,065 9,382 33,122 12,761 66,330
------ ----- ------ ------ ------
Total rate-sensitive assets 18,278 20,521 90,718 14,300 143,817
------ ------ ------ ------ -------
Deposit accounts (2):
Money market deposits 17,180 -- -- -- 17,180
NOW deposits 4,290 -- -- -- 4,290
Savings deposits 12,829 -- -- -- 12,829
Certificates of deposit 13,930 33,059 45,235 1,154 93,378
------ ------ ------ ----- ------
Total rate-sensitive liabilities 48,229 33,059 45,235 1,154 127,677
------ ------ ------ ----- -------
GAP (repricing differences) $(29,951) (12,538) 45,483 13,146 16,140
======== ======= ====== ====== ======
Cumulative GAP $(29,951) (42,489) 2,994 16,140
======== ======= ===== ======
Cumulative GAP/total assets (19.87%) (28.18%) 1.99% 10.71%
====== ====== ==== =====
- -------------------------------
</TABLE>
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed rate loans are
scheduled, including repayment, according to their maturities.
(2) Money market, NOW, and savings deposits are regarded as ready
accessible withdrawable accounts. All other time deposits are scheduled
through the maturity dates. Securities are also scheduled through the
maturity dates.
(3) Includes Federal Reserve Bank stock and short-term investments.
23
<PAGE>
Financial Condition
Lending Activities
- ------------------
A significant source of income for the Company is the interest earned
on loans. At December 31, 1997, the Company's total assets were $150.8 million
and its net loans were $75.6 million or 50% of total assets as compared to
$105.2 million of total assets at December 31, 1996, and net loans of $59.5
million representing 57% of the total assets at December 31, 1996.
Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of the Bank.
LOAN PORTFOLIO ANALYSIS
The following table sets forth information concerning the Company's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------- --------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial loans $ 3,281 4.3% $ 3,514 5.8%
Commercial real estate loans 70,533 91.3 54,198 89.4
Residential mortgage loans 3,150 4.1 2,784 4.6
Consumer loans 262 .3 157 .2
------ ----- ------ -----
Total loans 77,226 100.0% 60,653 100.0%
===== =====
Add (Deduct):
Deferred loan fees (401) (343)
Allowance for loan losses (1,173) (811)
------ -----
Loans, net $ 75,652 $ 59,499
======== =========
</TABLE>
24
<PAGE>
The following table reflects the contractual principal repayments by
period of the Company's loan portfolio at December 31, 1997.
<TABLE>
<CAPTION>
Residential Commercial
Years Ended Commercial Mortgage Real Estate Consumer
December 31, Loans Loans Loans Loans Total
------------ ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1998 $2,513 482 5,321 67 8,383
1999 431 279 6,650 66 7,426
2000-2001 269 457 21,602 87 22,415
2002-2003 68 657 18,587 42 19,354
2004-2010 ---- 1,275 18,373 ---- 19,648
------ ----- ------ --- ------
Total $3,281 3,150 70,533 262 77,226
====== ===== ====== === ======
</TABLE>
Of the $68.8 million of loans due after 1998, 33% of such loans have
fixed interest rates and 67% have adjustable interest rates.
The following table sets forth total loans originated and repaid during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Originations:
Commercial loans $502 $497
Real estate loans 23,180 30,802
Consumer loans 162 145
------- -------
Total loans originated 23,844 31,444
Principal reductions (7,271) (8,082)
------- -------
Increase (decrease) in total loans $16,573 $23,362
======= =======
</TABLE>
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. The majority of the loans
in the Bank's loan portfolio are collateralized by commercial real estate
mortgages. As of December 31, 1997, approximately 91.3%, and as of December 31,
1996, approximately 89.4% of the total loan portfolio was collateralized by this
type of property. The level of delinquent loans and foreclosed real estate also
is relevant to the credit quality of a loan portfolio. There were no
non-performing assets at December 31, 1997, while as of December 31, 1996
non-performing assets totaled $185,000.
In an effort to maintain the quality of the loan portfolio management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on the Company's profitability. However, as
25
<PAGE>
part of its loan portfolio management strategy, the Company typically limits its
loans to a maximum of 75% of the value of the underlying real estate as
determined by an MAI appraisal. In addition, knowledgeable members of management
make physical inspections of properties being considered for mortgage loans.
Management believes that such precautions reduce the Company's exposure to the
risks associated with a downturn in real estate values. See "Investment
Considerations and Risk Factors--Local Economic Conditions."
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. The Company, on a routine basis,
monitors these concentrations in order to make necessary adjustments in its
leading practices that most clearly reflect the economic conditions, loan to
deposit ratios, and industry trends. Concentrations of loans in the following
categories constituted the total loan portfolio as of December 31, 1997:
Commercial loans 4.3%
----
Real estate mortgage loans 91.3%
----
Consumer and other loans 4.4%
----
The Loan Committee of the Board of Directors of the Bank concentrates
its efforts and resources, and that of its senior management and lending
officers, on loan review and underwriting procedures. Internal controls include
ongoing reviews of loans made to monitor documentation and ensure the existence
and valuations of collateral. In addition, management of the Bank has
established a review process with the objective of quickly identifying,
evaluating, and initiating necessary corrective action for marginal loans. The
goal of the loan review process is to address classified and non-performing
loans as early as possible. Management maintains a cautious outlook in
anticipating the potential effects of uncertain economic conditions (both
locally and nationally) and the possibility of more stringent regulatory
standards. See "Investment Considerations and Risk Factors-Supervision and
Regulation."
Classification of Assets
- ------------------------
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as non-accrual when principal
or interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans will be charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans will not be
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate. At December 31,
1997, the Bank had no foreclosed real estate. Foreclosed real estate is recorded
at the lower of cost or fair value less estimated selling costs, and the
estimated loss, if any, is charged to the allowance for loan losses at the time
it is transferred. Further allowances for losses are recorded at the time
management believes additional deterioration in value has occurred.
26
<PAGE>
The following table sets forth certain information on nonaccrual loans
and foreclosed real estate, the ratio of such loans and foreclosed real estate
to total assets as of the dates indicated, and certain other related
information.
<TABLE>
<CAPTION>
At December 31,
---------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Residential mortgage loans --- ---
Commercial loans --- ---
Consumer and other loans --- ---
----- ----
Total non-accrual loans --- ---
===== ====
Total nonperforming loans --- ---
===== ====
Total nonperforming loans to
total loans ---% ---%
===== ====
Total nonperforming loans to
total assets --- ---
----- ----
Foreclosed real estate:
Real estate acquired by foreclosure or
deed in lieu of foreclosure $ --- $185
----- ----
Total nonperforming loans and
foreclosed real estate $ --- $185
===== ====
Total nonperforming loans and
foreclosed real estate to total assets --- .17%
===== ====
</TABLE>
Loan Impairment and Losses
- --------------------------
The Company follows Statements of Financial Accounting Standards No.
114 and 118 ("SFAS 114 and 118"). These Statements address the accounting by
creditors for impairment of certain loans. The Statements generally require the
Company to identify loans for which the Company probably will not receive full
repayment of principal and interest, as impaired loans. The Statements require
that impaired loans be valued at the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the observable
market price of the loan, or the fair value of the underlying collateral if the
loan is collateral dependent. The Company has implemented the Statements by
modifying its monthly review of the adequacy of the allowance for loan losses to
also identify and value impaired loans in accordance with guidance in the
Statements. The adoption of the Statements did not have any material effect on
the results of operations for the years ended December 31, 1997 and 1996.
Management considers a variety of factors in determining whether a loan
is impaired, including (i) any notice from the borrower that the borrower will
be unable to repay all principal and interest amounts contractually due under
the loan agreement, (ii) any delinquency in the principal and interest payments
other than minimum delays or shortfalls in payments, and (iii) other information
known by management which would indicate that full repayment of the principal
27
<PAGE>
and interest is not probable. In evaluating loans for impairment, management
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications of impairment.
Management evaluates smaller balance, homogeneous loans for impairment
and adequacy of allowance for loan losses collectively, and evaluates other
loans for impairment individually, on a loan- by-loan basis. The Company
evaluates the consumer loan portfolio which are smaller homogeneous loans for
impairment on an aggregate basis, and utilizes its own historical charge-off
experience, as well as the charge-off experience of its peer group and industry
statistics to evaluate the adequacy of the allowance for loan losses. For all
commercial, commercial real estate and residential mortgage loans, the Company
evaluates loans for impairment on a loan-by-loan basis.
The Company evaluates all nonaccrual loans as well as any accruing
loans exhibiting collateral or other credit deficiencies for impairment. With
respect to impaired, collateral-dependent loans, any portion of the recorded
investment in the loan that exceeds the fair value of the collateral is charged
off.
For impairment recognized in accordance with SFAS 114 and 118, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans is reported
as a provision for loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of the provision that otherwise
would be reported.
The Company had no impaired loans at December 31, 1997 or 1996. The
average recorded investment in impaired loans during 1996 was $31,000. There
were no impaired loans identified during 1997. No interest income on impaired
loans was recognized in 1996.
Loans are reported at the principal amount outstanding net of the
allowance for loan losses and unamortized premiums, discounts and deferred loan
origination fees and costs.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collectability of the principal is
unlikely. Subsequent recoveries are added to the allowance. The allowance is an
amount that management believes will be adequate to absorb possible losses
inherent in existing loans and loan commitments, based on evaluations of
collectability and prior loss experience. Management evaluates the adequacy of
the allowance monthly, or more frequently if considered necessary. The
evaluation takes into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, loan concentrations,
specific problem loans and commitments, and current and anticipated economic
conditions that may affect the borrower's ability to repay.
Management continues to actively monitor the Bank's asset quality and
to charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the initial determinations. The Bank's allowance at December 31, 1996 was
$811,000, and the Bank increased its allowance for loan losses to $1,173,000 as
of December 31, 1997, consistent with the increase in the loan portfolio,
reflecting management's intent to maintain reserves at a level management
believes to be adequate. See "Investment Considerations and Risk
Factors--Adequacy of Allowance for Loan Losses."
28
<PAGE>
The following table sets forth information with respect to activity in
the Bank's allowance for loan losses during the periods indicated:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
(Dollars in thousands)
Average loans outstanding, net $ 68,711 $ 49,266
-------- --------
Allowance at beginning of year 811 593
-------- --------
Charge-offs:
Real estate loans -- 62
Commercial loans -- --
Consumer loans -- 3
-------- --------
Total loans charged-off -- 65
-------- --------
Recoveries 10 33
-------- --------
Net recoveries (charge-offs) 10 (32)
-------- --------
Provision for loan losses charged
to operating expenses 352 250
-------- --------
Allowance at end of year $ 1,173 $ 811
======== ========
Ratio of net charge-offs to
average loans outstanding -- .001
======== ========
Ratio of allowance for loan losses
to period-end total loans .015 .013
======== ========
Ratio of allowance for loan losses
to nonperforming loans -- --
======== ========
Period end total loans $ 77,226 $ 60,653
======== ========
29
<PAGE>
The following table presents information regarding the Company's total
allowance for losses as well as the allocation of such amounts to the various
categories of loans:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------- --------------------
Loans to Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial loans $50 4.3% $82 5.8%
Commercial real estate loans 1,071 91.3 677 89.4
Residential real estate loans 48 4.1 50 4.6
Consumer loans and other 4 .3 2 .2
----- ---- --- ----
Total allowance for
loan losses $1,173 100% $811 100.0%
====== === ==== =====
</TABLE>
The allowance for loan losses represented 1.5% of the total loans
outstanding at December 31, 1997, compared with 1.3% at December 31, 1996.
Securities
The following table sets forth the carrying value of the Bank's
securities portfolio as of the dates indicated:
At December 31,
---------------
1997 1996
---- ----
(in thousands)
Securities held to maturity:
U.S. Treasury securities $ 4,027 $ 1,499
Other U.S. Government and
agency securities 54,794 33,008
------ ------
$58,821 $34,507
======= =======
30
<PAGE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities held-to maturity portfolio as follows:
<TABLE>
<CAPTION>
One Year After One Year After Five Years
Or Less to Five Years to Ten Years Total
------------------- ------------------ ------------------ -------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
December 31, 1997:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,996 6.10% $ 2,031 6.03% $---- ---% $ 4,027 6.06%
Other U.S. Government
agency securities 11,173 6.08 30,859 6.23 12,762 6.46 54,794 6.28
Total $13,169 6.08% $32,890 6.21% $12,762 6.46% $58,821 6.24%
December 31, 1996:
U.S. Treasury Securities $ 500 6.04% $ 999 6.17% $----- ----% $ 1,499 6.12%
Other U.S. Government
agency securities 8,142 5.97 22,856 6.16 2,010 6.33 33,008 6.12
Total $ 8,642 5.97% $23,855 6.16% $ 2,010 6.33% $34,507 6.12%
</TABLE>
Deposit Activities
- ------------------
Deposits are the major source of the Bank's funds for lending and other
investment purposes. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by
the Bank on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
Regulations promulgated by the FDIC pursuant to the Federal Deposit
Insurance Company Improvement Act of 1991 ("1991 Banking Law") place limitations
on the ability of certain insured depository institutions to accept, renew, or
rollover deposits by offering rates of interest which are significantly higher
than the prevailing rates of interest on deposits offered by other insured
depository institutions having the same type of charter in such depository
institution's normal market area. Under these regulations, "well capitalized"
depository institutions may accept, renew, or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates), and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definitions adopted by the
agencies to implement the corrective action provisions of the 1991 Banking Law."
See "Supervision and Regulation--Impact of the 1991 Banking Law." At December
31, 1997, the Bank met the definition of a "well capitalized" depository
institution.
31
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Bank's deposit accounts by type:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------- --------------------
% of % of
Amount Deposits Amount Deposits
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits $3,490 2.7% $2,401 2.6%
NOW deposits 4,290 3.3 4,536 4.9
Money market deposits 17,180 13.1 7,507 8.0
Savings deposits 12,829 9.7 4,742 5.0
-------- ------ ------- -----
Subtotal 37,789 28.8 19,186 20.5
-------- ------ ------- -----
Certificate of deposits:
4.00%-4.99% 30 --- 1,682 1.8
5.00%-5.99% 69,855 53.3 53,507 57.3
6.00%-6.99% 16,882 12.9 13,307 14.2
7.00%-7.99% 6,611 5.0 5,765 6.2
-------- ------ ------- -----
Total certificates
of deposit (1) 93,378 71.2 74,261 79.5
-------- ------ ------- -----
Total deposit $131,167 100.00% $93,447 100.0%
======== ====== ======= =====
</TABLE>
- -------------------------
(1) Includes individual retirement accounts ("IRAs") totaling $7,136,000 and
$5,569,000 at December 31, 1997 and 1996 respectively, all of which are
in the form of certificates of deposit.
32
<PAGE>
The following table shows the average amount of and the average rate
paid on each of the following deposit account categories during the periods
indicated:
Year Ended Year Ended
December 31, December 31,
------------ ------------
1997 1996
Average Average Average Average
Balance Yield Balance Yield
------- ------- ------- -------
(Dollars in thousands)
Money market
& NOW $ 18,087 4.51% $ 8,432 3.68%
Savings deposit 9,128 4.89 1,470 4.22
Certificates of deposit 81,167 5.71 59,437 5.67
Total deposits $108,382 5.44% $ 69,339 5.40%
The Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on the business of either
the Bank or the Company. Management believes that substantially all of the
Bank's depositors are residents in its primary market area. The Bank currently
does not accept brokered deposits.
33
<PAGE>
The following tables presents by various interest rate categories the
amounts of certificates of deposit at December 31, 1997 and 1996 which mature
during the periods indicated:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 & thereafter Total
---- ---- ---- ---- ----------------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997:
4.00%-4.99% $ 30 ---- ---- ---- ---- 30
5.00%-5.99% 46,513 13,955 4,149 1,873 3,365 69,855
6.00%-6.99% 349 791 656 7,389 7,697 16,882
7.00%-7.99% 62 1,808 4,641 100 ---- 6,611
------- ------ ----- ----- ------ ------
Total certificates of deposit $46,954 16,554 9,446 9,362 11,062 93,378
======= ====== ===== ===== ====== ======
Year Ending December 31,
------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 & thereafter Total
---- ---- ---- ---- ----------------- -----
(dollars in thousands)
December 31, 1996:
4.00%-4.99% $ 1,636 46 --- --- --- 1,682
5.00%-5.99% 36,664 10,477 620 3,741 2,005 53,507
6.00%-6.99% 4,545 404 803 465 7,090 13,307
7.00%-7.99% --- 62 1,831 3,631 241 5,765
------- ------ ----- ----- ------ ------
Total certificates of deposit $42,845 10,989 3,254 7,837 9,336 74,261
======= ====== ===== ===== ===== ======
</TABLE>
34
<PAGE>
Jumbo certificates ($100,000 and over) mature as follows:
At December 31,
1997 1996
(in thousands)
Due three months or less $1,554 $ 733
Due over three months to six months 1,149 2,136
Due over six months to one year 1,787 2,566
Due over one year 5,016 1,826
----- -----
$9,506 $7,261
====== ======
The following table sets forth the net deposit flows of the Bank during the
periods indicated:
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
(in thousands)
Net increase (decrease) before
interest credited $32,164 $31,168
Net interest credited 5,556 $ 3,678
------- ------
Net deposit increase $37,720 34,846
======= ======
Liquidity and Capital Resources
The Company's principal sources of funds are those generated by the
Bank. The Bank's principal sources of funds are deposits, principal and interest
payments on loans, maturities and interest on securities, and capital
contributions from the Company. The Company's cash flow is affected by its
operations, investing activities, and financing activities. Net cash provided
from operations primarily results from net earnings adjusted for noncash
accounting entries.
The Bank is 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 the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the 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, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
35
<PAGE>
As of December 31, 1997, the most recent notification from the State and
Federal regulators 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 Bank's
category.
<TABLE>
<CAPTION>
To be Well
Capitalized under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------- ----------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in thousands)
As of December 31, 1997:
Total capital
<S> <C> <C> <C> <C> <C> <C>
(to Risk Weighted Assets) $9,420 10.53% $7,157 8.00% $8,948 10.00%
Tier I Capital
(to Risk Weighted Assets) 9,125 10.20% 3,578 4.00 5,367 6.00%
Tier I Capital
(to Average Assets) 9,125 6.85% 5,328 4.00 6,660 5.00%
As of December 31, 1996:
Total capital
(to Risk Weighted Assets) $8,051 11.90% $5,412 8.00% $6,765 10.0%
Tier I Capital
(to Risk Weighted Assets) 7,240 10.70% 2,706 4.00% 4,059 6.0%
Tier I Capital
(to Average Assets) 7,240 7.48% 3,871 4.00% 4,839 5.0%
</TABLE>
The Company continues to explore a variety of alternatives related to
the expansion of its business, including both branch expansions in and near the
Bank's existing markets, as well as the acquisition or de novo chartering of an
additional bank outside the Bank's existing market. While management believes
that its current capital is adequate to finance any expansion opportunities it
may pursue in the near term, including the organization of a de novo banking
institution headquartered in the City of New York, the Company believes that the
additional capital to be raised in the offering will position it for continued
growth. In that regard, management believes that additional capital is the key
to any expansion program and, to this end, it will continually assess the need
for capital, both at the Bank and the Company levels. If it is determined that
additional capital is necessary to support the operations of the Company or the
Bank or to support any expansion or acquisition activities, additional
transactions to obtain funds will be considered by the Company.
Future Accounting Matters
- -------------------------
Financial Accounting Standards 130 - Reporting Comprehensive Income
establishes standards for reporting comprehensive income. The Standard defines
comprehensive income as the change in equity of an enterprise except those
resulting from stockholder transactions. All components of comprehensive income
are required to be reported in a new financial statement that is displayed with
equal prominence as existing financial statements. The Company will be required
to adopt this Standard effective January 1, 1998. As the Statement addresses
reporting and presentation issues only, there will be no impact on operating
results from the adoption of this Standard.
36
<PAGE>
Financial Accounting Standards 131 - Disclosures about Segments of an
Enterprise and Related Information establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
will be required to adopt this Standard effective January 1, 1998. As the
Standard addresses reporting and disclosure issues only, there will be no impact
on operating results from adoption of this Standard.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related financial data concerning the
Company presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
Market Risk
- -----------
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure. The measurement
of market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance-sheet transactions are aggregated,
and the resulting net positions are identified. Disclosures about the fair value
of financial instruments, which reflect changes in market prices and rates, can
be found in Note 7 of Notes to Consolidated Financial Statements.
The Company's primary objective in managing interest-rate risk is to
minimize the adverse impact of changes in interest rates on the Bank's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. The Company
relies primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Year 2000 Compliance
- --------------------
The Bank has an ongoing program designed to ensure that its operational
and financial systems will continue to function properly on and after the year
2000, free of software failures due to processing errors arising from
calculations using the year 2000 date. The Bank does not expect to incur any
significant expenditures over the next three years on its program to redevelop,
replace, or repair its computer applications to make them "year 2000 compliant."
While the Bank believes it is doing everything technologically possible to
assure year 2000 compliance, it is to some extent dependent upon vendor
cooperation. The Bank is requiring its computer system and software vendors to
represent that the products provided are, or will be, year 2000 compliant, and
has planned a program of testing for compliance. It is recognized that any year
2000 compliance failures could result in additional expense to the Bank.
37
<PAGE>
BUSINESS
General
- -------
The Company is a registered bank holding company incorporated under the
laws of the State of Delaware in 1993. Its 99%-owned subsidiary and primary
asset is the Bank. The Company, through its controlling ownership of the Bank,
engages in the business of commercial banking. Although the Company is also
engaged in mortgage lending activities, its primary business activity is its
ownership of the Bank. The Bank is a Florida chartered banking corporation and
is a member of the Federal Reserve System.
The Bank primarily focuses on providing personalized banking services to
businesses and individuals within the market area where its banking office is
located. Management believes that this local market strategy enables the Bank to
attract and retain low cost core deposits which provide substantially all of the
Bank's funding requirements.
Deposit services include certificates of deposit, individual retirement
accounts ("IRAs") and other time deposits, checking and other demand deposit
accounts, NOW accounts, savings accounts and money market accounts. The
transaction accounts and time certificates are tailored to the principal market
areas at rates competitive to those in the area. All deposit accounts are
insured by the FDIC up to the maximum limits permitted by law. The Bank solicits
these accounts from small businesses, professional firms and households located
throughout its primary market area.
The Bank has ATM facilities and offers ATM cards with access to local,
state, and national networks. The Bank also offers safe deposit boxes, wire
transfers, direct deposit of payroll and social security checks, and automatic
drafts for various accounts. The Bank periodically reviews the scope of the
products and services it offers so as to assess whether additional products or
services should, consistent with market opportunities and available resources,
be included in the Bank's products and services.
The Bank conducts commercial and consumer banking business which
primarily consists of attracting deposits from the areas served by its banking
offices and using those deposits, together with funds derived from other
sources, to originate a variety of commercial, consumer and real estate loans
(primarily commercial real estate loans). The Bank offers a broad range of short
to medium-term business and personal loans. Commercial loans include both
collateralized and uncollateralized loans for working capital (including
inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchases of equipment and machinery.
Consumer loans include collateralized and uncollateralized loans for financing
automobiles, boats, home improvements, and personal investments.
The Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on securities,
short-term investments and other services. The Bank's income is also affected by
provisions for loan losses. Its principal expenses are interest paid on deposits
and operating expenses. The Bank intends to expand its deposit and loan customer
relationships at its existing offices and to examine opportunities for expansion
to new locations. The Bank's operations are also significantly affected by local
economic and competitive conditions in its market areas.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the FRB, the FDIC, and the State of Florida.
Deposit flows and cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds. The
Bank faces strong competition in the attraction of deposits (its primary source
of lendable funds) and in the origination of loans.
Market Area
The Bank's facilities are located in Pinellas County, which is the
Bank's primary market area. Pinellas County has an estimated resident population
38
<PAGE>
of approximately 890,000. The Bank's deposit gathering and lending markets are
concentrated on the communities surrounding its offices in Clearwater, Florida.
Management believes that its offices are located in an area serving small and
mid-sized businesses and serving middle and upper income residential
communities.
Market for Services
- -------------------
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial market within the primary market area: and
(ii) the moderate and the affluent residential market within the primary market
area. Moreover, management believes that a community bank is well positioned to
establish these relationships with both commercial customers and households.
Management believes a locally-based bank is often perceived by the local
business community as possessing a clearer understanding of local commerce and
its needs.
Lending Activities
- ------------------
General
- -------
The primary source of income generated by the Bank is from the interest
earned from both the loan and securities portfolios. The Bank maintains
diversification when considering investments and the granting of loan requests.
Emphasis is placed on the borrower's ability to generate cash flow to support
its debt obligations and other cash related expenses. Lending activities include
commercial and consumer loans and real estate loans. Commercial loans are
originated for working capital funding. Consumer loans include those for the
purchase of automobiles, boats, home improvements and investments. Real estate
loans include primarily the origination of loans for commercial property. While
the Bank's lending activities include single-family residential mortgages, such
lending activities are not emphasized.
At December 31, 1997 the Bank's net loan portfolio was $75.6 million,
representing 50.2% of its total assets. As of such date, the loan portfolio
consisted of 4.3% commercial loans, 95.4% real-estate mortgage loans and .3%
consumer and other loans.
Real Estate Mortgage Loans
- --------------------------
A substantial portion of the Bank's real estate mortgage loans are made
to finance the acquisition and holding of commercial real estate. The Bank
requires mortgage title insurance and hazard insurance in amounts deemed
appropriate by Management. As part of its loan portfolio management strategy,
the Company typically limits its loans to 75% of the value of the underlying
real estate as determined by an MAI appraisal. In addition, knowledgeable
members of management make physical inspections of properties being considered
for mortgage loans.
Commercial mortgage lending generally involves greater risk than
residential mortgage lending. Such lending typically involves larger loan
balances to single borrowers and repayment of loans secured by income-producing
properties is typically dependent upon the successful operation of the related
real estate project.
Commercial Lending
- ------------------
The Bank offers a variety of commercial loan services including term
loans, lines of credit and equipment financing. Short-to-medium term commercial
loans, both collateralized and uncollateralized, are made available to
businesses for working capital (including inventory and receivables), business
expansion (including acquisitions of real estate and improvements), and the
purchase of equipment and machinery. The purpose of a particular loan generally
determines its structure.
39
<PAGE>
The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Bank takes as collateral a lien on any
available real estate, equipment, or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his employment and other income
and which are collateralized by real property whose value tends to be more
readily ascertainable, commercial loans typically are underwritten on the basis
of the borrower's ability to make repayment from the cash flow of his business
and generally are collateralized by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself. Further, the collateral underlying the loans may
depreciate over time, cannot be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
Consumer Loans
- --------------
Consumer loans made by the Bank have included automobiles, recreation
vehicles, boats, home improvements, home equity lines of credit, personal
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans periodically range from 36 to 120 months and vary based
upon the kind of collateral and size of loan.
Consumer loans typically have a short term and carry higher interest
rates than that charged on other types of loans. Installment loans, however, do
pose additional risks of collectability when compared to traditional types of
loans granted by commercial banks such as residential mortgage loans. In many
instances, the Bank is required to rely on the borrower's ability to repay since
the collateral may be of reduced value at the time of collection. Accordingly,
the initial determination of the borrower's ability to repay is of primary
importance in the underwriting of consumer loans.
Loan Solicitation and Processing
- --------------------------------
Loan originations are derived from a number of sources. Loan
originations can be attributed to direct solicitation by the Bank's loan
officers, existing customers and borrowers, advertising, walk-in customers and
referrals from brokers.
Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment income and credit standing. An appraisal, where
required, of any real estate intended to collateralize the proposed loan is
undertaken by an appraiser approved by the Bank.
Competition
- -----------
The Bank encounters strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking in the Bank's primary market area. In one or
more aspects of its business, the Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies, and other
financial intermediaries operating in Pinellas County and elsewhere. Most of
these competitors, some of which are affiliated with large bank holding
companies, have substantially greater resources and lending limits, and may
offer certain services that the Bank does not currently provide. In addition,
many of the Company's non-bank competitors are not subject to the same extensive
40
<PAGE>
federal regulations that govern bank holding companies and federally insured
banks. See "Investment Considerations and Risk Factors-Competition."
Management believes that the Company and the Bank are well positioned to
compete successfully in its primary market area, although no assurances can be
given. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of banking facilities, and, in the case of loans to commercial
borrowers, relative lending limits. As an independent community bank
headquartered in the Bank's primary market area, management believes that the
Bank's community commitment and involvement in its primary market area, as well
as its commitment to quality, personalized banking services, are factors that
contribute to the Bank's competitiveness.
Employees
- ---------
At December 31, 1997, the Company and the Bank together employed 30
full-time employees 1 part-time employee. None of these employees is covered by
a collective bargaining agreement and the Company believes that its employee
relations are good.
Properties
- ----------
The office of the Company is at 10 Rockefeller Plaza, New York, New
York. The Bank maintains its principal office at 625 Court Street, Clearwater,
Florida. In addition to its principal office the bank operates four branch
offices. Three of the branch offices are in Clearwater, Florida, at 1875 Belcher
Road North, 2175 Nursery Road and 2575 Ulmerton Road, and one is at 6750
Gulfport Blvd., South Pasadena, Florida. With the exception of the Belcher Road
office, which is leased, all of the offices are owned by the Bank.
The office at 625 Court Street consists of a two story building
containing approximately 22,000 sq. ft. The Bank occupies the ground floor
(approximately 8,500 sq. ft.) and leases the 2nd floor to a single commercial
tenant. The branch office at 1875 Belcher Road is a two story building in which
the bank leases approximately 5,100 sq. ft. for its branch office. The branch
office at 2175 Nursery Road is a one story building containing approximately
2,700 sq. ft. which is entirely occupied by the Bank. The branch office at 2575
Ulmerton Road is a three story building containing approximately 17,000 sq. ft.
The bank occupies the ground floor (approximately 2,500 sq. ft.) and leases the
upper floors to commercial tenants. The branch office at 6750 Gulfport Blvd. is
a one story building containing approximately 2,800 sq. ft. which is entirely
occupied by the Bank. In addition, each of the Bank's offices include
drive-through teller facilities.
Litigation
- ----------
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to the Bank's business. Management
does not believe that there is any pending or threatened proceeding against the
Company or the Bank which, if determined adversely, would have a material effect
on the business, results of operations, or financial position of the Company or
the Bank.
Federal and State Taxation
- --------------------------
General. The Company and the Bank file a consolidated federal income
tax return on a calendar year basis. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
41
<PAGE>
computation of consolidated taxable income for the taxable year in which the
distributions occur. Banks and bank holding companies are subject to federal and
state income taxes in the same manner as other corporations. In accordance with
an income tax sharing agreement, income tax charges or credits are allocated to
the Company and the Bank on the basis of their respective taxable income or loss
included in the consolidated income tax return.
Federal Income Taxation. Although a bank's income tax liability is
determined under provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), which is applicable to all taxpayers, Sections 581 through 597 of
the Code apply specifically to financial institutions.
The two primary areas in which the treatment of financial institutions
differs from the treatment of other corporations under the Code are in the areas
of bond gains and losses and bad debt deductions. Bond gains and losses
generated from the sale or exchange of portfolio instruments are generally
treated for financial institutions as ordinary gains and losses as opposed to
capital gains and losses for other corporations, as the Code considers bond
portfolios held by banks to be inventory in a trade or business rather than
capital assets. Banks are allowed a statutory method for calculating a reserve
for bad debt deductions. Based on the asset size of the Bank, the Bank is
permitted to maintain a bad debt reserve calculated on an experience method,
based on charge-offs and recoveries for the current and preceding five years, or
a "grandfathered" base year reserve, if larger.
State Taxation. The Company files state income tax returns in Florida,
New York and New Jersey and franchise tax returns in Delaware. Florida taxes
banks under primarily the same provisions as other corporations. The holding
company's activities, other than the bank operations, are taxable in the State
of New York. Generally, state taxable income is calculated under applicable Code
sections with some modifications required by state law.
MANAGEMENT
Directors and Executive Officers of the Company
- -----------------------------------------------
The directors and executive officers of the Company, their ages, and
positions with the Company are set forth below.
Lawrence G. Bergman, age 53, serves as a Director, Vice President and
Secretary of the Company and has served in such capacities since the Company was
organized. Mr. Bergman received a Bachelor of Science degree and a Master of
Engineering (Electrical) degree from Cornell University, and a Master of Science
in Engineering and a Ph.D degree from The Johns Hopkins University. Mr. Bergman
is also Co-Chairman of the Board of Directors and a member of the Loan Committee
of the Bank and a Director, Vice-President and Secretary of Intervest
Corporation of New York. During the past five years Mr. Bergman has been
actively involved in the ownership and operation of real estate and mortgage
investments.
Michael A. Callen, age 57, serves as a Director of the Company, and has
served in such capacity since May, 1994. Mr Callen received a Bachelor of Arts
degree from the University of Wisconsin in Economics and Russian. Mr. Callen has
been Senior Advisor, The National Commercial Bank, Jeddah, Kingdom of Saudi
Arabia since May, 1993. From the fall of 1992 through February of 1993, he was
an Adjunct Professor of International Banking at Columbia University Business
School. From 1987 until February of 1992 he was a Director and Sector Executive
at Citicorp/Citibank, responsible for corporate banking activities in North
America, Europe and Japan. He is also a Director of Intervest Corporation of New
York and AMBAC, Inc.
Jerome Dansker, age 79, serves as Chairman of the Board of Directors and
Executive Vice President of the Company. He has served as Executive Vice
42
<PAGE>
President since 1994 and as Chairman of the Board since 1996. Mr. Dansker
received a Bachelor of Science degree from the New York University School of
Commerce, Accounts and Finance, a law degree from the New York University School
of Law, and is admitted to practice as an attorney in the State of New York. Mr.
Dansker is also a Director and Chairman of the Loan Committee of the Bank and is
Chairman of the Board of Directors and Executive Vice President of Intervest
Corporation of New York. During the past five years, Mr. Dansker has been
actively involved in the ownership and operation of real estate and mortgage
investments.
Lowell S. Dansker, age 47, serves as a Director, President and Treasurer
of the Company, and has served in such capacities since the Company was
organized. Mr. Dansker received a Bachelor of Science in Business Administration
from Babson College, a law degree from the University of Akron School of Law,
and is admitted to practice as an attorney in New York, Ohio, Florida and the
District of Columbia. Mr. Dansker is also Co-Chairman of the Board of Directors
and a member of the Loan Committee of the Bank and a Director, President and
Treasurer of Intervest Corporation of New York. During the past five years, Mr.
Dansker has been actively involved in the ownership and operation of real estate
and mortgage investments.
Milton F. Gidge, age 68, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Gidge received a Bachelor of
Business Administration degree in Accounting from Adelphi University and a
Masters Degree in Banking and Finance from New York University. Mr. Gidge
retired in 1994 and, prior to his retirement, was a Director and Chairman-Credit
Policy of Lincoln Savings Bank, F.S.B. (headquartered in New York City). He is
also a Director of Intervest Corporation of New York, Interboro Mutual Indemnity
Insurance Company and Vicon Industries, Inc. Mr. Gidge was a director and senior
officer of Lincoln Savings Bank, F.S.B. for more than five years.
William F. Holly, age 69, serves as a Director of the Company and has
served in such capacity since March, 1994. Mr. Holly received a Bachelor of Arts
degree in Economics from Alfred University. Mr. Holly is Chairman of the Board
and CEO of Sage, Rutty & Co., Inc., members of the Boston Stock Exchange, with
offices in Rochester, New York and Canandaigua, New York, and is also a Director
of Intervest Corporation of New York and a Trustee of Alfred University. Mr.
Holly has been an officer and director of Sage, Rutty & Co., Inc. for more than
five years.
Edward J. Merz, age 66, serves as a Director of the Company and has
served in such capacity since February, 1998. Mr. Merz received a Bachelor of
Business Administration from City College of New York and is a graduate of the
Stonier School of Banking at Rutgers University. Mr. Merz is Chairman of the
Board of Directors of the Suffolk County National Bank of Riverhead and of its
parent, Suffolk Bancorp, and has been an officer and director of those companies
for more than five years. He is also a director of the Independent Bankers
Association of New York.
David J. Willmott, age 60, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Willmott is a graduate of Becker
Junior College and attended New York University Extension and Long Island
University Extension of Southampton College. Mr. Willmott is the Editor and
Publisher of Suffolk Life Newspapers, which he founded more than 25 years ago
and is a Director of Intervest Corporation of New York.
Wesley T. Wood, age 55, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Wood received a Bachelor of
Science degree from New York University, School of Commerce. Mr. Wood is
President of Marketing Capital Corporation, an international marketing
consulting and investment firm which he founded in 1973. He is also a Director
of Intervest Corporation of New York, a Director of the Center of Direct
Marketing at New York University, a member of the Marketing Committee at
Fairfield University in Connecticut, and a Trustee of St.
Dominics R.C. Church in Oyster Bay, New York.
All of the directors of the Company have been elected to serve as
directors until the next annual meeting of the Company's shareholders. Each of
the officers of the Company has been elected to serve as an officer until the
next annual meeting of the Company's directors.
43
<PAGE>
Mr. Bergman's wife is the sister of Lowell S. Dansker, and Jerome
Dansker is the father of Lowell S. Dansker and Mrs. Bergman.
Directors and Executive Officers of the Bank
- --------------------------------------------
The current directors and executive officers of the Bank are as follows:
Lawrence G. Bergman serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of the Bank and has served as a director since
May 1993. See "Directors and Executive Officers of the Company."
Stephen M. Bragin, age 67, serves as a Director of the Bank and has
served in such capacity since November 1993. Mr. Bragin attended the University
of Pennsylvania, where he majored in business. Mr. Bragin is the Director of
Development at the University of South Florida, College of Fine Arts. He is
retired from the citrus growing and processing business, where he had over 30
years of experience.
Robert J. Carroll, age 55, serves as a Director and as a member of the
Loan Committee of the Bank, and has served as a director since 1987. Mr. Carroll
received a Bachelor of Arts degree and a law degree from the University of
Florida, Gainesville. He is a senior partner in the law firm of Perenich,
Carroll, Perenich, Avril & Caulfield, P.A., and has been a member of such firm
for 25 years.
Petra H. Coover, age 51, serves as Vice President of the Bank and has
served in such capacity since June 1994. Ms. Coover received a Bachelor of Arts
degree in business administration from Eckerd College. She has also attended The
National School of Real Estate Finance of Ohio State University, the Commercial
Lending School of the University of South Florida and the International Business
Institute in the Netherlands. Ms. Coover has been a bank officer for more than
13 years.
Jerome Dansker serves as a Director and as Chairman of the Loan
Committee of the Bank and has served as a director since November 1993. See
"Directors and Executive Officers of the Company."
Lowell S. Dansker serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of the Bank, and has served as a director
since May 1993. See "Directors and Executive Officers of the Company."
David M. Egbert, age 55, serves as a Director of the Bank and has
served in such capacity since November 1993. Mr. Egbert received a Bachelor of
Arts degree from the University of Wisconsin in journalism and advertising. Mr.
Egbert is the President of the IMS Group, a marketing services company based in
St. Petersburg, Florida, which he founded in 1989. Prior to this, he was Senior
Vice President/Marketing at Chase Manhattan Bank. Mr. Egbert has over 25 years
of marketing experience, which includes approximately 10 years in banking as a
senior officer specializing in marketing.
Mark W. Maconi, age 47, serves as a Director and as a member of the
Loan Committee of the Bank and has served as a director since 1987. He attended
St. Petersburg Junior College and is the President of Mark Maconi Homes, Inc., a
building and land development firm which he founded approximately 20 years ago.
Mr. Maconi is Vice President of the Contractors and Builders Association of
Pinellas County and is Chairman of the Building Advisory and Appeals Board of
Pinellas County.
Lawrence W. Nortrup, age 71, serves as a Director of the Bank and has
served in such capacity since March, 1994. Mr. Nortrup received a Bachelor of
Science degree from the University of Illinois in business management. Mr.
Nortrup retired as CEO and President of Michigan Avenue National Bank of Chicago
and has over twenty-five years of banking experience.
Keith A. Olsen, age 44, was elected President of the Bank in 1994.
Prior to such time, he was Senior Vice President of the Bank and had served in
44
<PAGE>
that capacity since 1991. Mr. Olsen received an Associates Degree from St.
Petersburg Junior College and a Bachelors Degree in Business Administration and
Finance from the University of Florida, Gainesville. He is also a graduate of
the Florida School of Banking of the University of Florida, Gainesville, the
National School of Real Estate Finance of Ohio State University and the Graduate
School of Banking of the South of Louisiana State University. Mr. Olsen has been
a banker for more than 15 years and has served as a senior bank officer for more
than 10 years.
Lawton Swan, III, age 55, serves as a Director of the Bank and has
served in such capacity since November, 1997. Mr. Swan received a Bachelor of
Science in Insurance from Florida State University. He is President of Interisk
Corporation, a firm specializing in risk management and employee benefit
consulting services, which he founded more than 20 years ago. Mr. Swan is an
active member of the insurance industry participating on an executive level in
various organizations, as well as lecturing and publishing numerous articles.
Marti J. Warren, age 36, serves as Vice President and Cashier of the
Bank and has served in that capacity since 1996. Mr. Warren is a graduate of the
Florida School of Banking of the University of Florida, Gainsville. Mr. Warren
has been a bank officer for more than ten years.
All of the directors of the Bank have been elected to serve as directors
until the next annual meeting of the Bank's shareholders. Each of the officers
of the Bank has been elected to serve as an officer until the next annual
meeting of the Bank's directors.
Executive Compensation
- ----------------------
The following table sets forth all compensation paid during the last
three years to the Bank's chief executive officer. No other officer of the
Company or Bank had annual compensation in excess of $100,000.
45
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards(2)
---------
Other Annual Number of
Name and Principal Year Salary(1) Bonuses Compensation Shares Pay-Outs
- ------------------ ---- --------- ------- ------------ ------ --------
Position
<S> <C> <C> <C> <C>
Keith A. Olsen, President 1995 $ 90,000 $10,000 ---- 15,000 ----
1996 $ 95,000 $10,000 ---- 15,000 ----
1997 $ 115,000 $10,000 ---- ---- ----
</TABLE>
(1) All compensation or renumeration paid to employees is paid by the Bank.
At the present time, there are no employees of the Company and there is
no compensation paid by the Company.
(2) These represent warrants to purchase the number of shares of Class A
Common Stock set forth in the table.
Directors of the Company are paid director's fees of $500 per meeting.
Directors of the Bank are paid director's fees of $100 per meeting.
The Bank has an employment agreement with Mr. Keith A. Olsen. The
agreement provides for a base annual salary of not less than $115,000 and
provides for a maximum of two years' severance upon termination of employment.
Fringe Benefits
- ---------------
The Bank maintains a 401(k) and Profit Sharing Plan which encourages
the accumulation of savings for participants' retirement. The plan permits
401(k) matching contributions, as well as employer profit-sharing contributions
in the discretion of the Bank. The Bank contributed $21,377 to this Plan in
1997.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Bank has had, and expects to have in the future, various loan and
other banking transactions in the ordinary course of business with directors,
and executive officers of the Bank (or associates of such persons). In the
opinion of management, all such transactions: (i) have been and will be made the
ordinary course of business, (ii) have been and will be made on substantially
the same terms, including interest rates and collateral on loans, as those
generally prevailing at the time for comparable transactions with unrelated
persons, and (iii) have not and will not involve more than the normal risk of
collectability or present other unfavorable features. The total dollar amount of
extensions of credit, including unused lines of credit, to directors and
executive officers and any of their associates was $3.2 million as of December
31, 1997, which represented approximately 18.2% of the Company's total
stockholders' equity. There are no loans to directors or officers of Intervest
Bancshares Corporation.
Except for the transactions described below and outside of normal
customer relationships, none of the directors, officers, or present shareholders
of the Company and no corporations or firms with which such persons or entities
are associated, currently maintains or has maintained since the beginning of the
last fiscal year, any significant business or personal relationship with the
Company or the Bank, other than such as arises by virtue of such position or
ownership interest in the Company or the Bank.
The Bank leases certain office facilities from a corporation in which
Robert J. Carroll, a director of the Bank, is an officer and in which he has an
ownership interest. See Note 4 to Notes to Consolidated Financial Statements.
Mr. William F. Holly, a director of the Company, is Chairman of the Board and
Chief Executive Officer of Sage, Rutty & Co., Inc., which is the underwriter in
this offering and which was the underwriter in the Company's public offering of
46
<PAGE>
units in 1997. In that public offering, Sage, Rutty received aggregate
compensation of approximately $256,000, as well as warrants to related 18,000
shares of the Company's Class A Common Stock. The holding company, as well as
corporations affiliated with certain directors of the Company, have in the past
and may in the future participate in mortgage loans originated by the Bank. Such
participations are on substantially the same terms as would apply for comparable
transactions with other persons and the interest of the participants in the
collateral securing those loans is pari passu with the Bank.
47
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each of the Company's directors,
(iii) each executive officer of the Company and (iv) all current directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------- --------------------
Name and Address of
Beneficial Holder Number Percent of Number Percent of
of Shares Class (1) of Shares Class
--------- --------- --------- -----
<S> <C> <C> <C> <C>
Helene D. Bergman 225,000 10.73% 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Directors and Executive Officers
Lawrence G. Bergman 307,500(2) 14.11% 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Lowell S. Dansker 532,500(2) 24.27% 150,000 33.33%
360 West 55th Street
New York, New York 10019
Michael A. Callen 45,000(3) 2.11% 0 0%
Ryutat
Jeddah, Saudi Arabia
Jerome Dansker 553,965(4) 20.89% 150,000(4) 33.33%
860 Fifth Avenue
New York, New York 10021
Milton F. Gidge 31,500(5) 1.48% 0 0%
43 Salem Ridge Drive
Huntington, New York 11743
William F. Holly 22,500(6) 1.06% 0 0%
206 Edgemere Drive
Rochester, New York 14612
David J. Wilmott 82,500(7) 3.84% 0 0%
West Way
Southhampton, New York
Wesley T. Wood 97,500(8) 4.52% 0 0%
24 Timber Ridge Drive
Oyster Bay, New York 11771
All directors and executive
officers as a group 1,672,965 56.49% 375,000 83.33%
</TABLE>
48
<PAGE>
- ----------------------------
(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares that person
or the group has the right to acquire pursuant to warrants.
(2) Includes 82,500 shares of Class A common stock issuable upon the
exercise of warrants.
(3) Includes 33,750 shares of Class A common stock issuable upon the
exercise of warrants.
(4) The 553,965 shares of Class A common stock are issuable upon the
exercise of outstanding warrants. The 150,000 shares of Class B Common
Stock are issuable upon exercise of a warrant.
(5) Includes 11,250 shares of Class A common stock issuable upon the
exercise of warrants.
(6) Includes 22,500 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 52,500 shares of Class A common stock issuable upon the
exercise of warrants.
(8) Includes 60,000 shares of Class A common stock issuable upon the
exercise of warrants.
DESCRIPTION OF THE DEBENTURES
The Company will issue the Debentures under an Indenture to be dated as
of _________ 1, 1998 (the "Indenture") between the Company and the Bank of New
York, 101 Barclay Street, New York, New York 10286 (the "Trustee"). A copy of
the Indenture is filed as an exhibit to the Registration Statement of which this
prospectus is a part. The following summaries of certain provisions of the
Indenture do not purport to be complete and where particular provisions of the
Indenture are referred to, such particular provisions are incorporated herein by
reference, and each summary is qualified in its entirety by such incorporated
provisions. Parenthetical references in this summary are to Articles and
Sections of the Indenture.
General
The Debentures will be unsecured subordinated obligations of the
Company, will be limited to an aggregate principal amount of $6,000,000 and will
mature on July 1, 2008. The Debentures will be issued only in denominations of
$10,000 and multiples thereof, and with a minimum purchase of $10,000.
Interest on the Debentures will accrue each calendar quarter at a fixed
rate reflecting the prime rate of Chase Manhattan Bank on the date of First
Closing (as defined below) less one-half of one percent. In addition, interest
will accrue each calendar quarter on the balance of the accrued interest as of
the last day of the preceding calendar quarter at the same interest rate. All
accrued interest on the Debentures will be payable at the maturity of the
Debentures, whether by acceleration, redemption or otherwise.
Any debenture holder may, on or before July 1 of each year, commencing
July 1, 2003, elect to be paid all accrued interest on the Debentures and to
thereafter receive payments of quarterly interest. The election must be made
after April 1 and before May 31 and the holder will receive a payment of accrued
interest on July 1 and will thereafter receive quarterly payments of interest on
the first day of each January, April, July and October until the maturity date.
Once made, an election to receive interest is irrevocable. Quarterly interest
will be payable to holders of record on the first day of the month preceding the
interest payment date.
Once the Company has received orders for at least $5,000,000 of
Debentures, the Company may close as to those Debentures (the "First Closing").
Interest will accrue from the fifth day preceding the First Closing. With
respect to Debentures sold after the First Closing, interest will accrue from
the fifth day preceding the closing.
49
<PAGE>
Subordination of Debentures
The Debentures are general unsecured obligations of the Company limited
to $6,000,000 principal amount. The Debentures will be subordinated in payment
of principal and interest to all senior indebtedness. The term Senior
Indebtedness is defined in the Indenture to mean all indebtedness of the
Company, whether outstanding on the date of the Indenture or thereafter created,
which (i) is secured, in whole or in part, by any asset or assets owned by the
Company or by a corporation, a majority of whose voting stock is owned by the
Company or a subsidiary of the Company ("Subsidiary"), or (ii) arises from
unsecured borrowings by the Company from commercial banks, savings banks,
savings and loan associations, insurance companies, companies whose securities
are traded in a national securities market, or any majority-owned subsidiary of
any of the foregoing, or (iii) arises from unsecured borrowings by the Company
from any pension plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended), or (iv) arises from borrowings by the
Company which are evidenced by commercial paper, or (v) other unsecured
borrowings by the Company which are subordinate to indebtedness of a type
described in clauses (i), (ii) or (iv) above, or (vi) is a guaranty or other
liability of the Company of, or with respect to any indebtedness of, the
subsidiary of the type described in clauses (ii), (iii) or (iv) above. As of
December 31, 1997, the Company had no senior indebtedness. There is no
limitation or restriction in the Debentures or the Indenture on the creation of
senior indebtedness by the Company on the amount of such senior indebtedness to
which the Debentures may be subordinated. There is also no limitation on the
creation or amount of indebtedness which is pari passu with (i.e. having no
priority of payment over and not subordinated in right of payment to) the
Debentures.
Upon any distributions of any assets of the Company in connection with
any dissolution, winding-up, liquidation or reorganization of the Company, the
holders of all senior indebtedness will first be entitled to receive payment in
full of the principal and premium, if any, thereof and any interest due thereof,
before the holders of the Debentures are entitled to receive any payment upon
the principal of or interest on the Debentures, and thereafter payments to the
debenture holders will be pro rata with payments to holders of pari passu
indebtedness. In the absence of any such events, the Company is obligated to pay
principal of and interest on the Debentures in accordance with their terms. The
Company will not maintain any sinking fun for the retirement of any of the
Debentures.
Conversion Rights
The Debentures will be convertible, at the option of the holder into
shares of Class A Common Stock of the Company at any time prior to April 1, 2008
(subject to prior redemption by the Company on not less than 30 days notice and
not more than 90 days notice), initially at a conversion price determined as
follows. The initial conversion price shall be determined based upon the average
of the closing sales prices of the shares of Class A Common Stock on the Nasdaq
SmallCap Market during the 20 trading days preceding the First Closing date,
less $.50, rounded down to the nearest quarter dollar. Thereafter, the
conversion price will be adjusted, as follows: the conversion price per share
shall increase by $1.00 per share on the 1st day of January, 1999; the
conversion price per share shall increase by $1.50 per share on July 1, 1999,
July 1, 2000, July 1, 2001 and July 1, 2002; the conversion price per share will
be increased by $2.00 per share on July 1, 2003 and July 1, 2004; the conversion
price per share will be increased by $3.00 per share on July 1, 2005 and July 1,
2006; and the conversion price per share will increase by $4.00 per share on
July 1, 2007. The Company reseveres the right, from time to time in its
discretion, to establish conversion prices per share which are less than the
conversion prices set forth above, which lower prices shall remain in effect for
such periods, as the Company may determine and shall be set forth in a written
notice to the holder of Debentures.
The Debentures remain convertible until April 1, 2008 and may be
converted by written notice to the Company at the office or agency maintained
for that purpose and delivery of the certificate representing the Debentures to
such office or agency.
The Debentures may not be converted as to a principal amount less than
$10,000 (unless exercised as to the entire principal balance) and may be
converted in $10,000 increments of principal, together with the accrued interest
on the principal so converted.
The conversion price will be subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in Class A Common
Stock on any class of capital stock of the Company, (ii) the issuance to all
holders of common stock of rights or warrants entitling them to subscribe for or
purchase Class A Common Stock at less than the current market price (as
defined), (iii) subdivisions, combinations and reclassifications of common
50
<PAGE>
stock, (iv) distributions to all holders of Class A Common Stock of evidence of
indebtedness of the Company or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and any dividend
or distribution paid exclusively in cash.
Fractional shares of Class A Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay cash adjustment equal to
the portion of the principal and/or interest not converted into whole shares.
Transfers
The Debentures are transferable on the books of the Company by the
registered holders thereof upon surrender of the Debentures to the Registrar
appointed by the Company and, if requested by the Registrar, shall be
accompanied by a written instrument of transfer in form satisfactory to the
registrar. The Company has appointed The Bank of New York as the "Registrar" for
the Debentures. The person in whose name any Debenture is registered shall be
treated as the absolute owner of the Debenture for all purposes, and shall not
be affected by any notice to the contrary. Upon transfer, the Debentures will be
canceled, and one or more new registered Debentures, in the same aggregate
principal amount, of the same maturity and with the same terms, will be issued
to the transferee in exchange therefor. (Art. 2, Sec. 2.07(a)).
Duties of the Trustee
The Indenture provides that in case an Event of Default (as defined)
shall occur and continue, the Trustee will be required to use the same degree of
care and skill as a prudent person would exercise or use under the circumstances
in the conduct of his own affairs in the exercise of its power. While the
Trustee may pursue any available remedies to enforce any provision of the
Indenture or the Debentures, the holders of a majority in principal amount of
all outstanding Debentures may direct the time, method, and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Debenture holders, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
Authentication and Delivery of Debentures
The Registrar shall authenticate Debentures for original issue in the
aggregate principal amount of up to $5,000,000 upon receipt of a written order
of the Company, specifying the amount of Debentures to be authenticated and the
date of authentication, which is signed by two officers of the Company. (Art. 2,
Sec. 2.02). Certificates representing the Debentures will be delivered to the
purchasers of the Debentures promptly after Closing.
Redemption
The Company may, at its option, at any time call all or any part of the
Debentures for payment, and redeem the same at any time prior to the maturity
thereof. The redemption price for Debentures will be (i) face amount plus a 2%
premium if the date of redemption is prior to July 1, 1999, (ii) face amount
plus a 1% premium if the date of redemption is on or after July 1, 1999 and
prior to July 1, 2000 , and (iii) face amount if the date of redemption is on or
after July 1, 2000. In all cases, the Debenture Holder will also receive
interest accrued to the date of redemption. Notice of redemption must be sent by
first class mail, postage prepaid, to the registered holders of the Debentures
not less than 30 days nor more than 90 days prior to the date the redemption is
to be made. In the event of a call for redemption, no further interest shall
accrue after the redemption date on any
51
<PAGE>
Debentures called for redemption. (Art. 3, Section 3.03, Paragraph 5). Since the
payment of principal of, interest on, or any other amounts due on the Debentures
is subordinate in right of payment to the prior payment in full of all Senior
Indebtedness upon the dissolution, winding up, liquidation or reorganization of
the Company, no redemption will be permitted upon the happening of such an
event.
Limitation On Dividends and Other Payments
The Indenture will provide that the Company will not declare or pay any
dividend or make any distribution on its Capital Stock (i.e. any and all shares,
interests, participations, rights or other equivalents of the Company's stock)
or to its shareholders (other than dividends or distributions payable in Capital
Stock), or purchase, redeem or otherwise acquire or retire for value, or permit
any Subsidiary to purchase or otherwise acquire for value, Capital Stock of the
Company, if at the time of such payment, or after giving effect thereto, an
Event of Default, as hereinafter defined, shall have occurred and be continuing
or a default shall occur as a result thereof; provided, however, that the
foregoing limitation shall not prevent (A) the payment of any dividend within 60
days after the date of declaration thereof, if at said date of declaration such
payment complied with the provisions of such limitation, or (B) the acquisition
or retirement of any shares of the Company's Capital Stock by exchange for, or
out of the proceeds of the sale of shares of, its Capital Stock. (Art. 4,
Section 4.04).
Discharge Prior to Redemption or Maturity
If the Company at any time deposits with the Trustee money or U.S.
Government Obligations sufficient to pay principal and interest on the
Debentures prior to their redemption or maturity, the Company will be discharged
from the Indenture, provided certain other conditions specified in the Indenture
are satisfied. In the event of such deposit, which is irrevocable, Debenture
Holders must look only to the deposited money and securities for payment. U.S.
Government Obligations are securities backed by the full faith and credit of the
United States. (Art. 8, Section 8.01(2)).
Access of Information to Security Holders
Debenture Holders may obtain from the Trustee information necessary to
communicate with other Debenture Holders. Upon written application to the
Trustee by any three or more Debenture Holders stating that such Debenture
Holders desire to communicate with other Debenture Holders with respect to their
rights under the Indenture or under the Debentures, and upon providing the
Trustee with the form of proxy or other communication which the Debenture
Holders propose to transmit, and upon receipt by the Trustee from the Debenture
Holders of reasonable proof that each such Debenture Holder has owned a
Debenture for a period of at least six months preceding the date of such
application, the Trustee shall, within five business days after the receipt of
such information, either (a) provide the applicant Debenture Holders access to
all information in the Trustee's possession with respect to the names and
addresses of the Debenture Holders; or (b) provide the applicant Debenture
Holders with information as to the number of Debenture Holders and the
approximate cost of mailing to such Debenture Holders the form of proxy or other
communication, if any, specified in the applicant Debenture Holders'
application, and upon written request from such applicant Debenture Holders and
receipt of the material to be mailed and of payment, the Trustee shall mail to
all the Debenture Holders copies of the from of proxy or other communication so
specified in the request. (Art. 2, Section 2.08).
Compliance with Conditions and Covenants
Upon any request by the Company to the Trustee to take any action under the
Indenture, the Company is required to furnish to the Trustee (i) an officers'
certificate of the Company stating that all conditions and covenants in the
Indenture relating to the proposed action have been complied with and (ii) an
opinion of counsel stating that, in the opinion of such counsel, all such
conditions and covenants have been complied with. (Art. 11, Sec. 11.03).
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<PAGE>
Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and compliance by the Company with any provision of the
Indenture or the Debentures may be waived, with the consent of the holders of a
majority in principal amount of the Debentures outstanding. Without notice to or
consent of any holders of Debentures, the Company may amend or supplement the
Indenture or the Debentures to cure any ambiguity, omission, defect or
inconsistency, or to make any change that does not adversely affect the rights
of any holders of Debentures. However, without the consent of each holder of
Debentures affected, an amendment, supplement or waiver may not reduce the
amount of Debentures whose holders must consent to an amendment, supplement or
waiver, reduce the rate or extend the time for payment of interest on any
Debentures (except that the payment of interest on Debentures may be postponed
for a period not exceeding three years from its due date with the consent of
holders of not less than 75% in principal amount of Debentures at the time
outstanding, which consent shall be binding upon all holders), reduce the
principal of or extend the fixed maturity of any Debentures, make any Debentures
payable in money other than that stated in the Indenture, make any change in the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Debentures or waive a default in the payment of principal of or
interest on, or other redemption payment on any Debentures. (Art. 9, Sec. 9.02).
Defaults and Remedies
Each of the following is an "Event of Default" under the Indenture: (a)
failure by the Company to pay any principal on the Debentures when due; (b)
failure by the Company to pay any interest installment on the Debentures within
thirty days after the due date; (c) failure to perform any other covenant or
agreement of the Company made in the Indenture or the Debentures, continued for
sixty days after receipt of notice thereof from the Trustee or the holders of at
least 25% in principal amount of the Debentures; and (d) certain events of
bankruptcy, insolvency or reorganization. (Art. 6, Sec. 6.01). If an Event of
Default (other than those described in clause (d) above) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the Debentures, by notice to the Company, may declare the principal of and
accrued interest on all of the Debentures to be due and payable immediately. If
an Event of Default of the type described in clause (d) above occurs, all unpaid
principal and accrued interest on the Debentures shall automatically become due
and payable without any declaration or other act on the part of the Trustee or
any holder. (Art. 6, Sec. 6.02). Holders of Debentures may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Debentures unless it receives indemnity
and security satisfactory to it. Subject to certain limitations, the holders of
a majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power conferred on the Trustee, and may rescind an
acceleration of the Debentures. The Trustee may withhold from holders of
Debentures notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interest. (Art. 6, Secs. 6.05 and 6.06).
The Indenture requires the Company to furnish to the Trustee an annual
statement, signed by specified officers of the Company, stating whether or not
such officers have knowledge of any Default under the Indenture, and, if so,
specifying each such Default and the nature thereof. (Art. 4, Sec. 4.03).
Federal Income Tax Consequences
Holders of the Debentures will be required to include in their income
for federal income tax purposes all of the accrued but unpaid interest for each
taxable year, since such amounts constitute interest income within the meaning
of the applicable provisions of the Internal Revenue Code of 1986, as amended to
date (the "Code"). As a result, such debenture holders will be required to pay
taxes on interest which has accrued, although such interest will not be paid
until maturity of the Debenture.
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<PAGE>
Interest payments received by holders of Debentures who have elected to
received quarterly payments of interest will be includable in the income of such
holders for federal income tax purposes for the taxable year in which the
interest was received, except with respect to the payment of accrued interest
that has been included in their income in prior years.
Holders who hold the Debentures for investment purposes should treat
all reportable interest (whether actually received or accrued as portfolio
income under applicable code provisions.
The Company's deposit of funds with the Trustee to effect the discharge
of the Company's obligations under the Debentures and the Indenture prior to
redemption or maturity of the Debentures, will have no effect on the amount of
income realized or recognized (gain or loss) by the Debenture Holders or the
timing of recognition of gain or loss for federal income tax purposes.
DESCRIPTION OF CAPITAL STOCK
General
- -------
The Company's Articles of Incorporation provide for two classes of
common capital stock consisting of 7,500,000 shares of Class A Common Stock, par
value $1.00 per share, and 700,000 shares of Class B Common Stock, par value
$1.00 per share. In addition, the Company's Articles provide for 300,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock"). The Company's
Articles of Incorporation authorize the Board of Directors, without shareholder
approval, to fix the preferences, limitations and relative rights of the
Preferred Stock, to establish one or more series or classes of Preferred Stock,
and to determine the variations between each such series or class. No shares of
Preferred Stock are issued or outstanding.
As of the date of this Prospectus, there were issued and outstanding
__________ shares of Class A Common Stock, 900,000 of which are held by the
initial stockholders of the Company and 300,000 shares of Class B Common Stock
held by the same initial stockholders.
Common Stock
- ------------
Both classes of common stock have equal voting rights as to all
matters, except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding, the holders of the outstanding shares of Class B
Common Stock are entitled to vote for the election of two-thirds of the
directors (rounded up to the nearest whole number) and the holders of the
outstanding shares of Class A Common Stock are entitled to vote for the
remaining directors of the Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock (none of which are presently outstanding), holders of Class A
Common Stock are entitled to share ratably in dividends when and as declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividends."
No dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will share ratably in dividends when and
as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
54
<PAGE>
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
Class A Warrants
- ----------------
As of the date of this prospectus, there are also outstanding warrants
related to 2,494,348 shares of the Company's Class A Common Stock. Warrants
related to 1,528,665 shares of Class A Common Stock entitle the registered
holders thereof to purchase one share of Class A Common Stock at a price of
$6.67 per share and the remaining warrants (the "1997 Warrants") entitle the
holder to purchase shares of Class A Common Stock at a price of $10.00 per share
through December 31, 1999; $11.50 per share from January 1, 2000 through
December 31, 2000; $12.50 per share from January 1, 2001 through December 31,
2001; and $13.50 per share from January 1, 2002 to December 31, 2002. Warrants
related to 1,027,200 shares of Class A Common Stock expire on December 31, 2001
and another warrant related to 501,465 shares of Class A Common Stock expires on
January 31, 2006. Except for the exercise price, the expiration dates and the
redemption provisions applicable to the 1997 warrants, all of the outstanding
warrants related to Class A Shares are alike in all respects and the following
discussion applies to all of the warrants for Class A Common Stock. In addition,
there has been proposed by the Board of Directors, subject to approval by the
shareholders of the Company, the issuance of warrants related to up to 120,000
shares of Class A Common Stock to directors of the Company and officers,
directors and employees of Intervest Bank. Such warrants would be the same as
the 1997 Warrants.
The exercise price is subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant or any portion thereof by surrendering the certificate
representing the Warrant to the Company's transfer and warrant agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrant may be
exercised at any time until expiration of the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. Warrants may not be exercised as to
fewer than 100 shares unless exercised as to all Warrants held by the holder
thereof. The exercise prices of the Warrants have been arbitrarily determined by
the Company and are not necessarily related to the Company's book value, net
worth or other established criteria of value. The exercise price should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
55
<PAGE>
outstanding after the offering and thereafter no adjustments will be made until
the cumulative adjustments and exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Warrants will
be made for dividends (other than stock dividends), if any paid on the Class A
Common Stock or for securities issued pursuant to a company stock option plan,
if any, or other employee benefit plans of the Company.
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such Warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
Class B Warrant
- ---------------
There is an outstanding warrant to purchase up to 150,000 shares of
Class B Common Stock, at any time prior to January 31, 2007, at a purchase price
of $6.67 per share. The warrant contains terms and conditions substantially in
conformity with the Warrants related to shares of Class A Common Stock. In
addition, the Warrant provides for an adjustment in the number of shares of
Class B Common Stock purchasable upon the exercise of the Warrant and the
exercise price per share in accordance with anti-dilution and other provisions
which are in substantial conformity with those described above, but which relate
to share issuances and recapitalizations for both Class A and Class B Common
Stock. There has alos been proposed to be issued, subject to approval of the
shareholders, a warrant related to up to 50,000 shares of Class B Common Stock
at an exercise price of $10.00 per share to the Company's Chairman.
Transfer Agent and Warrant Agent
- --------------------------------
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 300,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances and when, in the judgment of the
Board of Directors, the action will be in the best interest of the stockholders
and the Company, such shares could be used to create voting impediments or to
frustrate persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers friendly to the Board of Directors in opposing
a hostile takeover bid. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Company's Common Stock on any merger, sale or exchange
of assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts or delaying, deferring or preventing
a change in control of the Company. Such an occurrence, in the event of a
hostile takeover attempt, may have an adverse impact on stockholders who may
wish to participate in such offer. The issuance of new shares could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interest of the stockholders and the Company. The
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<PAGE>
Board of Directors is not aware of any present attempt or effort by any person
to accumulate the Company's securities or obtain control of the Company.
Restrictions on Changes in Control
- ----------------------------------
Under the Federal Change in Bank Control Act (the "Control Act"), a
notice must be submitted to the FRB if any person, or group acting in concert,
seeks to acquire 10% or more of any class of outstanding voting securities of
the Company, unless the FRB determines that the acquisition will not result in a
change of control of the Company. Both the Class A Common Stock and the Warrants
are deemed to be voting securities for these purposes. Under the Control Act,
the FRB has 60 days within which to act on such notice, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the community served by the bank
holding company and its subsidiary banks, and the antitrust effects of the
acquisition. Under the BHCA a company is generally required to obtain prior
approval of the FRB before it may obtain control of a bank holding company.
Control is generally described to mean the beneficial ownership of 25% or more
of all outstanding voting securities of a company.
SUPERVISION AND REGULATION
Bank holding companies and Banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank. See "Investment Considerations and Risk
Factors-Supervision and Regulation."
Bank Holding Company Regulation
- -------------------------------
As a bank holding company registered hereunder the BHCA, the Company is
subject to the regulation and supervision of the Federal Reserve Board ("FRB").
The Company is required to file with the FRB annual reports and other
information regarding its business operations and those of its subsidiaries.
Under the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the FRB determines to be so closely related to banking or managing or
controlling banks as to be properly incident thereto.
As a bank holding company, the Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB
will not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications.
A bank holding company may not engage in, or acquire direct or indirect
control of more than 5% of the voting shares of any company engaged in any
non-banking activity, unless such activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified by
regulation various non-banking activities in which a bank holding company may
engage with notice to, or prior approval by, the FRB.
It is the policy of the FRB that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organizations
57
<PAGE>
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
banking subsidiaries. In the future, dividends from Intervest Bank are expected
to be a significant source of funds for the Company. In addition, the federal
regulatory agencies are authorized to prohibit a banking institution or bank
holding company from engaging in an unsafe or unsound banking practice.
Depending upon the circumstances, the agencies could take the position that
paying a dividend would constitute an unsafe or unsound banking practice. Under
FRB policy, a bank holding company is expected to act as a source of financial
strength to its banking subsidiaries and to commit resources to their support.
Such support may be required at times when, absent this FRB policy, a holding
company may not be inclined to provide it. As discussed below, a bank holding
company in certain circumstances could be required to guarantee the capital plan
of an undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Because the Company is a legal entity separate and distinct from its
subsidiary, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other dissolution of Intervest Bank, the claims of depositors and other
general or subordinated creditors are entitled to a priority of payment over the
claims of holders of any obligation of the institution to its stockholders,
including any depository institution holding company (such as the Company) or
any stockholder or creditor thereof.
The FRB monitors the capital adequacy of bank holding companies and has
adopted risk-based capital adequacy guidelines to evaluate bank holding
companies on a consolidated basis. The guidelines require a ratio of "Tier I" or
Core Capital (generally, common stockholders equity, perpetual preferred stock
and minority interests in consolidated subsidiaries, less good will, other
disallowed intangibles and disallowed deferred tax assets, among other items) to
total risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. At December 31, 1997, the Bank's ratio of
total capital to risk-weighted assets was 10.53% and its risk-based Tier I
capital ratio was 10.20 percent.
The FRB also uses a leverage ratio to evaluate the capital adequacy of
bank holding companies. The leverage ratio applicable to the Company requires a
ratio of Tier I capital to adjusted total assets of not less than 3%, although
most organizations are expected to maintain leverage ratios that are 100-200
basis points above this minimum ratio. The Bank's leverage ratio at December 31,
1997 was 6.85%.
The Company expects that a portion of the net proceeds of this offering
will qualify as "Tier 2" capital under the FRB's risk-based capital adequacy
guidelines. Tier 2 capital is generally defined to include allowances for loan
and lease losses, perpetual preferred stock (to the extent not included in Tier
I capital), certain hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, terms subordinated debt and intermediate-term
preferred stock. Total capital is the sum of Tier I capital and Tier 2 capital.
The federal banking agencies' risk-based and leverage ratios are
minimum supervisory ratios generally applicable to banking organizations that
meet certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The FRB guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. In addition, the regulations of the FRB provide that concentration of
58
<PAGE>
credit risk and certain risk arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The FRB and the other federal banking agencies recently adopted
amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the agency's determination of a banking
institutions capital adequacy. The amendments require such institutions to
effectively measure and monitor their interest rate risk and to maintain capital
adequate for that risk.
Bank Regulation
---------------
The Bank is a state-chartered banking corporation subject to the
supervision of, and regular examination by the FRB and the State of Florida, as
well as to the supervision of the FDIC.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to the
regulations of the FRB, the FDIC and the State of Florida. The FDIC insures the
deposits of the Bank to the current maximum allowed by law. Such statutes and
regulations relate to required reserves against deposits, investments, loans,
mergers and consolidations, issuance of securities, payment of dividends,
establishment of branches, and other aspects of the Bank's operations. Various
consumer laws and regulations also affect the operations of the Bank, including
state usury laws, laws relating to fiduciaries, consumer credit and equal
credit, and fair credit reporting. Under the provisions of the Federal Reserve
Act, the Bank is subject to certain restrictions on any extensions of credit to
the Company or, with certain exceptions, other affiliates, on investments in the
stock or other securities of national banks, and on the taking of such stock or
securities as collateral. These regulations and restrictions may limit the
Company's ability to obtain funds from the Bank for its cash needs, including
funds for acquisitions, and the payment of dividends, interest and operating
expenses. Further, the Bank is prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from the Bank or the Company, and
may not require the customer to promise not to obtain other services from a
competitor as a condition to an extension of credit. The Bank also is subject to
certain restrictions imposed by the Federal Reserve Act on extensions of credit
to executive officers, directors, principal stockholders or any related interest
of such persons. Extensions of credit (i) must be made on substantially the same
terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board of
Directors. The Bank also is subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Bank or the imposition of a cease and desist order.
Applicable law provides the federal banking agencies with broad powers
to take prompt corrective action to resolve problems of insured depository
institutions. The extent of those powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized." The federal
banking agencies have issued uniform regulations defining such capital levels.
Under the regulations, a bank is considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank is
defined as one that has (i) a total risk-based capital ratio of 8% or greater,
(ii) a Tier I risk-based capital ratio of 4% or greater, and (iii) a leverage
ratio of 4% or greater (or 3% or greater in the case of a bank with a composite
CAMELS rating of 1). A bank is considered (A) "undercapitalized" if it has (i) a
total risk-based capital ratio of less than 8%, (ii) a Tier I risk-based
capitalized ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or
3% in the case of a bank with a composite CAMELS rating of 1); (B)
"significantly undercapitalized" if the bank has (i) a total risk-based capital
ratio of less than 6%, (ii) a Tier I risk-based Capital ratio of less than 3%,
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<PAGE>
or (iii) a leverage ratio of less than 3%, and (C) "critically undercapitalized"
if the bank has a ratio of tangible equity to total assets equal to or less than
2%.
As of December 31, 1997, the Bank met the definition of a "Well
Capitalized" institution.
The FDIC has issued rules regulating brokered deposits. Under these
rules, "well capitalized" banks may accept brokered deposits without
restriction, "adequately capitalized" banks may accept brokered deposits with a
waiver from the FDIC (subject to certain restrictions on payments of rates),
while "undercapitalized" banks may not accept brokered deposits.
The deposits of Intervest Bank are insured by the FDIC through the Bank
Insurance Fund (the "BIF") to the extent provided by law. Under the FDIC's
risk-based insurance system, BIF-insured institutions are currently assessed
premiums of between $.0 and $.27 per $100 of eligible deposits, depending upon
the institutions capital position and other supervisory factors. Congress
recently enacted legislation that, among other things, provides for assessments
against BIF-insured institutions that will be used to pay certain financing
corporation ("FICO") obligations. In addition to any BIF insurance assessments,
BIF-insured banks are expected to make payments for the FICO obligations equal
to an estimated $0.0129 per $100 of eligible deposits each year during 1997
through 1999 and an estimated $0.024 per $100 of eligible deposits thereafter.
Intervest Bank is subject to Sections 23A and 23B of the Federal
Reserve Act, which governs certain transactions, such as loans, extensions of
credit, investments and purchases of assets between member banks and their
affiliates, including their parent holding companies. These restrictions limit
the transfer of funds to the Company, as defined in the statute, in the form of
loans, extensions of credit, investment or purchases of assets ("Transfer"), and
they require that Intervest Bank's transactions with the Company be on terms no
less favorable to Intervest Bank than comparable transactions between Intervest
Bank and unrelated third parties. Transfers by Intervest Bank to the Company are
limited in amount to 10% of Intervest Bank's capital and surplus, and transfers
to all affiliates are limited in the aggregate to 20% of Intervest Bank's
capital and surplus. Furthermore, such loans and extensions of credit are also
subject to various collateral requirements.
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), 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 in connection with (i) the default of a commonly controlled FDIC- insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured institution endanger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
Default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
This provision would become applicable to the Company and Intervest Bank in the
event that the Company acquired or organized an additional depository
institution subsidiary.
The Federal Community Reinvestment Act of 1977 ("CRA") has become
increasingly important to financial institutions. Among other things, the CRA
allows regulators to withhold approval of an acquisition or the establishment of
a branch unless the applicant has performed satisfactorily under the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the institution serves, including low and moderate income areas. The
applicable federal regulators now regularly conduct CRA examinations to assess
the performance of financial institutions. Intervest Bank has received
"satisfactory" ratings in its most recent CRA examination.
The federal regulators have adopted regulations and examination
procedures promoting the safety and soundness of individual institutions by
specifically addressing, among other things: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth; (vi) ratio of
classified assets to capital; (vii) minimum earnings; and (viii) compensation
and benefits standards for management officials.
The laws and regulations affecting banks and bank holding companies are
continually being reviewed and revised. The rules of the regulatory agencies in
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this area have changed significantly over recent years and there is reason to
expect that similar changes will continue in the future. It is difficult to
predict the outcome of these changes.
The FRB and the other federal banking agencies have broad enforcement
powers, including the power to terminate deposit insurance, and poss substantial
fines and other civil and criminal penalties and appoint a conservative or
receiver. Failure to comply with applicable laws, regulations and supervisory
agreements could subject the Company or its banking subsidiary, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially civil monetary
penalties. In addition, the Florida Banking Department possess certain
enumerated enforcement powers to address violations of the Florida Banking Law
by state-chartered banks and to preserve safety and soundness, including, in the
most severe cases, the authority to take possession of a state bank.
Monetary Policy and Economic Control
- ------------------------------------
The commercial banking business in which the Bank engages is affected
not only by general economic conditions, but also by the monetary policies of
the FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying combinations to influence overall growth and distributions of
bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Company and the Bank cannot
be predicted.
PLAN OF DISTRIBUTION
The Company has entered into an Underwriting Agreement with Sage, Rutty
& Co., Inc., a New York corporation (the "Underwriter"). Mr. William F. Holly,
who is a director of the Company, is the Chairman of the Board and Chief
Executive Officer of the Underwriter. Pursuant to the Underwriting Agreement,
the Underwriter will offer the Debentures for sale on a minimum ($5.0 million)
and maximum ($6.0 million) "best efforts" basis. Accordingly, the Underwriter
will not have any obligation to purchase any Debentures from the Company in the
event it is unable to effect the sale of part or all of the Debentures.
Moreover, no Debentures may be sold unless the Company has received orders for
at least $5.0 million of Debentures. If, within 75 days after the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Offering Termination Date"), at least $5.0 million of Debentures have been sold
and subscriptions accepted by the Company, the Company may close the offer as to
those Debentures (the "First Closing"), and the underwriter may continue to
offer the balance of the Debentures and subscriptions may be accepted until 150
days after the minimum has been sold. The Underwriter may enter into one or more
selected dealer agreements with other broker/dealer firms which are members of
the National Association of Securities Dealers, Inc. (the "NASD"), pursuant to
which such other broker/dealers may offer part of the Debentures for sale.
The Company has agreed to indemnify the Underwriter and such
broker/dealers participating in the Offering against certain civil liabilities,
including certain liabilities under the Securities Act of 1933, as amended.
The Company will pay to the Underwriter a commission equal to 7% of the
purchase price of Debentures which are sold by the Underwriter or participating
broker/dealers. In addition, the Company will pay the Underwriter a fee equal to
1% of the aggregate purchase price of Debentures sold in the Offering, and will
pay the fee of Underwriter's counsel. Pursuant to the selected dealer
agreements, the Underwriter will reallow to each of the other broker/dealers
referred to above a commission equal to 7% of the price of each Debenture sold
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by such broker/dealer. Except as provided below, no additional discounts or
commissions are to be allowed or paid to such other broker/dealers. Certain
officers of the Company and its subsidiary may also offer the Debentures for
sale and no commissions or compensation shall be paid to such officers in
connection with Debentures sold by such officers.
Until the First Closing, subscription payments for Debentures should be
made payable to "M&T Bank, as escrow agent for Intervest Bancshares
Corporation." After the First Closing, subscription payments for Debentures
should be made payable to the Company. Payments received by the Underwriter or
participating broker/dealers will be promptly transmitted to M&T Bank, where
they will be held for subscribers in a segregated escrow account until
acceptable subscriptions for at least $5.0 million of Debentures have been
received. At the First Closing, the funds in the escrow account (including
interest earned thereon, but after deducting commissions due to the Underwriter)
will be delivered to the Company. If, on the Offering Termination Date, at least
$5.0 million of Debentures have not been sold and subscriptions accepted by the
Company, subscription documents and funds will be promptly refunded to
subscribers and the offering will terminate. With respect to interest earned on
the escrow account, such interest will, in the event of such termination, be
distributed to subscribers in proportion to the amount paid by each subscriber
without regard to the date when such subscription funds were paid by the
subscriber. It shall be a condition to the refund of subscription funds that the
subscriber furnish an executed IRS Form W-9, so that any interest earned and
distributed to such subscriber may be properly reported. Once the escrow agent
has received $5.0 million in subscriptions for Debentures which have been
accepted by the Company, the Company may close the offering as to those
subscribers, and the Underwriter may continue to offer the balance of the
Debentures and subscriptions may be accepted by the Company until 150 days after
such minimum has been sold.
LEGAL MATTERS
The validity of the Debentures offered hereby will be passed upon for
the Company by Harris Beach & Wilcox LLP, Rochester, New York. Certain legal
maters will be passed upon for the Underwriter by Harter Secrest & Emery,
Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiary as of December 31, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the years then
ended included in this Prospectus, have been included herein in reliance on the
report of Hacker, Johnson, Cohen & Grieb PA, Tampa, Florida, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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Index to Financial Statements
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Intervest Bancshares Corporation and Subsidiary Page
- ----------------------------------------------- ----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31,
1997 and 1996 F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
Financial Statements and related Notes.
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheets of Intervest
Bancshares Corporation and Subsidiary (the "Company") at December 31, 1997 and
1996 and the related consolidated statements of earnings, 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 require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 23, 1998
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------
<S> <C> <C>
Assets 1997 1996
---- ----
Cash and due from banks.......................................................... $ 1,738 2,318
Federal funds sold............................................................... 162 3,452
Short-term investments........................................................... 7,276 550
--------- --------
Total cash and cash equivalents........................................... 9,176 6,320
Interest-bearing deposits with banks............................................. 99 99
Securities held to maturity...................................................... 58,821 34,507
Loans receivable, net of allowance for loan losses of $1,173
in 1997 and $811 in 1996...................................................... 75,652 59,499
Accrued interest receivable...................................................... 1,327 842
Premises and equipment, net...................................................... 4,877 2,940
Restricted securities, Federal Reserve Bank stock, at cost ...................... 233 203
Foreclosed real estate........................................................... - 185
Deferred income tax asset........................................................ 485 526
Other assets ............................................................... 85 75
---------- ---------
$ 150,755 105,196
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits............................................................... 3,490 2,401
Savings and NOW deposits...................................................... 17,119 9,278
Money-market deposits......................................................... 17,180 7,507
Time deposits................................................................. 93,378 74,261
-------- -------
Total deposits............................................................ 131,167 93,447
Other liabilities............................................................. 1,947 1,676
-------- --------
Total liabilities......................................................... 133,114 95,123
------- -------
Minority interest................................................................ 21 326
---------- ---------
Commitments (Notes 4 and 7)
Stockholders' Equity:
Preferred stock, 300,000 shares authorized, issued none....................... - -
Class A common stock - $1 par value, 7,500,000 shares
authorized; 2,124,415 and 900,000 shares issued
and outstanding in 1997 and 1996............................................ 2,124 900
Class B common stock - $1 par value, 700,000 shares
authorized; 300,000 and 200,000 shares issued
and outstanding in 1997 and 1996............................................ 300 200
Additional paid-in capital.................................................... 13,360 7,655
Retained earnings............................................................. 1,836 992
-------- ---------
Total stockholders' equity................................................ 17,620 9,747
------- --------
$ 150,755 105,196
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans receivable.............................................................. $ 6,415 4,624
Securities held to maturity................................................... 2,632 1,514
Other interest earning assets................................................. 300 243
----------- -----------
Total interest income..................................................... 9,347 6,381
Interest expense on deposits..................................................... 5,894 3,745
---------- ----------
Net interest income....................................................... 3,453 2,636
Provision for loan losses........................................................ 352 250
----------- -----------
Net interest income after
provision for loan losses............................................... 3,101 2,386
---------- ----------
Noninterest income:
Customer service charges...................................................... 121 89
Other... ............................................................... 15 17
------------ -----------
Total noninterest income.................................................. 136 106
----------- -----------
Noninterest expenses:
Salaries and employee benefits................................................ 907 739
Occupancy and equipment....................................................... 406 342
Advertising and promotion..................................................... 40 9
Professional fees............................................................. 48 57
State assessment.............................................................. 26 19
Audit and accounting.......................................................... 48 27
Data processing............................................................... 21 9
Deposit insurance premiums.................................................... 12 2
General insurance............................................................. 31 31
Stationery, printing and supplies............................................. 83 51
Other ............................................................... 282 246
Minority interest in subsidiary............................................... 2 19
------------ ------------
Total noninterest expenses................................................ 1,906 1,551
---------- ----------
Earnings before income taxes..................................................... 1,331 941
Income taxes.............................................................. 487 383
----------- -----------
Net earnings ............................................................... $ 844 558
=========== ===========
Basic earnings per share......................................................... $ .49 .34
============ ============
Diluted earnings per share....................................................... $ .41 .34
============ ============
Weighted-average number of shares
outstanding for basic earnings per share...................................... 1,712,292 1,650,000
========= =========
Weighted-average number of shares
outstanding for diluted earnings per share.................................... 2,072,459 1,650,000
========= =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
($ in thousands)
<TABLE>
<CAPTION>
Shares of
Class A Class A Class B Additional Total
Common Common Common Paid-In Retained Stockholders'
Stock Stock Stock Capital Earnings Equity
----- ----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995......................... 900,000 $ 900 200 7,655 434 9,189
Net earnings.................... - - - - 558 558
------------ ------- ---- ------ ----- ------
Balance at December 31,
1996 ....................... 900,000 900 200 7,655 992 9,747
Effect of 1.5 for 1 stock
split ....................... 450,000 450 100 (550) - -
Proceeds from 747,500 shares
of stock issued, net of stock
issuance cost of $755........ 747,500 748 - 5,972 - 6,720
Net earnings.................... - - - - 844 844
Issuance of common stock
in exchange for common
stock of minority
stockholders of
subsidiary................... 26,915 26 - 283 - 309
--------- ------ ---- ------- ------- -------
Balance at December 31,
1997 ........................ 2,124,415 $ 2,124 300 13,360 1,836 17,620
========= ===== === ====== ===== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings....................................................................... $ 844 558
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation................................................................ 260 176
Provision for deferred income taxes......................................... 41 67
(Increase) decrease in other assets......................................... (10) 35
Increase in other liabilities............................................... 275 850
Increase in accrued interest receivable..................................... (485) (199)
Net amortization of fees, premiums and discounts............................ 19 271
Provision for loan losses................................................... 352 250
------- -------
Net cash provided by operating activities.............................. 1,296 2,008
------ ------
Cash flows from investing activities:
Purchase of securities held to maturity............................................ (44,450) (30,025)
Maturities of securities held to maturity.......................................... 20,175 15,050
Net purchases of premises and equipment............................................ (2,197) (667)
Net increase in loans.............................................................. (16,563) (23,642)
Proceeds from sale of foreclosed real estate....................................... 185 -
Purchase of Federal Reserve Bank stock............................................. (30) -
Maturity of interest-bearing deposits.............................................. - 199
--------- -------
Net cash used in investing activities.................................. (42,880) (39,085)
------ ------
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposits.......................................................... 18,603 9,639
Net increase in time deposits...................................................... 19,117 25,207
Proceeds from issuance of common stock, net of stock issuance costs................ 6,720 -
------- -------
Net cash provided by financing activities.............................. 44,440 34,846
------ ------
Net increase (decrease) in cash and cash equivalents................... 2,856 (2,231)
Cash and cash equivalents at beginning of year.......................................... 6,320 8,551
------ ------
Cash and cash equivalents at end of year................................................ $ 9,176 6,320
====== ======
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest............................................................... $ 5,832 3,678
====== ======
Income taxes........................................................... $ 700 17
======= =======
Noncash transactions:
Reclassification of loans to foreclosed real estate.................... $ - 185
========= =======
Issuance of common stock in exchange of common
stock of minority stockholders of subsidiary....................... $ 309 -
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies
General. Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993. The Holding Company owned 99.78% and
95.76% at December 31, 1997 and 1996, respectively, of the outstanding
common stock of Intervest Bank (the "Bank") (collectively the
"Company"). The Bank is a Florida state-chartered bank, is insured by
the Federal Deposit Insurance Corporation and is a member of the
Federal Reserve Bank. The Holding Company's primary business is the
operation of the Bank. The Bank provides a wide range of banking
services to small and middle-market businesses and individuals through
its five banking offices located in Pinellas County, Florida.
The principal executive offices of the Bank are located at 625 Court
Street, Clearwater, Florida. In addition, the Bank has four branch
offices, three in Clearwater, Florida located at (i) 2575 Ulmerton
Road; (ii) 2175 Nursery Road; and (iii) 1875 Belcher Road and one in
South Pasadena, Florida at 6750 Gulfport Boulevard.
Basis of Presentation. The accompanying consolidated financial statements
of the Company include the accounts of the Holding Company and the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to general practices
within the banking industry. The following summarizes the more
significant of these policies and practices.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Securities Held to Maturity. United States government treasury and agency
securities for which the Company has the positive intent and ability to
hold to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in interest
income using the interest method over the period to maturity.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
(continued)
6
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
Loans Receivable, Continued. The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is
based on the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in the consolidated
statement of earnings.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Premises and Equipment. Land is carried at cost. Premises, furniture and
fixtures and equipment are carried at cost, less accumulated
depreciation computed by the straight-line method.
Stock-Based Compensation. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("Statement 123")
establishes a "fair value" based method of accounting for stock-based
compensation plans and encourages all entities to adopt that method of
accounting for all of their stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(Opinion 25). The Company has elected to follow Opinion 25 and related
interpretations in accounting for its stock-based compensation which is
in the form of stock warrants. Statement 123 requires the disclosure of
proforma net earnings and earnings per share determined as if the
Company accounted for its stock warrants under the fair value method of
that Statement.
Off-Balance-Sheet Financial Instruments. In the ordinary course of business
the Company has entered into off-balance-sheet financial instruments
consisting of commitment to extend credit, unused lines of credit and
stand-by-letters of credit. Such financial instruments are recorded in
the consolidated financial statements when they are funded or related
fees are incurred or received.
FairValues of Financial Instruments. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents and Interest-Bearing Deposits with Banks. The
carrying amounts of cash and interest-bearing deposits with banks
approximate their fair value.
Securities Held to Maturity. Fair values for securities held to
maturity are based on quoted market prices.
(continued)
7
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
FairValues of Financial Instruments, Continued. Federal Reserve Bank
Stock. Book value for these securities approximates fair value.
Loans Receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for fixed-rate mortgage (e.g. one-to-four
family residential), commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Deposit Liabilities. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Accrued Interest. The carrying amounts of accrued interest approximate
their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Advertising. The Company expenses all advertising as incurred.
Earnings Per Share. Earnings per share ("EPS") of common stock has been
computed on the basis of the weighted-average number of shares of
common stock outstanding. Prior to the public stock offering in
November, 1997, there was no public market for the Company's common
stock. For purposes of calculating diluted EPS the $10 stock offering
price is assumed to be the market price for the entire year ended
December 31, 1997. For 1997, outstanding warrants are considered
dilutive securities for purposes of calculating diluted EPS which is
computed using the treasury stock method. Such warrants were not
considered dilutive in 1996. The following table presents the
calculations of EPS (See Note 16) ($ in thousands, except per share
amounts).
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS:
<S> <C> <C> <C>
Net earnings available to common stockholders............. $ 844 1,712,292 $ .49
===
Effect of dilutive securities-
Incremental shares from assumed conversion
of warrants ........................................... 360,167
----------
Diluted EPS:
Net earnings available to common stockholders
and assumed conversions................................. $ 844 2,072,459 $ .41
=== ========= ===
</TABLE>
(continued)
8
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
Earnings Per Share, Continued. Warrants to purchase 1,528,665 and 150,000
shares of Class A and Class B common stock at $6.67 per share were
assumed to be exercised on January 1, 1997 and June 1, 1997,
respectively. Warrants to purchase 989,083 shares of Class A common
stock at $10.00 per share are not included in the computation of
diluted EPS because the warrants' exercise price approximated the
market price of the stock. None of the above warrants have been
exercised as of December 31, 1997.
Reclassifications. Certain amounts in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
Future Accounting Requirements. Financial Accounting Standards 130 -
Reporting Comprehensive Income establishes standards for reporting
comprehensive income. The Standard defines comprehensive income as the
change in equity of an enterprise except those resulting from
stockholder transactions. All components of comprehensive income are
required to be reported in a new financial statement that is displayed
with equal prominence as existing financial statements. The Company
will be required to adopt this Standard effective January 1, 1998. As
the Statement addresses reporting and presentation issues only, there
will be no impact on operating results from the adoption of this
Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an
Enterprise and Related Information establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will be required to adopt this Standard
effective January 1, 1998. As the Standard addresses reporting and
disclosure issues only, there will be no impact on operating results
from adoption of this Standard.
(continued)
9
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Held to Maturity
Debtsecurities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and
their approximate fair values are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Treasury securities............. $ 4,027 15 - 4,042
U.S. Government and
agency securities................ 54,794 64 64 54,794
------ -- --- ------
Total............................ $ 58,821 79 64 58,836
====== == === ======
December 31, 1996:
U.S. Treasury securities............. 1,499 7 - 1,506
U.S. Government and
agency securities................ 33,008 44 105 32,947
------ -- --- ------
Total............................ $ 34,507 51 105 34,453
====== == === ======
</TABLE>
There were no sales of securities during the years ended December 31, 1997
or 1996.
The scheduled maturities of securities held to maturity at December 31,
1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less................................................... $ 13,169 13,186
Due after one year through five years..................................... 32,890 32,896
Due after five years through ten years.................................... 12,762 12,754
------ ------
Total ............................................................. $ 58,821 58,836
====== ======
</TABLE>
(continued)
10
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans Receivable
The components of loans in the consolidated balance sheets are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1997 1996
---- ----
<S> <C> <C>
Commercial loans........................................................ $ 3,281 3,514
Commercial real estate.................................................. 70,533 54,198
Residential real estate................................................. 3,150 2,784
Consumer loans.......................................................... 262 157
-------- --------
77,226 60,653
Deferred loan fees...................................................... (401) (343)
Allowance for loan losses............................................... (1,173) (811)
------ ------
$ 75,652 59,499
====== ======
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year.............................................. $ 811 593
----- ---
Loans charged-off......................................................... - (65)
Recoveries................................................................ 10 33
------ ---
Net................................................................... 10 (32)
------ ---
Provision for loan losses................................................. 352 250
----- ---
Balance at end of year.................................................... $ 1,173 811
===== ===
</TABLE>
The Company had no impaired loans at December 31, 1997 or 1996. The average
recorded investment in impaired loans during the year ended December
31, 1996 was $31,000. There were no impaired loans identified during
1997. No interest income was recognized on impaired loans during 1996.
(continued)
11
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment
Premises and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1997 1996
---- ----
<S> <C> <C>
Land................................................................. $ 915 729
Bank buildings....................................................... 3,570 1,926
Leasehold improvements............................................... 162 61
Furniture and fixtures and equipment................................. 1,203 565
----- -----
Total, at cost.................................................... 5,850 3,281
Less accumulated depreciation and amortization....................... (973) (341)
------ -----
Net book value.................................................... $ 4,877 2,940
===== =====
</TABLE>
The Bank leases its Belcher Road office. The lease is accounted for as an
operating lease and will expire on October 31, 2007. The lease
agreement contains escalation clauses based upon the consumer price
index and contains annual adjustments up to a maximum of 3% based upon
the previous year's rental. Rental expense was $125,000 and $163,000
for the years ended December 31, 1997 and 1996, respectively.
Approximate future minimum annual rental payments under this
noncancellable lease at December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C> <C>
1998.......................................................................... $ 94
1999.......................................................................... 96
2000.......................................................................... 99
2001.......................................................................... 102
2002.......................................................................... 106
Thereafter.................................................................... 514
------
Total......................................................................... $ 1,011
=====
</TABLE>
(continued)
12
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment, Continued
The Company leases a portion of their office space in the branch office
located on Ulmerton Road and beginning in September, 1997, office space
at the new main office on Court Street, to other companies. Such leases
begin to expire in 1998. Rental income during the years ended December
31, 1997 and 1996 totaled approximately $195,000 and $159,000,
respectively. Approximate future minimum lease income under these
leases at December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C> <C>
1998................................................................................. $ 343
1999................................................................................. 275
2000................................................................................. 271
2001................................................................................. 211
2002................................................................................. 190
Thereafter........................................................................... 792
------
Total................................................................................ $ 2,082
=====
</TABLE>
This table gives no effect to the future rental value of office space
subsequent to lease expiration dates.
(5) Deposits
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000, was approximately $9,506,000 and $7,261,000 at December
31, 1997 and 1996, respectively.
Scheduled maturities of certificates of deposit at December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C> <C>
1998................................................................................. $ 46,954
1999................................................................................. 16,554
2000................................................................................. 9,446
2001................................................................................. 9,362
2002 and thereafter.................................................................. 11,062
------
Total................................................................................ $ 93,378
======
</TABLE>
(continued)
13
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Other Borrowings
The Company has agreements with correspondent banks whereby the Company may
borrow up to $1,000,000 on an overnight basis under a repurchase
agreement and up to $3,457,000 in federal funds. There were no
borrowings under these agreements at December 31, 1997 or 1996.
(7) Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to extend credit
and standby letters of credit and may involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts of
these instruments reflect the extent of involvement the Company has in
these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
(continued)
14
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Financial Instruments, Continued
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............................... $ 9,176 9,176 6,320 6,320
Securities held to maturity............................. 58,821 58,836 34,507 34,453
Loans receivable, net................................... 75,652 75,658 59,499 59,692
Accrued interest receivable............................. 1,327 1,327 842 842
Federal Reserve Bank stock.............................. 233 233 203 203
Interest-bearing deposits with bank..................... 99 99 99 99
Financial liabilities-
Deposit liabilities..................................... 131,167 131,491 93,447 93,713
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off balance sheet risk at December
31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Unfunded loan commitments at variable rates............................... $ 2,950
=====
Available lines of credit................................................. $ 527
=====
Standby letters of credit................................................. $ 100
=====
</TABLE>
(8) Credit Risk
The Company grants a majority of its loans to borrowers throughout the
State of Florida. Although the Company has a diversified loan
portfolio, a significant portion of its borrowers' ability to honor
their contracts is dependent upon the economy of the State of Florida.
In addition, at December 31, 1997, the Company's loan portfolio
contained a concentration of credit risk in retail shopping centers,
apartment buildings and office buildings totaling $55,707,000.
(continued)
15
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997: Current Deferred Total
----------------------------- ------- -------- -----
<S> <C> <C> <C>
Federal....................................................... $ 377 35 412
State......................................................... 69 6 75
---- --- ---
Total..................................................... $ 446 41 487
=== == ===
Year Ended December 31, 1996:
Federal....................................................... 244 63 307
State......................................................... 72 4 76
--- --- ---
Total..................................................... $ 316 67 383
=== == ===
</TABLE>
The reasons for the differences between the statutory Federal income tax
rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Tax provision at statutory rate............................................ 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State income taxes..................................................... 3.8 8.1
Other.................................................................. (1.2) (1.4)
---- ----
Income tax provision ...................................................... 36.6% 40.7%
==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets relate to the following (in
thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1997 1996
---- ----
Net deferred tax assets:
<S> <C> <C>
Allowance for loan losses............................................. $ 298 185
Depreciation.......................................................... (19) (20)
Deferred loan fees.................................................... 13 19
Net operating loss carryforward....................................... 186 311
Other................................................................. 7 31
----- ---
Net deferred tax assets........................................... $ 485 526
=== ===
</TABLE>
(continued)
16
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
At December 31, 1997, the Company has the following net operating loss
carryforwards relating to the operations of the Bank for federal income
tax purposes available to offset future federal taxable income (in
thousands):
<TABLE>
<CAPTION>
Expiration
----------
<S> <C> <C>
2006..................................................................... $ 194
2007..................................................................... 297
2008..................................................................... 3
----
$ 494
</TABLE>
The net operating loss carryforwards are subject to an annual limitation of
$332,000 due to the ownership change of the Bank when the Holding
Company purchased its controlling ownership interest.
(10) Related Parties
The Bank has entered into loan transactions with certain of its directors
and their related entities. The activity is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year............................................ $ 2,941 1,484
Additions............................................................... 510 1,570
Repayments.............................................................. (209) (113)
----- ------
Balance at end of year.................................................. $ 3,242 2,941
===== =====
</TABLE>
Thereare no loans to directors or officers of the Holding Company,
Intervest Bancshares Corporation.
(11) Employee Stock Option Plan of the Bank
Priorto 1993, an officer of the Bank had been granted options to acquire
11,000 shares of the Bank's common stock. These options were to expire
on December 31, 2001, and were exercisable at $5 per share. All such
options were exchanged for warrants of the Holding Company by the
officer during 1997. In 1997 the option plan was terminated.
(continued)
17
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) Profit Sharing Plan
The Bank sponsors a profit sharing plan established in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The profit
sharing plan is available to all employees electing to participate
after meeting certain length-of-service requirements. The Bank's
contributions to the profit sharing plan are discretionary and are
determined annually. Expense relating to the Bank's contributions to
the profit sharing plan included in the accompanying consolidated
financial statements was $21,377 and $12,181 for the years ended
December 31, 1997 and 1996, respectively.
(13) Common Stock Warrants of the Bank
In 1995, Intervest Bancshares Corporation purchased 200,000 shares of the
Bank's common stock at $5 per share and received warrants to purchase
an additional 200,000 shares of common stock at $5 par value. In June,
1997, Intervest Bancshares Corporation exercised the warrants and
purchased 200,000 shares of the Bank's common stock.
(14) Stockholders' Equity
The Bank, as a state-chartered bank, is limited in the amount of cash
dividends that may be paid. The amount of cash dividends that may be
paid is based on the Bank's net earnings of the current year combined
with the Bank's retained net earnings of the preceding two years, as
defined by state banking regulations. However, for any dividend
declaration, the Bank must consider additional factors such as the
amount of current period net earnings, liquidity, asset quality,
capital adequacy and economic conditions. It is likely that these
factors would further limit the amount of dividends which the Bank
could declare. In addition, bank regulators have the authority to
prohibit banks from paying dividends if they deem such payment to be an
unsafe or unsound practice. The ability of the Holding Company to pay
dividends could be affected by the amount of dividends the Bank is able
to pay to the Holding Company.
(15) Regulatory Matters
The Bank is 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 the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the
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, 1997, that the Bank meets all capital
adequacy requirements to which it is subject.
(continued)
18
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) Regulatory Matters, Continued
As of December 31, 1997, the most recent notification from the State and
Federal regulators 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 Bank's category. The Bank's actual
capital amounts and ratios are also presented in the table (dollars in
thousands).
<TABLE>
<CAPTION>
For Well
For Capital Capitalized
Actual Adequacy Purposes: Purposes:
----------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
Total capital (to Risk
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets)............... $ 9,420 10.53% $ 7,157 8.00% $ 8,948 10.00%
Tier I Capital (to Risk
Weighted Assets)............... 9,125 10.20 3,578 4.00 5,367 6.00
Tier I Capital
(to Average Assets)............ 9,125 6.85 5,328 4.00 6,660 5.00
As of December 31, 1996:
Total capital (to Risk
Weighted Assets)............... 8,051 11.90 5,412 8.00 6,765 10.0
Tier I Capital (to Risk
Weighted Assets)............... 7,240 10.70 2,706 4.00 4,059 6.0
Tier I Capital
(to Average Assets)............ 7,240 7.48 3,871 4.00 4,839 5.0
</TABLE>
(16) Capital Stock
Bothclasses of common stock have equal voting rights as to all matters,
except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding the holders of the outstanding shares of
Class B Common Stock are entitled to vote for the election of
two-thirds of the directors (rounded to the nearest whole number) and
the holders of the outstanding shares of Class A Common Stock are
entitled to vote for the remaining directors of the Company. No
dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of
Class A Common Stock and Class B Common Stock will share ratably in
dividends. The shares of Class B Common Stock are convertible, on a
share-for-share basis, into Class A Common Stock at any time after
January 1, 2000.
(continued)
19
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Capital Stock, Continued
On September 19, 1997, the Holding Company's charter was amended to
increase the authorized number of shares of Class A common stock to
7,500,000, Class B common stock to 700,000 and preferred stock to
300,000.
In addition, on September 18, 1997, the Board of Directors of the Holding
Company declared a 1.5 for 1 Class A and Class B common stock split
payable on September 19, 1997 to stockholders of record on September
19, 1997. All per share amounts reflect the effect of these stock
splits.
(17) Common Stock Warrants
The Company has outstanding warrants which entitle the registered holders
thereof to purchase one share of common stock for each issued warrant.
All warrants were exercisable when issued. These warrants have been
issued in connection with public stock offerings, to directors and
employees of the Bank and directors of the Holding Company and to
outside third parties for performance of services. A summary of stock
warrant transactions follows ($ in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Average Contractual
Exercise Per Aggregate Life At
Number of Price Per Warrant Warrant December 31,
Class A Common Stock Warrants: Warrants Warrant Price Price 1997
-------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,1995....... 1,288,500 $ 6.67 $ 6.67 $ 8,594 5.4 years
Warrants granted...................... 240,165 6.67 6.67 1,602 5.1 years
--------- ------
Outstanding at December 31, 1996...... 1,528,665 6.67 6.67 10,196 5.4 years
Warrants granted...................... 949,183 10.00 10.00 9,492 2.0 years(1)
Warrants granted...................... 16,500 10.00 10.00 165 4.0 years
---------- -------
Outstanding at December 31, 1997...... 2,494,348 $ 6.67-10.00 $ 7.96 19,853 4.1 years
========= ========== ==== ====== =========
</TABLE>
- -------------------------------------
(1) These warrants entitle the holder to purchase one share of Class A
common stock at a price of $10.00 per share through December 31, 1999;
$11.50 per share from January 1, 2000 through December 31, 2000; $12.50 per
share from January 1, 2001 through December 31, 2001 and $13.50 per share
from January 1, 2002 through December 31, 2002. For purposes of the above
table it is assumed that these warrants will be exercised on December 31,
1999.
(continued)
20
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Common Stock Warrants, Continued
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Average Contractual
Option Per Aggregate Life At
Number of Price Per Warrant Warrant December 31,
Class B Common Stock Warrants: Warrants Warrant Price Price 1997
-------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,1995
and 1996........................... - - - - -
Warrants granted........................ 150,000 $ 6.67 $ 6.67 $ 1,001 9.0 years
------- -----
Outstanding at December 31, 1997........ 150,000 $ 6.67 $ 6.67 $ 1,001 9.0 years
======= ==== ==== ===== =========
</TABLE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which
establishes financial accounting and reporting standards for
stock-based employee compensation plans. As permitted by this
Statement, the Company has elected to continue utilizing the intrinsic
value method of accounting defined in APB Opinion No. 25. Due to the
exercise price of the warrants issued to employees and directors of the
Bank, directors of the Holding Company and to outside third parties for
performance of services being greater than or approximating the market
value of the common stock at the date of grant, no compensation expense
has been recognized in the consolidated statements of earnings.
In order to calculate the fair value of the warrants issued to employees
and directors of the Bank, directors of the Holding Company and to
outside third parties for the performance of services, it was assumed
that the risk-free interest rate was 6.0%, there would be no dividends
paid by the Company over the exercise period, the expected life of the
warrants would be the entire exercise period, except for warrants
issued in 1997 that have increasing option prices which is the end of
the initial exercise period, and stock volatility would be zero due to
the lack of an active market for the stock. The following information
pertains to the fair value of the such warrants granted to purchase
common stock in 1996 and 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
Weighted-average grant date fair value of warrants
<S> <C> <C>
issued during the year.................................................... $ 622 470
=== ===
Proforma net earnings.......................................................... $ 222 88
=== ===
Proforma basic earnings per share.............................................. $ .13 .05
=== ===
</TABLE>
(continued)
21
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Holding Company Financial Information
The Holding Company's financial information is as follows (in thousands):
<TABLE>
<CAPTION>
Condensed Balance Sheets
At December 31,
---------------
1997 1996
---- ----
Assets
<S> <C> <C>
Cash..................................................................... $ 223 698
Short-term securities.................................................... 7,276 550
------ ------
Cash and cash equivalents............................................ 7,499 1,248
Loans receivable......................................................... 752 1,230
Investment in subsidiary................................................. 9,399 7,340
Organizational costs, net................................................ 2 32
Other assets............................................................. 23 17
-------- ------
Total assets......................................................... $ 17,675 9,867
====== =====
Liabilities and Stockholders' Equity
Liabilities.............................................................. 55 120
Stockholders' equity..................................................... 17,620 9,747
------ -----
Total liabilities and stockholders' equity........................... $ 17,675 9,867
====== =====
Condensed Statements of Earnings
For the Year Ended
December 31,
------------
1997 1996
---- ----
Revenues..................................................................... $ 264 325
Expenses..................................................................... 172 224
--- ---
Earnings before earnings of subsidiary.................................. 92 101
Earnings of subsidiary.................................................. 752 457
--- ---
Net earnings............................................................ $ 844 558
=== ===
</TABLE>
(continued)
22
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Holding Company Financial Information, Continued
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................... $ 844 558
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in undistributed earnings of
subsidiary.................................................... (752) (457)
Net decrease in organizational costs.............................. 30 29
Other............................................................. (69) 72
------ ------
Net cash provided by operating activities..................... 53 202
------ -----
Cash flows used in investing activities -
Net decrease (increase) in loans...................................... 478 (62)
------ -----
Cash flows from financing activities:
Proceeds from issuance of common stock................................ 6,720 -
Purchase of common stock of subsidiary................................ (1,000) (40)
----- -----
Net cash provided by (used in) financing
activities.................................................. 5,720 (40)
----- -----
Net increase in cash and cash equivalents.................................. 6,251 100
Cash and cash equivalents at beginning of
the year.............................................................. 1,248 1,148
----- -----
Cash and cash equivalents at end of year................................... $ 7,499 1,248
===== =====
</TABLE>
(continued)
23
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(19) Selected Quarterly Financial Data (unaudited)
Summarized quarterly financial data follows ($ in thousands, except per
share figures):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income.......................................... $ 2,085 2,219 2,337 2,706
Interest expense......................................... 1,309 1,379 1,480 1,726
----- ----- ----- -----
Net interest income...................................... 776 840 857 980
Provision for loan losses................................ 92 92 82 86
------- ------ ------ ------
Net interest income after provision
for loan losses....................................... 684 748 775 894
Noninterest income....................................... 31 37 28 40
Noninterest expense...................................... 461 479 467 499
------ ------ ----- -----
Earnings before income taxes............................. 254 306 336 435
Income taxes............................................. 94 119 121 153
------ ----- ----- -----
Net earnings ............................................ $ 160 187 215 282
===== ===== ===== =====
Basic earnings per share................................. $ .10 .11 .13 .15
===== ===== ====== =====
Diluted earnings per share............................... $ .09 .09 .11 .12
===== ===== ====== =====
Year Ended December 31, 1996
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income.......................................... $ 1,377 1,480 1,637 1,887
Interest expense......................................... 788 840 975 1,142
------ ----- ----- -----
Net interest income...................................... 589 640 662 745
Provision for loan losses................................ 73 55 62 60
------ ----- ----- ------
Net interest income after provision
for loan losses....................................... 516 585 600 685
Noninterest income....................................... 30 48 24 4
Noninterest expense...................................... 361 404 374 412
------ ----- ----- ------
Earnings before income taxes............................. 185 229 250 277
Income taxes............................................. 75 97 101 110
------ ------ ----- -----
Net earnings ............................................ $ 110 132 149 167
===== ====== ===== =====
Basic earnings per share................................. $ .07 .08 .09 .10
====== ====== ===== ======
Diluted earnings per share............................... $ .07 .08 .09 .10
====== ====== ===== ======
</TABLE>
24
<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representation not contained in this Prospectus. If given or made,
such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer
to any person in any jurisdiction where such an offer would be unlawful. Neither
the delivery of this Prospectus, nor any sale made hereunder, shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
----------------
TABLE OF CONTENTS
Page
----
Available Information 3
Prospectus Summary 4
Investment Considerations and Risk
Factors 8
Use of Proceeds 11
Market for Securities 12
Dividends 12
Capitalization 14
Selected Financial Data 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operation 16
Business 38
Management 42
Principal Stockholders 42
Description of Debentures 42
Description of Capital Stock 48
Supervision and Regulation 51
Plan of Distribution 58
Legal Matters 59
Experts 59
Index to Financial Statements F-1
<PAGE>
INTERVEST BANCSHARES CORPORATION
$6,000,000
SERIES __/__/98 CONVERTIBLE
SUBORDINATED DEBENTURES
Due July 1, 2008
--------------
PROSPECTUS
--------------
Sage, Rutty & Co., Inc.
___________, 1998
64
<PAGE>
PART II
Information Not Required In Prospectus
Item 24. Indemnification of Directors and Officers.
- -------- ------------------------------------------
Section 145 of the General Corporation Law of Delaware provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, suit or proceeding, by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Company's bylaws provide that the Company will indemnify the
officers and directors of the Company to the fullest extent permitted under the
laws of the State of Delaware. In that regard, the Company is obligated to
indemnify officers and directors of the Company from and against any and all
judgments, fines, amounts paid in settlement, and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by an officer or director as
a result of any action or proceeding, or any appeal therein, to the extent such
amounts may be indemnified under the laws of Delaware; and to pay any officer or
director of the Company in advance of the final disposition of any civil or
criminal proceeding, the expenses incurred by such officer or director in
defending such action or proceeding. The Company's obligation to indemnify its
officers and directors continues to individuals who have ceased to be officers
or directors of the Company and to the heirs and personal representatives of
former officers and directors of the Company.
Item 25. Other Expenses of Issuance and Distribution.
- -------- --------------------------------------------
The following table sets forth the estimated cost and expenses to be
borne by the company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts. All
amounts except the registration fee are estimates.
Registration Fee $ 1,819
Printing and Engraving expenses $25,000
Accounting fees and expenses $15,000
Legal fees and expenses $40,000
Blue Sky fees and expenses $15,000
Transfer Agents and Registrar fees $ 5,000
Miscellaneous $18,181
-------
Total $120,000
- ------------------------------------
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Unregistered Warrants related to a total of 188,700 shares of Class A
Common Stock were issued to officers, directors and employees of the Company and
the Bank in 1996. In addition, in 1996 the Company authorized the issuance of a
warrant to purchase 150,000 shares of Class B Common Stock to an executive
officer of the Company. These warrants were issued without registration under
the Securities Act of 1933, as amended, in reliance upon the exemption afforded
by Section 4(2) thereof. All of the foregoing warrants and the shares of Class A
Common Stock issuable upon their exercise are included in this Registration
Statement.
Item 27. Exhibits.
- -------- ---------
Exhibit Number Description of Exhibit
- -------------- ----------------------
1.1 Form of Underwriting Agreement between the
Company and the Underwriter.
1.2 Form of Selected Dealer Agreement
3.1 Restated Certificate of Incorporation of the
Company(1)
3.2 Bylaws of the Company(1)
4.1 Form of Indenture between the Company and the
Bank of New York, as Trustee (the "Trustee")
4.2 Form of Certificate for Shares of Class A
Common Stock(2)
4.3 Form of Certificate for Shares of Class B
Common Stock(2)
4.4 Form of Warrant for Class A Common Stock(1)
4.5 Form of Warrant Agreement between the
Company and the Bank of New York(1)
5.1 Opinion of Harris Beach & Wilcox, LLP
10.1 Form of Escrow Agreement between the Company
and Manufacturers and Traders Trust Company.
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach &
Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
25.1 Statement of Eligibility and Qualification under
Trust Indenture Act of 1939 on Form T-1 for The
Bank of New York(3)
- ----------------------
1 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (No. 333-33419), filed with the
Commission on September 22, 1997.
2 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (No. 33-82246), filed
with the Commission on September 15, 1994.
3 To be filed by amendment.
II-2
<PAGE>
Item 28. Undertakings.
- -------- -------------
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales
are being made, a post- effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement for the most recent
post-effective amendment thereof, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
2. That, for purposes of determining liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
The undersigned small business issuer will:
1. For determining any liability under the Securities Act,
treat any information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a Form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Commission declared it effective.
2. For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this form and has caused this Registration
Statement or Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 14th day of
April, 1998.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker
---------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed by the following persons in
the capacities and on the dates indicated.
Title Date
----- ----
/s/LAWRENCE G. BERGMAN Vice President, April 13, 1998
- ---------------------
Lawrence G. Bergman Secretary and Director
Director ________, 1998
Michael A. Callen
/s/JEROME DANSKER
- -----------------
Jerome Dansker Chairman of the Board, April 13, 1998
Executive Vice President, Director
/s/LOWELL S. DANSKER
- -------------------- President, Treasurer and Director April 13, 1998
Lowell S. Dansker (Principal Executive, Financial
and Accounting Officer)
Director ________, 1998
Milton F. Gidge
/s/WILLIAM F. HOLLY
- ------------------- Director April 13, 1998
William F. Holly
Director ________, 1998
Edward J. Merz
/s/DAVID J. WILLMOTT
- -------------------- Director April 13, 1998
David J. Willmott
/s/WESLEY T. WOOD
- -------------------- Director April 13, 1998
Wesley T. Wood
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer Agreement
4.1 Form of Indenture
5.1 Opinion of Harris Beach & Wilcox, LLP
10.1 Form of Escrow Agreement
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach
& Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
25.1 Statement of Eligibility on Form T-1
70
INTERVEST BANCSHARES CORPORATION
10 Rockefeller Plaza
Suite 1015
New York, New York 10020-1903
________, 1998
Sage, Rutty & Co., Inc.
183 East Main Street, 4th Floor
Rochester, New York 14604
Dear Sirs:
Intervest Bancshares Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with you (sometimes herein called the
"Underwriter") as follows:
1. Introductory
------------
The Company proposes to issue and offer, through the Underwriter acting
as agent for the Company, up to an aggregate of $6,000,000 principal amount of
its Series __/__98 Convertible Subordinated Debentures (the "Debentures"). If at
least $5,000,000 of Debentures are not sold within 75 days after the date the
Registration Statement (as defined below) is declared effective by the
Securities and Exchange Commission, all subscription documents and funds
(together with any net interest thereon) will be returned to subscribers and the
offering will terminate. The Debentures will be issued pursuant to the
provisions of an Indenture, dated as of __________ 1, 1998 (the "Indenture"),
between the Company and The Bank of New York, as Trustee (the "Trustee"). The
Debentures will be sold in denominations of $10,000, with a minimum purchase of
$10,000, and are more fully described in the Prospectus referred to below. The
Company hereby appoints the Underwriter as its exclusive agent to sell the
Debentures, subject to the terms and provisions of this Agreement, on a "best
efforts" basis with at least $5,000,000 of the Debentures required to be sold
within 75 days after the date the Registration Statement (as defined below) is
declared effective by the Securities and Exchange Commission (the "Termination
Date"). If at least $5,000,000 of the Debentures are sold prior to the
Termination Date, any remaining Debentures may continue to be sold until 150
days after the First Closing Date, as herein defined.
2. Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to, and agrees with, the
Underwriter as follows:
(a) A registration statement on Form SB-2 (File No. 333-_____)
(the "Registration Statement") with respect to the Debentures, including the
related Prospectus (the "Prospectus"), and any amendments thereto, copies of
which have heretofore been delivered by the Company to you, has been prepared by
the Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act") and the published rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Act, and has been filed with the Commission under the Act. The Company may
file on or prior to the Effective Date (as defined in Section 3(a)) additional
amendments to said Registration Statement, including the final Prospectus.
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(b) The Registration Statement and the Prospectus (other than
the financial statements and other financial data and schedules which are or
should be contained therein) conform as to form in all material respects to the
requirements of the Act and the Rules and Regulations and do not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and no event has
occurred which should have been set forth in the Registration Statement or the
Prospectus which has not been so set forth therein; provided, however, the
Company makes no representation or warranty as to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter expressly for use in the Registration
Statement, the Prospectus, or any amendment or supplement thereto.
(c) Neither the Commission nor the "blue sky" or state
securities authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing or
suspending the use of the Prospectus, the Registration Statement or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement or suspending the registration of the Debentures, nor
have any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
Intervest Bank (the "Subsidiary") is a state-chartered bank duly organized,
validly existing and in good standing under the laws of the State of Florida.
Each has full power and authority to conduct its own business and own or lease
its properties as described in the Prospectus, and is duly qualified and in good
standing as a foreign corporation in each jurisdiction where the conduct of its
business or its ownership or leasing of property requires it to be qualified,
except where the failure so to qualify would not have a material adverse effect
on the Company or the Subsidiary.
(e) The authorized capital stock of the Company is set forth
in the Prospectus under the caption "Capitalization." All of the outstanding
shares of Class A and Class B Common Stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable. The Company
owns approximately 99% of the outstanding shares of the Subsidiary, free and
clear of any liens or encumbrances and all such shares are duly authorized,
validly issued, fully paid and nonassessable.
(f) The financial statements of the Company together with
related schedules and notes as set forth in the Registration Statement and the
Prospectus fairly present the financial condition of the Company and the results
of its operations and the changes in its financial position as of the dates and
for the periods therein specified and such financial statements have been
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved.
(g) Except as reflected in or contemplated by the Registration
Statement or the Prospectus, since the date as of which information is given in
the Registration Statement or the Prospectus, there has not been any material
adverse change in the condition, financial or otherwise, of the Company or the
Subsidiary. Since the date as of which information is given in the Registration
Statement or the Prospectus, neither the Company nor the Subsidiary have entered
into any transaction, other than transactions in the ordinary course of
business.
(h) There are no actions, suits or proceedings pending, or to
the knowledge of the Company threatened, against or with respect to the Company
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or its business or assets, or the Subsidiary, or its business or assets, at law
or in equity, or before or by any federal or state commission, regulatory body
or administrative agency or other governmental body, domestic or foreign, in
which an adverse decision might have a material adverse effect on the business
or assets of the Company or the business or assets of the Subsidiary.
(i) The Company and the Subsidiary have good title to all
properties and assets which the Prospectus indicates are owned by them, free and
clear of all liens, security interests, pledges, charges, encumbrances and
mortgages (except as may be described in the Prospectus or such as in the
aggregate will not have a material adverse effect upon the business or assets of
the Company or the Subsidiary).
(j) The Company and the Subsidiary are not in default in any
material respect under, and no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a material default
under, any contract, agreement, instrument, lease or license to which the
Company or the Subsidiary is a party or by which any of them are bound, except
as may be properly described in the Prospectus or such as in the aggregate will
not have a material adverse effect on the business or assets of the Company or
on the business or assets of the Subsidiary. The Company and the Subsidiary are
not in violation of their certificates of incorporation or bylaws.
(k) The Company has all requisite power and authority to
execute, deliver and carry out the terms and provisions of this Agreement and to
issue, sell and deliver the Debentures in accordance with and upon the terms and
conditions set forth in this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery and
performance by the Company of this Agreement and the issuance, sale and delivery
of the Debentures. This Agreement has been duly authorized, executed and
delivered by the Company, is the legal, valid and binding obligation of the
Company, and is enforceable as to the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws, court decisions or public policy. The
Indenture has been duly authorized by the Company and, when the Indenture has
been executed and delivered, will constitute the legal, valid and binding
obligation of the Company, and will be enforceable as to the Company in
accordance with its terms. The Debentures have been duly authorized by the
Company, and when the Debentures have been executed and authenticated in the
manner set forth in the Indenture and issued, sold and delivered against payment
therefor in accordance with this Agreement, will constitute the legal, valid and
binding obligations of the Company, will be enforceable as to the Company in
accordance with their terms and the terms of the Indenture and the holders of
the Debentures will be entitled to the benefits provided by the Indenture. The
Debentures and the Indenture conform to the description thereof in the section
entitled "Description of Debentures" in the Prospectus. The enforceability of
this Agreement and the Indenture is subject to (i) applicable bankruptcy,
moratorium, insolvency, reorganization and similar laws relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether such principles are considered in a proceeding in equity or at law).
(l) No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or other tribunal is
required for the execution, delivery or performance by the Company of this
Agreement or the Indenture, or the execution, authentication, issuance, sale or
delivery of the Debentures (except (i) registration under the Act and (ii)
registration or qualification under "blue sky" or state securities laws).
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<PAGE>
(m) No consent of any party to any contract, agreement,
instrument, lease or license to which the Company or its Subsidiary is a party,
or to which any of the Company's or its Subsidiary's properties or assets are
subject, is required for the execution, delivery or performance of this
Agreement, or the Indenture, or the execution, authentication, issuance, sale or
delivery of the Debentures; and the execution, delivery and performance of this
Agreement and the execution, authentication, issuance, sale and delivery of the
Debentures, will not violate, result in a material breach of, conflict with or
(with or without o the giving of notice or the passage of time or both) result
in a default under any such contract, agreement, instrument, lease or license,
or violate the certificate of incorporation or bylaws of the Company or the
Subsidiary, or violate or conflict with any law, rule, regulation, order,
judgment or decree binding on the Company or its Subsidiary or to which any of
the Company's or the Subsidiary's properties or assets are subject or result in
the creation or imposition of any lien, charge or encumbrance upon any assets of
the Company or its Subsidiary pursuant to the terms of any contract, agreement,
instrument, lease or license to which the Company or its Subsidiary is a party
or to which any of their properties or assets are subject.
(n) The Company knows of no outstanding claims for services in
the nature of a finder's fee or origination fee with respect to the sale of the
Debentures hereunder resulting from its acts for which the Underwriter may be
responsible.
(o) The Company and the Subsidiary have filed all federal and
state tax returns which were required to be filed by them and have paid all
taxes shown on such returns and all assessments received by them, to the extent
such taxes or returns have become due (after giving effect to applicable grace
periods or extensions, if any).
3. Employment of Underwriter
-------------------------
(a) Subject to the terms and conditions herein set forth, the
effective date of this Agreement commences on the effective date under the Act
of the Registration Statement (the "Effective Date"), and the Company hereby
appoints the Underwriter as its exclusive agent as of the Effective Date, for
the purpose of offering the Debentures as provided in this Agreement on a "best
efforts" basis with at least $5,000,000 of the Debentures required to be sold
within 75 days after the Effective Date if any Debentures are sold. The
Underwriter agrees to use its best efforts to sell the Debentures as agent for
the Company. It is understood and agreed that there is no firm commitment on the
part of the Underwriter to purchase any of the Debentures.
(b) The Underwriter will offer the Debentures hereunder at a
price of $10,000 per Debenture. The Underwriter will be entitled to a commission
of seven percent (7%) of the purchase price on each Debenture sold in the
offering by the Underwriter or any of its selected dealers. In addition, the
Company will pay the Underwriter a fee in an amount equal to one percent (1%) of
the aggregate gross amount of Debentures sold in the offering, such fee to be
paid upon completion of the offering. The Underwriter shall have the right to
associate with other dealers selected by the Underwriter who are members of the
National Association of Securities Dealers, Inc., pursuant to a written Selected
Dealer Agreement, and to offer a part of the Debentures to such selected dealers
for sale by them at the offering price. In no event shall sales be made to
accounts over which the Underwriter or any dealer may exercise discretionary
authority without the written approval of the customer and the Underwriter prior
to the execution of any order, and the Selected Dealer Agreement will include
provisions so as to assure compliance with this restriction. The Selected Dealer
Agreement will provide that if a Debenture is sold through any such selected
dealer, the Underwriter will allow to such selected dealer the entire commission
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paid by the Company for such Debenture. If a Debenture is sold directly by the
Underwriter, the Underwriter will retain the entire commission paid by the
Company for such Debenture. The Underwriter shall take such steps as it deems
appropriate to assure that purchasers of Debentures meet the suitability
standards set forth in the Prospectus or otherwise imposed by the Company and
will maintain for a period of at least four (4) years a record of the
information obtained to indicate that such standards have been met.
(c) The obligation of the Underwriter to offer the Debentures
is subject to receipt by the Underwriter of a copy of written advice from the
Commission that the Registration Statement is effective. It is also subject to
the Debentures being qualified for offering under applicable state securities
laws.
(d) (i) A special interest-bearing account (the "Escrow
Account"') will be opened and maintained at Manufacturers and Traders Trust
Company (the "Bank") in Rochester, New York, for the purpose of holding
subscription funds in escrow until the First Closing Date (as hereinafter
defined). The title of the Escrow Account will be "Intervest Bancshares
Corporation Escrow Account". All subscription funds shall be in the form of wire
transfers of immediately available funds, or checks, and all checks should be
made payable to "M&T Bank, as Escrow Agent for Intervest Bancshares
Corporation." After the First Closing Date all checks for subscriptions of
Debentures shall be made payable to "Intervest Bancshares Corporation", the
Company. The Company, the Underwriter and the Bank will, prior to the beginning
of the offering of the Debentures, enter into an escrow agreement with respect
to the Escrow Account in form satisfactory to the parties. The parties hereto
agree to faithfully perform their obligations under such escrow agreement.
Except to the extent that interest earned on the funds in the Escrow Account may
be applied to pay escrow expenses in the event the offering is terminated prior
to the First Closing Date, all costs, expenses, and charges incurred in
connection with the Escrow Account shall be paid by the Company.
(ii) Until the First Closing Date all funds received
from subscribers by any selected dealer shall be promptly transmitted to the
Bank (for deposit in the Escrow Account), but in any event such funds shall be
so transmitted by noon of the next business day following the day such funds are
received from the subscriber by the selected dealer. The Underwriter shall
promptly transmit to the Bank all funds received by it from subscribers for
deposit in the Escrow Account in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended, but in any event such funds shall
be so transmitted for deposit by noon of the next business day following the day
such funds are received. After the First Closing Date all funds received from
subscribers by any selected dealer shall be promptly transmitted to the
Underwriter for distribution to the Company, but in any event such funds shall
be transmitted by noon of the next business day following the day such funds are
received by the selected dealer.
(iii) The first closing of the offering will take
place at the offices of counsel to the Company on a date (the "First Closing
Date") which is within ten business days after the date on which acceptable
subscriptions have been received in cleared, collected funds for at least
$5,000,000 of Debentures.
(iv) On the First Closing Date the Underwriter will
cause the Bank to distribute the funds on deposit in the Escrow Account to the
Company, selected dealers and the Underwriter, as their interests may appear.
The Underwriter will be entitled to cause the Bank to distribute to the
Underwriter from the Escrow Account an amount sufficient to pay all of the
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<PAGE>
commissions on the Debentures sold to which the Underwriter and selected dealers
are entitled under the provisions of Section 3(c) hereof. Debentures may
continue to be offered and sold for up to 150 days after the First Closing Date.
After the First Closing Date, the Underwriter will distribute the checks for
subscriptions of Debentures directly to the Company within one business day of
receipt by the Underwriter. The Company shall, upon each subsequent closing in
which Debentures are issued, remit to the Underwriter commissions on the
Debentures sold to which the Underwriter and selected dealers are entitled under
the provisions of Section 3(c) hereof.
(v) In the event the offering pursuant to the
Prospectus is terminated prior to the First Closing Date for any reason
whatsoever, the Underwriter shall promptly cause the Bank to refund to the
subscribers of the Debentures all funds which have been received from them by
the Underwriter. Interest earned on funds in the Escrow Account shall be applied
to pay escrow expenses, with the balance of interest, if any, to be paid to
subscribers in proportion to the amount of funds paid by each subscriber on
subscription and without regard to the date when such subscription funds were
paid by the subscriber.
(e) In the event the offering is terminated prior to the First
Closing Date, this Agreement shall terminate, and upon the payments and refunds
to subscribers being made as provided in Section 3(f)(v), neither party hereto
shall have any further liability to the other hereunder. In such event, the
Underwriter shall not be entitled to any fees or commissions hereunder and none
of the Warrants described in Section 3(d) will be delivered or deliverable.
(f) The Company shall pay all costs and expenses incident to
the performance of the obligations of the Company hereunder, including the fees
and expenses of the Company's counsel and accountants, registration fees, the
costs and expenses incident to the preparation, printing and shipping of the
Registration Statement, each preliminary prospectus, if any, the final
Prospectus and all amendments and supplements thereto and this Agreement and
related documents, filing fees required to be paid to the National Association
of Securities Dealers, Inc., the costs incurred in connection with the
qualification of the Debentures under applicable state securities laws and the
fee of Underwriter's legal counsel. The Underwriter shall pay all other costs
incurred or to be incurred by it, or by its personnel, in connection with the
offering of the Debentures.
4. Covenants of the Company
------------------------
(a) The Company will furnish to the Underwriter, without
charge, as soon as the Registration Statement or any amendment thereto becomes
effective or a supplement is filed, two signed copies of the Registration
Statement and each amendment thereto, including all financial statements and
exhibits, and two copies of any supplement thereto. The Company will also
furnish to the Underwriter such number of conformed copies of the Registration
Statement and of each amendment thereto, including all financial statements but
excluding exhibits, and of each supplement thereto, as the Underwriter may
reasonably request.
(b) The Company will furnish to the Underwriter as soon as
possible after the Effective Date and thereafter during the period required by
law for the Prospectus to be delivered in connection with sales of the
Debentures, as many copies of the Prospectus (and of any amended or supplemented
Prospectus) as the Underwriter may reasonably request. If during such period any
event occurs as a result of which the Registration Statement or the Prospectus,
as then amended or supplemented, would include an untrue statement of a material
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<PAGE>
fact or omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances in which they were made, not misleading,
or it shall be necessary to amend or supplement the Registration Statement or
the Prospectus to comply with the Act or the Rules and Regulations, the Company
will forthwith notify the Underwriter thereof and prepare and furnish to the
Underwriter and dealers selected by the Underwriter, in such quantity as the
Underwriter and such dealers may reasonably request, an amendment or supplement
which will correct such statement or omission or cause the Registration
Statement and the Prospectus to comply with the Act and the Rules and
Regulations. The Company will not at any time prior to the expiration of such
period, whether before or after the Effective Date, file any amendment to the
Registration Statement of which the Underwriter will not have been advised and
furnished with a copy, or which is not in compliance with the Act and the Rules
and Regulations.
(c) The Company will use its best efforts to cause the
Registration Statement to become effective and will promptly advise the
Underwriter and will confirm such advice in writing, of the following: (i) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus is
filed with the Commission; (ii) when the Commission shall make a request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof; and (iii) the
issuance by the Commission of a stop order suspending the effectiveness of the
Registration Statement or the suspension of the qualification of the Debentures
for sale in any jurisdiction, or of the initiation of any proceeding for that
purpose.
(d) The Company will take all action necessary to permit the
offering of the Debentures as contemplated hereby under the "blue sky" or
securities laws of the states in which it determines that Debentures shall be
sold; provided, however, that the Company shall not be required to qualify as a
foreign corporation or to file a consent to service of process in any state in
any action other than one arising out of the offering or sale of the Debentures.
The Company shall furnish the Underwriter with written notice as to the states
in which the Debentures are to be offered, together with such reasonable
documentation as may be requested by the Underwriter to establish that the
Debentures have been duly registered for offer and sale in those states or are
exempt from the registration requirements of such states, including, among other
things, "blue sky" memoranda or surveys prepared by the Company's counsel with
respect to those states in which the Company has determined that the Debentures
are to be offered. Notwithstanding the foregoing, nothing in this agreement
shall be construed as obligating the Underwriter or any selected dealers engaged
in the offering of the Debentures to offer Debentures in any states in which the
Underwriter or selected dealer, as the case may be, is not registered as a
broker-dealer.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act and the Rules and Regulations) to its
security holders, within 120 days of the first day of the fiscal year of the
Company, an earnings statement of the Company (which will be in reasonable
detail and will comply with the requirements of Section 11 (a) of the Act, but
need not be audited) covering the prior fiscal year of the Company, commencing
with the fiscal year of the Company during which this Agreement is executed.
(f) For a period of five years after the termination of the
Offering, the Company will furnish the Underwriter without charge, within 90
days after the end of each fiscal year, a copy of its financial statements
certified by independent certified public accountants.
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(g) The Company will apply the net proceeds received by it
from the offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will furnish to the Underwriter as early as
practicable prior to the First Closing Date, but no less than two full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 5(f).
(i) The Company will comply with all registration, filing, and
reporting requirements of the Securities Exchange Act of 1934, which may from
time to time be applicable to the Company, and, for a period of three years
after the termination of the Offering, the Company will furnish the Underwriter,
without charge, with copies of all filings made with the Commission pursuant to
the Securities Exchange Act of 1934.
(j) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(k) Offers and sales of Debentures by the Company shall only
be made by persons who meet the safe harbor provisions of Rule 3a4-1 under the
Securities Exchange Act of 1934.
5. Conditions of Underwriter's Obligations
---------------------------------------
The obligations of the Underwriter as provided herein shall be subject
to the continuing accuracy of the representations and warranties of the Company
herein contained as of the date hereof and through and including the date of
termination of the offering, to the performance by the Company of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Registration Statement shall have become effective at
the time of any sale of Debentures hereunder, no Stop Order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission or be pending.
(b) The Company shall not have sustained after the date hereof
any material loss or interference with its business from any calamity, whether
or not covered by insurance, which in your reasonable judgment makes it
impracticable or inadvisable to sell the Debentures as contemplated hereby.
(c) All corporate proceedings and related matters in
connection with the organization of the Company and the Subsidiary, and the
registration, authorization, issuance, sale and delivery of the Debentures, and
in connection with this Agreement, shall be reasonably satisfactory to you and
you shall have been furnished with such papers and information as you may
reasonably have requested in this connection.
(d) Between the date hereof and the First Closing Date, there
shall have been no litigation instituted or threatened against the Company or
the Subsidiary and there shall have been no proceeding instituted or threatened
against the Company or the Subsidiary before or by any federal or state
commission, regulatory body or administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, operations or financial condition or
income of the Company or the Subsidiary.
8
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(e) At the time of the execution of this Agreement, and at the
First Closing Date, counsel for the Company shall provide to the Underwriter its
written opinion, in form and substance satisfactory to counsel for the
Underwriter, with respect to the following matters:
(i) The matters set forth in Paragraph 2(d).
(ii) The matters set forth in Paragraph 2(e).
(iii) The matters set forth in Paragraph 2(k).
(iv) To the best of counsel's knowledge, the
matters set forth in Paragraphs 2(l) and
(m).
(v) To the best of counsel's knowledge, the
matters set forth in paragraph 2(h). (vi)
That the Registration Statement has become
effective and to the best of counsel's
knowledge, the matters set forth in
Paragraph 2(c).
(vii) The matters set forth in paragraph 2(b).
(viii) To the best of counsel's knowledge, there
are no contracts, agreements, or other
understandings required to be described in
the Registration Statement or Prospectus or
to be filed as exhibits to the Registration
Statement which are not so described or
filed.
(f) At the First Closing Date, Hacker, Johnson, Cohen & Grieb
PA shall have furnished a letter addressed to you and dated as of the date it is
required to be delivered in form and substance reasonably satisfactory to you,
to the effect that: (i) with respect to the Company they are, and during the
period covered by their reports included in the Registration Statement and the
Prospectus they were, independent public accountants within the meaning of the
Act and the Rules and Regulations, and the response to Item 509 of Regulation
S-K as reflected by the Registration Statement is correct insofar as it relates
to them; (ii) in their opinion, the financial statements of the Company examined
by them at all dates and for all periods referred to in their opinion and
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and Rules and
Regulations; (iii) on the basis of certain indicated procedures (but not an
examination in accordance with generally accepted accounting principles),
including, but not limited to, a reading of the latest available interim
unaudited financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other persons
responsible for its financial and accounting matters and a reading of the minute
book of the Company, nothing has come to their attention which would cause them
to believe that (A) there has been any change in the capital stock or other
securities of the Company or any payment or declaration of any dividend or other
distribution in respect thereof or exchange therefor from that shown on its
audited balance sheets or a change in the debt of the Company from that shown or
contemplated under "Capitalization" in the Registration Statement other than as
set forth in or contemplated by the Registration Statement, (B) there has been
any material adverse change in the financial condition of the Company except as
set forth in or contemplated by the Registration Statement, or (C) the unaudited
financial statements and schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and Rules and Regulations, or are
not fairly presented in conformity with generally accepted accounting principles
9
<PAGE>
applied on a consistent basis; and (iv) they have compared specific numerical
data and financial information pertaining to the Company set forth in the
Registration Statement and Prospectus, which have been specified by the
Underwriter prior to the date of this Agreement, to the extent that such data
and information may be derived from the general accounting records of the
Company, and found them to be in agreement.
(g) The Company shall have furnished or caused to be furnished
to you a certificate by the President of the Company, dated as of the First
Closing Date and at the termination of the offering, to the effect that (i) the
representations and warranties of the Company herein are true and correct as of
each such date, and the Company has complied with all the agreements and has
satisfied all the conditions on its part to be performed or satisfied at or
prior to each such date; (ii) the Registration Statement has become effective
and no order suspending the effectiveness of the Registration Statement has been
issued and to the best knowledge of the signer, no proceeding for that purpose
has been initiated or threatened by the Commission; and (iii) except as set
forth in the Registration Statement and Prospectus, since the respective dates
as of which and the periods for which information is given in the Registration
Statement and Prospectus and prior to the date of such certificate (A) there has
not been any substantial adverse change, financial or otherwise, in the affairs
or condition of the Company or the Subsidiary and (B) neither the Company nor
the Subsidiary have incurred any liabilities, direct or contingent, or entered
into any transactions, otherwise than in the ordinary course of business.
6. Indemnification
---------------
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless you and each person, if any, who controls
you within the meaning of Section 15 of the Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expense and counsel fees reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), and any and all amounts paid in settlement of any claim or
litigation, arising out of, based upon or in connection with (i) any untrue or
alleged untrue statement of a material fact contained in (A) any preliminary
prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented) or (B) any application or other document (in this
Section 6(a) called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Debentures under the "blue sky" or
securities laws thereof; (ii) the omission or alleged omission from any
preliminary prospectus, the Registration Statement, the Prospectus (as from time
to time amended and supplemented) or any application of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to you by or on
behalf of you expressly for use in any preliminary prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereof or in any
application, as the case may be; or (iii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement.
This indemnity shall not apply to amounts paid in settlement of any such
litigation if such settlement is effected without the consent of the Company.
If any action is brought against you or any of your officers,
directors, partners, employees, agents or counsel, or any controlling persons of
you (an "indemnified party") in respect of which indemnity may be sought against
the Company pursuant to the foregoing paragraph, such indemnified party or
parties shall promptly notify the Company in writing of the institution of such
action (but the failure so to notify shall not relieve the Company from any
liability it may have other than pursuant to this Section 6(a)) and the Company
10
<PAGE>
shall promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action, in either of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent. The Company agrees
promptly to notify you of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Debentures, any preliminary prospectus, the Registration Statement,
the Prospectus, any amendment or supplement thereto or any application. With
respect to any untrue statement or alleged untrue statement made in, or omission
or alleged omission from, any preliminary prospectus or the Prospectus, the
indemnity agreement contained in this Section 6(a) with respect to such
preliminary prospectus or Prospectus, to the extent it is based on the claim of
a person who purchased Debentures directly from you, shall not inure to your
benefit (or, to the benefit of any of your officers, directors, partners,
employees, agents or counsel, or any person controlling you), if the Prospectus
(or the Prospectus as amended or supplemented if the Company shall have filed
with the Commission any amendment or supplement thereto) which shall have been
furnished to you prior to the time you sent written confirmation of such sale to
such person does not contain such statement, alleged statement, omission or
alleged omission and a copy of the Prospectus (or the Prospectus as amended or
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto) shall not have been sent or given to such person and such
person shall not otherwise have received a copy thereof at or prior to the time
of the written confirmation of such sale to such person.
(b) You agree to indemnify and hold harmless the Company and
each of the officers and directors of the Company and each other person, if any,
who controls the Company within the meaning of Section 15 of the Act against any
and all such losses, liabilities, claims, damages and expenses as are
indemnified by the Company under Section 6(a) above, provided, however, that
such indemnification by you hereunder shall only be with respect to statements
or omissions, if any, made in any preliminary prospectus, the Registration
Statement, the Prospectus, any amendment or supplement thereof or any
application, in reliance upon, and in conformity with, written information
furnished by or on behalf of you expressly for use in any preliminary
prospectus, the Registration Statement, the Prospectus, any amendment or
supplement thereof or in any of said applications. In case any action shall be
brought against the Company or any other person so indemnified based on any
preliminary prospectus, the Registration Statement, the Prospectus, any
amendment or supplement thereof or any such application and in respect of which
indemnity may be sought against you, you shall have the rights and duties given
to the Company, and the Company and each other person so indemnified shall have
the rights and duties given to you by the provisions of Section 6(a) above.
7. Underwriter's Representations and Warranties
--------------------------------------------
(a) The Underwriter represents and warrants to and agrees with
the Company that: (i) the Underwriter is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; (ii) it
is duly authorized to execute this Agreement and to perform its duties
hereunder, and the execution and delivery by it of this Agreement and the
11
<PAGE>
consummation of the transactions herein contemplated will not result in any
violation of, be in conflict with or constitute a default under, any agreement
or instrument to which the Underwriter is a party or by which it is bound, or
any judgment, decree, order, or, to its knowledge, any statute, rule or
regulation applicable to it; (iii) the Underwriter is registered as a
broker/dealer with the Commission and is registered as a broker/dealer in all
states in which it conducts business and is a member in good standing of the
National Association of Securities Dealers, Inc.; and (iv) there is not now
pending or threatened against the Underwriter any action or proceeding of which
it has been advised, in any court of competent jurisdiction or before the
Commission or any state securities commission concerning its activities as a
broker/dealer, which would materially impair the Underwriter's ability to act as
such pursuant to this Agreement.
(b) The Underwriter will deliver a certificate dated as of the
First Closing Date and at the termination of the offering, and signed by the
president of the Underwriter stating that the representations of the Underwriter
set forth herein are true and correct in all material respects as of each such
date.
(c) The Underwriter covenants that promptly after the First
Closing Date, and until such time as the earlier of: $6,000,000 in Debentures
are sold or the offering is terminated pursuant to Section 8 hereof, it will
supply the Company with such information as the Company may reasonably request
to be supplied to the securities commissions of such states in which the
Debentures have been qualified for sale.
8. Effectiveness and Termination
-----------------------------
(a) This Agreement shall become effective at 9:00 A.M. on the
first full business day after the Effective Date unless prior to such time you
shall have received notice from the Company that it elects that this Agreement
shall not become effective.
(b) This Agreement may be terminated by you by written notice
to the Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement on the
part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by you in writing.
(c) This Agreement may be terminated by you by written notice
to the Company if you believe in your reasonable judgment that a material
adverse change has occurred in the management of the Company, that a material
adverse change has occurred in the financial condition or obligations of the
Company, or if the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity of such a character as, in your reasonable judgment,
may interfere materially with the conduct of the Company's business and
operations regardless of whether or not such loss shall have been insured.
(d) This Agreement may be terminated by you by written notice
to the Company at any time if, in your reasonable judgment, the payment for and
delivery of the Debentures is rendered impracticable or inadvisable because (i)
additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the registration and/or sale of
securities generally, or (ii) there shall be a material outbreak of hostilities
or a material escalation of existing hostilities between the United States and
any foreign power or a formal declaration of war by the United States shall have
occurred, or (iii) substantial and material changes in the condition of the
market (either generally or with reference to the sale of the Debentures to be
12
<PAGE>
offered hereby) beyond normal fluctuations are such that it would be
undesirable, impracticable or inadvisable in your reasonable judgment to proceed
with this Agreement or with the offering of the Debentures.
(e) This Agreement may be terminated by either party by
written notice to the other at any time before it becomes effective as
hereinabove provided.
(f) In the event, at any time prior to the First Closing Date,
any action or proceeding shall be instituted or threatened against you in any
court of competent jurisdiction, before the Commission or any state securities
commission or in any court pursuant to any federal, state, local or municipal
statute, concerning your activities as a broker or dealer that would materially
impair your ability to act as Underwriter pursuant to this Agreement, or a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of your assets is filed or if you make a
assignment for the benefit of creditors, the Company shall have the right on
three days' written notice to you to terminate this Agreement without any
liability to you of any kind.
(g) This Agreement shall terminate if at least $5,000,000 of
the Debentures are not sold within 75 days after the date the Registration
Statement is declared effective by the Commission.
(h) Any termination of this Agreement pursuant to this Section
8 shall be without liability (including, but not limited to, loss of anticipated
profits or consequential damages) on the part of any party hereto, except that
the Company shall nevertheless be obligated to pay to the Underwriter its
accountable out-of-pocket expenses pursuant to Paragraph 3(f), unless the
Agreement is terminated pursuant to Section 8(f), and further provided that
Paragraph 9(b) shall survive the termination of this Agreement.
9. Miscellaneous
-------------
(a) Whenever notice is required by the provisions of this
Agreement to be given to the parties hereto, such notice shall be in writing and
shall be sent by certified or registered mail, return receipt requested, postage
prepaid, and shall be deemed delivered two days after mailing, and shall be
addressed to the party to whom such notice is directed at the address set forth
above or at such other address as a party has designated by like notice.
(b) The respective indemnities, agreements, representations,
warranties and other statements of you and the Company hereunder, as set forth
in this Agreement or made pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation made by or on behalf of you, the
Company, or any officers, directors or controlling person of you or the Company,
and shall survive delivery ofo and payment for the Debentures.
(c) This Agreement shall be binding upon and inure solely to
the benefit of you and the Company and, to the extent provided in Section 6
hereof, the officers and directors of the Company and any person who controls
you, the Company and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Debentures shall be construed a successor or assign by
reason merely of such purchase.
(d) This Agreement shall be construed and governed by the laws
of the State of New York. This Agreement cannot be changed or terminated orally.
13
<PAGE>
(e) This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing sets forth the Agreement between you
and the Company by signing and returning to us the enclosed copy of this letter.
Very truly yours,
INTERVEST BANCSHARES CORPORATION
By: ___________________________________
Name:
Title:
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND UNDERSIGNED.
SAGE, RUTTY & CO., INC.
By: ___________________________________
Name:
Title:
14
SAGE, RUTTY & CO., INC.
183 East Main Street
4th Floor
Rochester, New York 14604
Date: ________, 1998
SELECTED DEALER AGREEMENT
Dear Sirs:
Sage, Rutty & Co., Inc., the underwriter (the "Underwriter") named in
the Prospectus (as hereinafter defined) has agreed, subject to the terms and
conditions of that certain underwriting agreement (the "Underwriting Agreement")
dated ______________, 1998, between the Underwriter and Intervest Bancshares
Corporation (the "Issuer"), to act as exclusive agent for the Issuer and to use
its best efforts to sell up to an aggregate of $6,000,000 principal amount of
its Series __/__/98 Convertible Subordinated Debentures due July 1, 2008 (the
"Debentures"). The Debentures are more particularly described in the enclosed
prospectus (the "Prospectus"), additional copies of which will be supplied in
reasonable quantities upon request.
The Underwriter is offering a part of the Debentures for sale by
selected dealers (the "Selected Dealers"), including yourself, who are
registered with the Securities and Exchange Commission (the "SEC") as
broker-dealers under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and who are members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), on a "best efforts" basis.
The offering is subject to the delivery of the Debentures, and the
acceptance of the offering by the Underwriter, the approval of all legal matters
by counsel, and the terms and conditions herein set forth.
Subject to the foregoing, the Underwriter confirms its agreement with
you (sometimes herein called the "Dealer"') as follows:
1. Non-Exclusive Right to Offer and Sell. Underwriter hereby grants to
you the non-exclusive right to offer and sell the Debentures upon such terms as
the Underwriter shall from time to time determine and as set forth in the then
effective Prospectus relating to such Debentures. The amount of Debentures which
the Underwriter has initially determined to permit you to offer and sell is set
forth at the end of this letter, although the Underwriter reserves the right to
change such allotment. You agree (a) upon our request, to advise us of the
number of Debentures allotted to you which remain unsold; and (b) at our
request, to stop offering any such Debentures remaining unsold.
2. Compliance with Laws. A registration statement on Form SB-2 (the
"Registration Statement") with respect to the Debentures has been filed with the
SEC and has become effective. You agree to comply with the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), the
1934 Act and any applicable rules and regulations issued under said Acts. No
person is authorized by the Issuer or by the Underwriter to give any information
or to make any representation other than those contained in the Prospectus in
connection with the sale of the Debentures.
3. Dealer Representations. Dealer represents that it is a member in
good standing of the NASD and agrees to abide by all of the NASD rules and
regulations, and any interpretations thereof, including, without limitation, the
NASD interpretation with respect to Free-Riding and Withholding and Rules 2420,
2730, 2740 and 2750 of the NASD Conduct Rules. Dealer also agrees to comply with
the requirements of all applicable Federal and State Laws and all rules and
regulations thereunder, and interpretations thereof, promulgated by any
regulatory agency having jurisdiction.
In the event that a domestic or foreign Dealer should sell or offer for
sale the Debentures in any jurisdiction outside the United States, Dealer also
agrees to comply with the laws, rules and regulations of any governmental or
regulatory body applicable within such foreign jurisdiction.
1
<PAGE>
4. State Registrations. You will be informed by the Underwriter as to
the states in which we have been advised by counsel that the Debentures have
been qualified or registered for sale or are exempt under the respective
securities or "blue sky" laws of such states, but we have not assumed and will
not assume any obligation or responsibility as to the accuracy of such
information or as to the eligibility or right of any Selected Dealer to offer or
sell the Debentures in any state.
5. Underwriter Authority and Liability. The Underwriter shall have full
authority to take such action as it may deem advisable in respect of all matters
pertaining to the offering or arising thereunder. The Underwriter shall not be
under any liability to you with respect to any matter, except such as may be
incurred under the 1933 Act and the rules and regulations thereunder, except for
lack of good faith and except for obligations assumed by us in this Agreement,
and no obligation on our part shall be implied or inferred herefrom.
6. Payment and Procedures. All subscriptions for investments shall be
confirmed on forms of a type acceptable under the rules and regulations of the
NASD and in accordance with Rule 15c2-8 of the 1934 Act. If at least $5,000,000
in collected funds (as defined in the Escrow Agreement) have been received and
such subscriptions accepted by the Issuer by ____________, 1998, the Issuer may
close the Offering as to those subscribers (the "First Closing Date"). Until the
First Closing Date, you shall promptly, upon receipt of any and all checks,
drafts, and money orders received from prospective purchasers of the Debentures,
transmit, in accordance with Rule 15c2-4(b) of the 1934 Act, such items to
Manufacturers and Traders Trust Company, as Escrow Agent, for deposit into an
account entitled "Intervest Bancshares Corporation Escrow Account", but in any
event such transmittal to the Escrow Agent shall be made by noon of the next
business day after your receipt of such funds. Any Debentures remaining unsold
after the First Closing Date may continue to be offered and sold for up to 150
days after the First Closing Date. After the First Closing Date, you shall
promptly transmit any and all checks, drafts, and money orders received from
prospective purchasers of the Debentures to the Underwriter by noon of the next
business day after you receive such funds. At the same time you deliver funds
received to the Escrow Agent, or directly to the Underwriter, you shall also
deliver to Underwriter, a written account of each purchaser which sets forth,
among other things, the name, address and tax identification number of the
purchaser, the number of Debentures purchased, and the amount paid therefor
which shall be accompanied by a copy of the check and any transmittal letter to
the Escrow Agent.
You agree to be bound by the terms of the Escrow Agreement executed by
Underwriter and the Issuer and acknowledge that you have received a copy of such
Escrow Agreement.
Until the First Closing Date, checks shall be made payable to "M&T
Bank, as Escrow Agent for Intervest Bancshares Corporation". After the First
Closing Date, checks shall be made payable to "Intervest Bancshares
Corporation", the Issuer. Until the First Closing Date, any checks received by
the Escrow Agent which are made payable to any party other than the Escrow
Agent, shall be returned by the Escrow Agent to the purchaser who submitted the
check and shall not be accepted.
All Debentures shall be registered and issued as designated by Dealer
after the Closing Dates specified in the Prospectus.
The Issuer reserves the right to reject any subscription, and in such
case, the Issuer will instruct the Escrow Agent or Underwriter, as may be the
case, to return, in full, any payment made in connection therewith.
If at least $5,000,000 in collected funds (as defined in the Escrow
Agreement) have not been received and such subscriptions accepted by the Issuer
by ___________, 1998, subscription documents and funds shall be promptly
returned to subscribers. Interest earned on funds in the Escrow Account shall be
applied to pay escrow expenses, with the balance of interest, if any, to be paid
to subscribers in proportion to the amount of funds paid by each such subscriber
without regard to the date when such subscription funds were paid. It shall be a
condition of making any such refund to a subscriber, however, that there be
delivered to the Escrow Agent a Form W-9 executed by such subscriber.
2
<PAGE>
7. Delivery of Prospectus. You shall solicit subscriptions for the
Debentures only in accordance with the then current Prospectus, shall deliver a
current Prospectus to each prospective investor, shall utilize as solicitation
material only the Prospectus and such supplemental sales literature as shall be
identified as such and furnished or authorized in writing by the Issuer, and
shall make no representations other than those contained in such Prospectus and
supplemental literature. You shall also be responsible for the servicing of
investors, including responding to inquiries by, and maintaining periodic
contacts with, the investor.
8. Restrictions on Sales and Purchases of Debentures. During the term
of this Agreement, you will not, directly or indirectly, buy, sell, or induce
others to buy or sell, the Debentures except (a) pursuant to this Agreement, (b)
as expressly authorized by the Underwriter in writing, or (c) in the ordinary
course of business as broker or agent for a customer pursuant to an unsolicited
order. You represent that you have not participated in any transaction
prohibited by the preceding sentence and that you have at all times complied
with the provisions of Regulation M of the 1934 Act applicable to this offering.
You will take such steps as you deem necessary to assure that purchasers of the
Debentures meet the suitability standards set forth in the Prospectus or
otherwise imposed by the Issuer and will maintain for a period of at least four
(4) years a record of the information obtained to indicate that such standards
have been met.
9. Commissions: You will be entitled to receive commissions in the
amount of 7% of the purchase price of each Debenture sold by you under this
Agreement, provided, however, that the offering will be terminated and no
commissions will be payable unless an aggregate of at least $5,000,000 of the
Debentures are sold by _____________, 1998.
10. Dealer Responsibility for Training and Representatives. You
undertake full responsibility for adequate training of your salesmen in all
features of the Debentures offered, with special emphasis on the
responsibilities of such salesmen for full disclosure to prospective investors
and the necessity of delivering a Prospectus to each investor. You will accept
subscriptions only from persons whose investment objectives, to the best of your
knowledge and belief, are consistent with those of the Debentures offered.
11. Sales in Discretionary Accounts. You agree that, without the
written approval of the customer and the Underwriter prior to the execution of
any order, you will not sell to any account over which you exercise
discretionary authority any of the Debentures which you have been allotted and
which are subject to the terms of this Agreement.
12. Advertisements. It is expected that public advertisement of this
issue will be made on or about the effective date of the Registration Statement.
After the date of appearance of such advertisement, but not before, you are free
to advertise over your own name and at your own expense and risk, subject,
however, to our prior review and approval of any advertisement.
13. Termination of Agreement. This Agreement may be terminated by
either party at any time by written or telegraphic notice to the other, but the
Agreement shall not be valid for more than six (6) months from the date of
execution or beyond completion of the offering, whichever is earlier, except
when extended by the Underwriter to complete the offering of the Debentures.
Such termination shall not affect your obligation to comply with this Agreement
nor your right to commissions, as set forth in Paragraph 9 of this Agreement on
subscriptions confirmed by the Issuer by the time of such termination.
14. Relationship of Parties. Nothing in this Agreement shall be
construed to constitute Dealer a partner, employee or agent of the Underwriter
or Issuer, and neither Underwriter, Issuer or Dealer shall be liable for any
obligation, act or omission of the other to third parties. However, in the event
such a claim is made, you agree to bear your share of any liability arising out
of such claim.
15. Dealer Expenses. All expenses incurred by Dealer in connection with
its activities under this Agreement shall be borne by Dealer, except that
Underwriter will furnish, without charge, a reasonable quantity of Prospectuses
and supplemental literature as issued.
3
<PAGE>
16. Miscellaneous. This Agreement supersedes all previous agreements,
whether oral or written, between Underwriter and Dealer relating to the
Debentures and may not be modified except in writing. All previous agreements,
if any, whether oral or written, between Underwriter and dealer are hereby
canceled. Neither party hereto assumes any liability or obligation toward the
other under this or any previous agreement, except as may be specifically set
forth in this Agreement, nor is any such liability or obligation to be inferred
or implied hereunder.
All communications from you shall be addressed to the Underwriter at
the address set forth above. All communications from the Underwriter to you
shall be directed to the address to which this letter is mailed.
This Agreement shall be construed in accordance with the laws of the
State of New York.
Please confirm that the foregoing sets forth the Agreement between you
and the Underwriter by signing and returning to us the enclosed copy of this
letter.
Very truly yours,
SAGE, RUTTY & CO., INC.
By: __________________________
-----------------------------------
(Title)
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE UNDERWRITER AND
THE UNDERSIGNED
AMOUNT OF DEBENTURES
TO BE OFFERED FOR
SALE BY DEALER
- -------------------------------------
(Dealer)
--------------------
By: ______________________________
- -------------------------------------
(Title)
4
=========================================================
=========================================================
INTERVEST BANCSHARES CORPORATION
AND
THE BANK OF NEW YORK
as Trustee
INDENTURE
Dated as of ___________, 1998
$6,000,000
Series __/__/98 Convertible Subordinated
Debentures Due July 1, 2008
=========================================================
=========================================================
<PAGE>
CROSS REFERENCE TABLE
TIA Section Indenture Section
310(a)(1) and (2)........................... 7.10
310(a)(3) and (4)........................... N.A.
310(b)...................................... 7.08, 7.10, 11.02
310(c)...................................... N.A.
311(a) and (b).............................. 7.11
311(c)...................................... N.A.
312(a)...................................... 2.05
312(b) and (c).............................. 2.06
313(a)...................................... 7.06
313(b)(1)................................... N.A.
313(b)(2)................................... 7.06
313(c)...................................... 7.06, 11.02
313(d)...................................... 7.06
314(a)...................................... 4.02, 11.02
314(b)...................................... N.A.
314(c)(1) and (c)(2)........................ 11.03
314(c)(3) and (d)........................... N.A.
314(e)...................................... 11.04
314(f)...................................... N.A.
315(a), (c) and (d)......................... 7.01
315(b)...................................... 7.05, 11.02
315(e)...................................... 6.11
316(a)(1)(A)................................ 6.05
316(a)(1)(B)................................ 6.04
316(a)(2)................................... 9.02
316(a) Last Paragraph....................... 2.10, 11.05
316(b)...................................... 6.07
317(a)...................................... 6.08, 6.09
317(b)...................................... 2.04
318(a)...................................... 11.01
N.A. means Not Applicable.
Note: This cross reference table shall not, for any purpose, be deemed to be
a part of the Indenture.
2
<PAGE>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
1.01. Definitions..................................................... 9
1.02. Other Definitions............................................... 11
1.03 Incorporation by Reference of Trust Indenture Act............... 11
1.04. Acts of Holders................................................. 12
1.05. Rules of Construction........................................... 13
ARTICLE TWO
THE DEBENTURES
--------------
2.01. Form and Dating................................................. 13
2.02. Execution and Authentication.................................... 14
2.03. Registrar and Paying Agent...................................... 14
2.04. Paying Agent to Hold Money in Trust............................. 15
2.05. Debentureholder Lists........................................... 15
2.06. Access of Information to Debentureholders. ..................... 15
2.07. Transfer and Exchange........................................... 16
2.08. Replacement Debentures.......................................... 17
2.09. Outstanding Debentures.......................................... 17
2.10. Treasury Debentures............................................. 17
2.11. Temporary Debentures............................................ 17
2.12. Cancellation.................................................... 17
2.13. Defaulted Interest.............................................. 18
2.14. CUSIP Numbers................................................... 18
3
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ARTICLE THREE
REDEMPTION
----------
3.01. Notices to Trustee......................................... 18
3.02. Selection of Debentures to be Redeemed..................... 19
3.03. Notice of Redemption....................................... 19
3.04. Effect of Notice of Redemption............................. 19
3.05. Deposit of Redemption Price................................ 19
3.06. Debentures Redeemed in Part................................ 19
ARTICLE FOUR
COVENANTS
---------
4.01. Payment of Debentures...................................... 20
4.02. SEC Reports................................................ 20
4.03. Compliance Certificate..................................... 20
4.04. Limitation on Dividends and Stock Purchases................ 20
4.05. Pari Passu Indebtedness.................................... 21
ARTICLE FIVE
SUCCESSOR CORPORATION
---------------------
5.01. When the Company May Merge, etc............................ 21
ARTICLE SIX
DEFAULTS AND REMEDIES
---------------------
6.01. Events of Default.......................................... 21
6.02. Acceleration............................................... 22
6.03. Other Remedies............................................. 22
6.04. Waiver of Past Defaults.................................... 23
4
<PAGE>
6.05. Control by Majority....................................... 23
6.06. Limitation of Suits....................................... 23
6.07. Rights of Holders to Receive Payment...................... 23
6.08. Collection Suit by Trustee................................ 24
6.09. Trustee May File Proof of Claim........................... 24
6.10. Priorities................................................ 24
6.11. Undertaking for Costs..................................... 24
ARTICLE SEVEN
TRUSTEE
-------
7.01. Duties of Trustee.......................................... 25
7.02. Rights of Trustee.......................................... 26
7.03. Individual Rights of Trustee............................... 26
7.04. Trustee's Disclaimer....................................... 26
7.05. Notice of Defaults......................................... 27
7.06. Reports by Trustees to Holders............................. 27
7.07. Compensation and Indemnity................................. 27
7.08. Replacement of Trustee..................................... 28
7.09. Successor Trustee by Merger, etc........................... 29
7.10. Eligibility; Disqualification.............................. 29
7.11. Preferential Collection of Claims Against the Company...... 29
7.12. Paying Agents.............................................. 29
5
<PAGE>
ARTICLE EIGHT
DISCHARGE OF INDENTURE
----------------------
8.01. Termination of the Company's Obligations....................... 29
8.02. Application of Trust Money..................................... 30
8.03. Repayment to the Company....................................... 31
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
9.01. Without Consent of Holders...................................... 31
9.02. With Consent of Holders......................................... 31
9.03. Execution of Supplemental Indentures............................ 32
9.04. Compliance with Trust Indenture Act............................. 32
9.05. Revocation and Effect of Consents............................... 32
9.06. Notation on or Exchange of Debentures........................... 33
9.07. Trustee to Sign Amendments, etc................................. 33
ARTICLE TEN
SUBORDINATION
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10.01. Agreement to Subordinate...................................... 33
10.02. Debentures Subordinated to Prior Payment of All
Senior Indebtedness on Dissolution,
Liquidation or Reorganization of the Company................. 34
10.03. Debentureholders to be Subrogated to Rights of Holders
of Senior Indebtedness....................................... 35
10.04. Obligation of the Company Unconditional...................... 35
10.05. Knowledge of Trustee......................................... 36
10.06. Application by Trustee of Monies Deposited With It........... 36
10.07. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders
of Senior Indebtedness....................................... 37
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10.08. Debentureholders Authorize Trustee to
Effectuate Subordination of Debentures....................... 37
10.09. Right of Trustee to Hold Senior Indebtedness................. 37
10.10. Article Ten Not to Prevent Events of Default................. 37
10.11. No Fiduciary Duty Created to Holders of Senior Indebtedness.. 37
10.12. Trustee's Compensation Not Prejudiced........................ 38
ARTICLE ELEVEN
CONVERSION OF SECURITIES
------------------------
11.01. Conversion Privilege and Conversion Price.................... 38
11.02. Exercise of Conversion Privilege............................. 38
11.03. Fractions of Shares.......................................... 39
11.04. Adjustment of Conversion Price............................... 39
11.05. Notice of Adjustments of Conversion Price.................... 43
11.06. Notice of Certain Corporate Actions.......................... 43
11.07. Company to Reserve Class A Common Stock..................... 44
11.08. Taxes on Conversions........................................ 44
11.09. Covenant as to Class A Common Stock......................... 44
11.10. Cancellation of Converted Debentures........................ 44
11.11 Provisions in Case of Consolidation,
Merger or Sale of Assets..................................... 44
ARTICLE TWELVE
MISCELLANEOUS
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12.01. Trust Indenture Act Controls................................ 45
12.02. Notices..................................................... 45
12.03. Certificate and Opinion as to Conditions Precedent.......... 46
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12.04. Statements Required in Certificate or Opinion............... 46
12.05. Rules by Trustee and Agents................................. 47
12.06. Legal Holidays.............................................. 47
12.07. Governing Law............................................... 47
12.08. No Recourse Against Others.................................. 47
12.09. Successors.................................................. 47
12.10. Duplicate Originals......................................... 47
12.11. Separability................................................ 47
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INDENTURE, dated as of ________ 1, 1998, between INTERVEST BANCSHARES
CORPORATION, a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a
New York banking corporation, as trustee (the "Trustee").
Intending to be legally bound hereby, each party agrees as follows for
the benefit of the other party and for the equal and ratable benefit of the
Holders of the Company's Series __/__/98 Convertible Subordinated Debentures.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.01. Definitions.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
Subsidiary. For purposes of this definition, "control" when used with respect to
any person means the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Board of Directors" means the Board of Directors of the Company or any
committee of that Board duly authorized to act for it hereunder.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock.
"Closing Price" means, with respect to the Class A Common Stock of the
Company, for any day, the reported last sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and ask
prices, in either case (i) on the Nasdaq SmallCap Market or, if the Class A
Common Stock is not quoted on the Nasdaq SmallCap Market, on the principal
national security exchange on which the Class A Common Stock is listed or
admitted to trading or (ii) if not quoted on the Nasdaq SmallCap Market or
listed or admitted to trading on any national securities exchange, the average
of the closing bid and ask prices in the over-the-counter market as furnished by
any National Securities Exchange Member firm selected from time to time by the
Trustee for that purpose.
"Class A Common Stock" means the Class A Common Stock, par value $1.00
per share of the Company.
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"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or upon liquidation, include the Company's
Class A and Class B Common Stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to the applicable provisions hereof and
thereafter means any such successor.
"Debentures" means: the Series __/__/98 Convertible Subordinated
Debentures, issued under this Indenture, and maturing on July 1, 2008; as
amended or supplemented from time to time pursuant to the terms of this
Indenture; "Debenture" means any one of such Debentures.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Holder" or "Debentureholder" means the person in whose name a
Debenture is registered on the Registrar's books.
"Indebtedness" means, with respect to any person: (i)(A) all
indebtedness of such person for borrowed money, (B) all indebtedness of such
person which is evidenced by a note, debenture, bond or other similar instrument
(including capitalized lease and purchase money obligations), and (C) all
indebtedness (including capitalized lease obligations) incurred, assumed or
given in the acquisition (whether by way of purchase, merger or otherwise) of
any business, real property or other assets (except assets acquired in the
ordinary course of the acquiror's business); (ii) any indebtedness of others
described in the preceding clause (i) which such person has guaranteed or for
which it is otherwise liable; and (iii) any amendment, renewal, extension or
refunding of any indebtedness referred to in clauses (i) and (ii) above.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Maturity" means July 1, 2008.
"Officer" means the Chairman or co-Chairman of the Board, the Vice
Chairman of the Board, the President, any Vice President, the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or an Assistant Secretary of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel who may
be counsel for the Company or other counsel who is acceptable to the Trustee.
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"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"Responsible Officer", when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
business.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means a corporation, a majority of whose voting stock is
owned by the Company or a Subsidiary. Voting stock is Capital Stock having
voting power under ordinary circumstances to elect directors.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) as in effect on the date this Indenture was executed, except as
provided in Section 9.04.
"Trading Date" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which the Class A Common Stock is not traded on
the principal exchange or market on which the Class A Common Stock is traded or
quoted.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"United States" means the United State of America.
SECTION 1.02. Other Definitions.
Term Defined in Section
"Bankruptcy Law" 6.01
"Custodian" 6.01
"Event of Default" 6.01
"Legal Holiday" 11.06
"Paying Agent" 2.03
"Registrar" 2.03
"Restricted Payments" 4.04
"Senior Indebtedness" 10.01
"U.S. Government Obligations" 8.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and
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made a part of this Indenture. The following TIA terms used in this Indenture
have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Debentures.
"indenture security holder" means a Debentureholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Debentures.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rules have the
meanings assigned to them.
SECTION 1.04. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Debentures shall be proved by the registration of
the books of the Registrar.
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(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Debenture.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
outstanding Debentures have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the outstanding Debentures shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
SECTION 1.05. Rules of Construction. Unless the context otherwise
requires: (i) a term has the meaning assigned to it; (ii) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles; (iii) "or" is not exclusive; and (iv) words in
the singular include the plural, and words in the plural include the singular.
ARTICLE TWO
THE DEBENTURES
--------------
SECTION 2.01. Form and Dating. The Debentures and the Trustee's
certificate of authentication shall be substantially in the form set forth in
Exhibits A and B which are incorporated in and form a part of this Indenture.
The Debentures may have notations, legends or endorsements required by law,
securities exchange rule or usage. The Company shall approve the form of the
Debentures and any notation, legend or endorsement on them and its execution
shall constitute conclusive evidence of its approval. Each Debenture shall be
dated the date of its authentication. The terms and provisions contained in the
forms of Debenture annexed hereto as Exhibits A and B shall constitute, and are
hereby expressly made, a part of this Indenture.
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SECTION 2.02. Execution and Authentication. Two Officers shall execute
the Debentures for the Company by manual or facsimile signature. The Company's
seal shall be affixed or reproduced on the Debentures.
If an Officer whose signature is on a Debenture no longer holds that
office at the time the Registrar, as hereinafter defined, authenticates the
Debenture, the Debenture shall be valid nevertheless.
A Debenture shall not be valid until the Registrar manually signs the
certificate of authentication on the Debenture. The signature shall be
conclusive evidence that the Debenture has been authenticated under this
Indenture.
The Registrar shall authenticate Debentures for original issue in the
aggregate principal amount of up to $6,000,000 upon a written order of the
Company signed by two Officers or by an Officer and an Assistant Treasurer of
the Company. The order shall specify the amount and Maturity of Debentures to be
authenticated, and the date on which the original issue of Debentures is to be
authenticated. The aggregate principal amount of Debentures outstanding at any
time may not exceed the amount set forth above except as provided in Sections
2.08 and 2.09.
The Registrar may appoint an authenticating agent acceptable to the
Company to authenticate Debentures. Unless limited by the terms of said
appointment, an authenticating agent may authenticate Debentures whenever the
Registrar may do so. Each reference in this Indenture to authentication by the
Registrar includes authentication by such authenticating agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
The Debentures shall be issuable only in registered form without
coupons and only in denominations of $10,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an
office or agency where Debentures may be presented for registration of transfer
or for exchange and where Debentures may be surrendered for conversion
("Registrar") and an office or agency where Debentures may be presented for
payment ("Paying Agent"). The Registrar shall keep a register of the Debentures
and of their transfer and exchange. The Company may have one or more
co-Registrars and one or more additional Paying Agents. The term "Paying Agent"
includes any additional paying agent. The Company or any of its Subsidiaries may
act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent and shall incorporate the
provisions of the TIA. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, upon notification and delivery of necessary records, the Trustee
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shall act as such and shall be entitled to appropriate compensation in
accordance with the provisions of Section 7.07.
The Company initially appoints THE BANK OF NEW YORK, a New York banking
corporation, as Registrar and Paying Agent.
SECTION 2.04. Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent to agree in writing to hold in trust for the benefit
of the Debentureholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Debentures, and the Company and
the Paying Agent shall each notify the Trustee of any default by the Company in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee. Upon such payment to the
Trustee the Paying Agent shall have no further liability for the money delivered
to the Trustee.
SECTION 2.05. Debentureholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Debentureholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee at least every six months
and at such other times as the Trustee may request in writing, a list, in such
form and as of such date as the Trustee may reasonably require, of the names and
addresses of Debentureholders.
SECTION 2.06. Access of Information to Debentureholders. Within five
business days after the receipt by the Trustee of a written application by any
three or more Debentureholders stating that the applicants desire to communicate
with other Debentureholders with respect to their rights under the Indenture or
under the Debentures, and accompanied by a form of proxy or other communication
which such applicants proposed to transmit, and by reasonable proof that each
such applicant has owned a Debenture for a period of at least six months
preceding the date of such application, the Trustee shall, at its election,
either:
(a) afford to such applicants access to all information in the
possession of the Trustee as to the names and addresses of the Debentureholders;
or
(b) inform such applicants as to the approximate number of
Debentureholders according to the most recent information so furnished or
received by the Trustee, and as to the approximate cost of mailing to such
Debentureholders the form of proxy or other communication, if any, specified in
such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to all the Debentureholders copies of the form of proxy or other
communication which is specified in the request, with reasonable promptness
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after a tender to the Trustee of the material to be mailed and of payment, or
provision for the payment, of the reasonable expenses of such mailing, unless
within five days after such tender, the Trustee shall mail to such applicants,
and file with the SEC together with a copy of the material to be mailed, a
written statement to the effect that, in the opinion of the Trustee, such
mailing would be contrary to the best interests of the Debentureholders or would
be in violation of applicable law. Such written statement shall specify the
basis of such opinion.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss.312.
SECTION 2.07. Transfer and Exchange. (a) Where a Debenture is presented
to the Registrar or a co-Registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if its requirements for such
transaction are met. To permit transfers and exchanges, upon surrender of any
Debenture for registration of transfer at the office or agency maintained
pursuant to Section 2.03, the Company shall execute and the Registrar shall
authenticate Debentures to be issued upon transfer or exchange. If so requested
by the Registrar, all Debentures presented for exchange, registration of
transfer, redemption or payment shall be accompanied by a written instrument of
transfer in form satisfactory to the Registrar, duly executed by the registered
owner or by his attorney duly authorized in writing. Any exchange or transfer
shall be without charge to the Debentureholder, except that the Company may
require payment from the Debentureholder of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto. The Registrar
shall not transfer or exchange any Debenture or portion of a Debenture selected
for redemption, or transfer or exchange any Debentures for a period of 15 days
before a selection of Debentures to be redeemed.
(b) Commencing July 1, 2003, Holders of Debentures in the Form of
Exhibit A shall have the right, during the period between April 1 and May 31 of
each year, to surrender such Debentures in exchange for Debentures in the form
of Exhibit B. The Registrar shall make the exchange as requested if the
Registrar's requirements for such transactions are met. To permit such an
exchange, the Debentureholder shall deliver the Debenture for surrender,
accompanied by a letter requesting the exchange, and such other written
instrument(s) as may be requested by the Registrar, all duly executed by the
registered owner or by his attorney duly authorized in writing. Upon delivery of
the Debentures for surrender, the letter requesting such exchange, and other
written instrument(s) that may be requested by the Registrar, the Company shall
execute and the Registrar shall authenticate Debentures to be issued upon the
effective date of such exchange. The exchange shall be effective on the first
day of July following delivery of the Debentures for surrender. On the effective
date of an exchange, the Company shall pay to the exchanging Debentureholder
cash in an amount equal to any accrued interest on the Debentures up to the
effective date of such exchange. Such exchange shall be without charge to the
Debentureholder, except that the Company may require payment from the
Debentureholder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto. The Registrar shall not exchange
any Debenture or portion of a Debenture selected for redemption, or exchange any
Debentures for a period of 15 days before selection of Debentures to be
redeemed.
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SECTION 2.08. Replacement Debentures. If a mutilated Debenture is
surrendered to the Registrar or if the Holder of a Debenture claims that the
Debenture has been lost, destroyed or wrongfully taken, the Company shall issue
and the Registrar shall authenticate a replacement Debenture if the requirements
of the Company or the Registrar for such transaction are met. The Registrar may
require an indemnity bond which shall be sufficient in the judgment of the
Registrar and the Company to protect the Company, the Trustee, the Registrar,
any Agent or any authenticating agent from any loss which any of them may suffer
if a Debenture is replaced, destroyed, lost or wrongfully taken. The Company may
charge such Holder for its expenses in replacing such Debenture. Every
replacement Debenture is an additional obligation of the Company.
SECTION 2.09. Outstanding Debentures. Debentures outstanding at any
time are all Debentures authenticated by the Registrar except for those canceled
by it, those delivered to it for cancellation, and those described in this
Section 2.09. A Debenture does not cease to be outstanding because the Company
or one of its Subsidiaries holds the Debenture.
If a Debenture is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee or the Registrar receives proof satisfactory to
it that the replaced Debenture is held by a bona fide purchaser.
If the Paying Agent (other than the Company or a Subsidiary) holds on a
redemption date or maturity date money sufficient to pay Debentures payable on
that date, then on and after that date such Debentures shall be deemed to be no
longer outstanding and interest on them shall cease to accrue.
SECTION 2.10. Treasury Debentures. In determining whether the Holders
of the required amount of Debentures have concurred in any direction, waiver or
consent, and for the purpose of calculating and making payments of interest and
selecting Debentures for redemption, Debentures owned by the Company or an
Affiliate shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any direction, waiver or
consent, only Debentures the Trustee actually knows are so owned shall be so
disregarded.
SECTION 2.11. Temporary Debentures. Until definitive Debentures are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Debentures. Temporary Debentures shall be substantially in the form of
definitive Debentures but may have variations that the Company considers
appropriate for temporary Debentures. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Debentures in
exchange for temporary Debentures. Until such exchange, temporary Debentures
shall be entitled to the same rights, benefits and privileges as definitive
Debentures.
SECTION 2.12. Cancellation. The Company at any time may deliver
Debentures to the Trustee or the Registrar for cancellation. The Registrar and
Paying Agent shall forward to the Trustee any Debentures surrendered to them for
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transfer, exchange or payment. The Trustee or the Registrar and no one else
shall cancel and may destroy any Debentures surrendered for transfer, exchange,
payment or cancellation and deliver a certificate of any such destruction to the
Company unless the Company instructs the Trustee or the Registrar in writing to
deliver the Debentures to the Company. The Company may not issue new Debentures
to replace, or reissue or recall Debentures that it has (i) paid or redeemed or
(ii) purchased or otherwise acquired and delivered to the Trustee or the
Registrar for cancellation.
SECTION 2.13. Defaulted Interest. If the Company defaults in a payment
of interest on the Debentures, it shall pay the defaulted interest to the
persons who are Debentureholders on a subsequent special record date. The
Company shall fix the special payment date and special record date. The special
record date shall be at least 15 days prior to the special payment date. At
least 15 days before such special record date, the Company shall mail to each
Debentureholder a notice that states such special record date, the special
payment date and the amount of defaulted interest to be paid. The Company may
pay defaulted interest in any other lawful manner. Pursuant to Section 4.01, the
Company shall pay interest on overdue installments of interest, to the extent
lawful.
SECTION 2.14. CUSIP Numbers. The Company in issuing the Debentures may
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Debentures or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Debentures, and any such redemption shall
not be affected by any defect in or omission of such numbers.
ARTICLE THREE
REDEMPTION
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SECTION 3.01. Notices to Trustee. The Debentures may be redeemed at any
time in whole or in part, at the redemption price(s) set forth in section 5 of
the Debentures. The Registrar may select for redemption portions of the
principal amount of Debentures that have denominations larger than $10,000.
Debentures and portions of them it selects shall be in amounts of $10,000 or
integral multiples of $10,000. If the Company elects to redeem Debentures, it
shall notify the Registrar in writing of the redemption date, the Maturity or
Maturities to be redeemed, and the principal amount of each Maturity of
Debentures to be redeemed. In the case of any such redemption, the Company shall
deliver to the Trustee an Officers' Certificate stating that such redemption
will comply with the provisions for redemption contained herein and in the
Debentures.
The Company shall give each notice provided for in this Section 3.01 at
least 45 days before the redemption date (except that the Trustee may in its
sole discretion waive such notice period at any time).
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SECTION 3.02. Selection of Debentures to be Redeemed. If less than all
the Debentures of any Maturity are to be redeemed, the Registrar shall select
the Debentures to be redeemed by such method as the Registrar shall deem fair
and appropriate or if the Debentures are listed on a national securities
exchange, in accordance with the rules of such exchange. The Registrar shall
make the selection from Debentures outstanding and not previously called for
redemption. Provisions of this Indenture that apply to Debentures called for
redemption also apply to portions of Debentures called for redemption.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than
90 days before a redemption date, the Company shall mail a notice of redemption
by first-class mail to each Holder of Debentures to be redeemed. The notice
shall identify the Debentures to be redeemed and shall state: (i) the redemption
date; (ii) the redemption price and accrued interest, if any; (iii) the name and
address of the Paying Agent; (iv) that Debentures called for redemption must be
surrendered to the Paying Agent to collect the redemption price and accrued
interest, if any; (v) that, unless the Company defaults in making the redemption
payments, interest on Debentures called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders is to
receive payment of the redemption price upon surrender to the Paying Agent of
the Debentures; (vi) if any Debenture is being redeemed in part, the portion of
the principal amount of such Debenture to be redeemed and (vii) the CUSIP
number, if any. At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name.
SECTION 3.04. Effect of Notice of Redemption. Once a notice of
redemption is mailed, Debentures called for redemption become due and payable on
the redemption date and at the redemption price. Upon surrender to the Paying
Agent, such Debentures shall be paid at the redemption price, plus accrued
interest to the redemption date, but interest installments for which the
interest payment date is on or prior to such redemption date will be payable to
the Holders of record at the close of business on the relevant record dates
referred to in the Debentures.
SECTION 3.05. Deposit of Redemption Price. At least one Business Day
prior to the redemption date, the Company shall deposit with the Paying Agent
(or if the Company is its own Paying Agent, shall segregate and hold in trust)
immediately available funds sufficient to pay the redemption price of, and
accrued interest on, all Debentures to be redeemed on that date.
SECTION 3.06. Debentures Redeemed in Part. Upon surrender of a
Debenture that is redeemed in part, the Registrar shall authenticate for the
Holder, at the expense of the Company, a new Debenture of the same Maturity
equal in principal amount to the unredeemed portion of the Debenture
surrendered.
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ARTICLE FOUR
COVENANTS
---------
SECTION 4.01. Payment of Debentures. The Company shall pay the
principal of and interest on the Debentures on the dates and in the manner
provided in the Debentures. An installment of principal or interest shall be
considered paid on the date due if the Paying Agent (other than the Company or a
Subsidiary) holds on that date money designated for and sufficient to pay the
installment. The Company shall deposit with the Paying Agent immediately
available funds sufficient to pay the principal of or interest on the Debentures
at least one Business Day prior to the dates provided in the Debentures.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at the rate per annum
borne by the Debentures.
SECTION 4.02. SEC Reports. Within 5 days after the Company files with
the SEC copies of its annual reports and other information, documents and
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which it is required to file with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company shall file the same with the Trustee. The Company also shall comply with
the other provisions of TIA ss. 314(a).
SECTION 4.03. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that a review of the activities of the Company has
been made under the supervision of the signing Officers with a view to
determining whether a Default or Event of Default has occurred and whether or
not the signers know of any Default by the Company in performing any of its
obligations under this Indenture. If they do know of such a Default, the
certificate shall describe all such Events of Default or Defaults, their status
and what action the Company is taking or proposes to take with respect thereto.
Upon becoming aware of any Default or Event of Default, the Company shall
deliver an Officers' Certificate to the Trustee specifying the Default or Event
of Default, its status and the action the Company proposes to take with respect
thereto.
SECTION 4.04. Limitation on Dividends and Stock Purchases. The Company
shall not declare or pay any dividend or make any distribution on its Capital
Stock or to its shareholders (other than dividends or distributions payable in
its Capital Stock) or purchase, redeem or otherwise acquire or retire for value,
or permit any Subsidiary to purchase or otherwise acquire for value, any Capital
Stock of the Company (collectively, "Restricted Payments") if, at the time of
such Restricted Payment, or after giving effect thereto, (i) an Event of Default
shall have occurred and be continuing, or (ii) a Default shall occur as a result
thereof; provided, however, that the provisions of this limitation on dividends
shall not prevent (A) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment complied
with the provisions of this limitation on dividends, or (B) the acquisition or
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retirement of any shares of the Company's Capital Stock by exchange for, or out
of the proceeds of the sale of shares of, its Capital Stock.
SECTION 4.05. Pari Passu Indebtedness. There shall be no restriction on
the amount or type of Indebtedness of the Company which may be pari passu with
(i.e. having no priority of payment over and not subordinated in right of
payment to) or subordinate to the Debentures. At December 31, 1997, the Company
did not have outstanding any Debentures which rank pari passu with the
Debentures.
ARTICLE FIVE
SUCCESSOR CORPORATION
---------------------
SECTION 5.01. When the Company May Merge, etc. The Company shall not
consolidate with or merge with or into, or transfer all or substantially all of
its assets to, any other person unless (i) such other person is a corporation
organized or existing under the laws of the United States or a state thereof,
(ii) such surviving person (other than the Company) expressly assumes by
supplemental indenture all the obligations of the Company under the Debentures,
this Indenture and the other agreements related thereto, (iii) immediately after
such transaction no Default or Event of Default exists, and (iv) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or transfer and such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for have been complied with. Thereafter all such obligations of the
predecessor corporation shall terminate.
ARTICLE SIX
DEFAULTS AND REMEDIES
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Debenture when the same becomes due and payable and the default
continues for a period of 30 days, whether or not such payment shall be
prohibited by the provisions of Article Ten;
(2) the Company defaults in the payment of principal of any
Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise, whether or not such payment shall be
prohibited by the provisions of Article Ten;
(3) the Company fails to comply with any of its other
agreements in the Debentures or this Indenture and the default
continues for the period and after the notice specified below;
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(4) the Company pursuant to or within the meaning of any
Bankruptcy Law: (A) commences a voluntary case or proceeding, (B)
consents to the entry of an order for relief against it in an
involuntary case or proceeding, (C) consents to the appointment of a
Custodian (as defined herein) of it or for all or substantially all of
its property, or (D) makes a general assignment for the benefit of its
creditors;
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case or proceeding, (B) appoints a Custodian
of the Company or for all or substantially all of its property, or (C)
orders the liquidation of the Company, and in each case the order or
decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A default under clause (3) is not an Event of Default until the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Debentures notify the Company of the default and the Company does not cure the
default within 60 days after receipt of the notice. The notice must specify the
default, demand that it be remedied and state that the notice is a "Notice of
Default". If the Holders of 25% in principal amount of the outstanding
Debentures request the Trustee to give such notice on their behalf, the Trustee
shall do so.
SECTION 6.02. Acceleration. If any Event of Default (other than an
Event of Default specified in Section 6.01(4) or (5)) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
principal amount of the outstanding Debentures by notice to the Company and the
Trustee, may (but shall not be obligated to) declare the principal of and all
accrued interest on all the Debentures to be due and payable immediately. Upon
such declaration such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(4) or (5) occurs,
all unpaid principal and accrued interest on the Debentures then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Debentureholder. The
Holders of a majority in principal amount of the outstanding Debentures by
notice to the Trustee may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Debentures
or to enforce the performance of any provision of the Debentures or this
Indenture.
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The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Debentureholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.07 and
9.02, the Holders of a majority in principal amount of the outstanding
Debentures by notice to the Trustee may waive a past Default and its
consequences, except a Default under Section 6.01(1) or (2). When a Default is
so waived, it shall be deemed cured and ceases.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of outstanding Debentures may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided, however: (i)
such direction shall not be in conflict with any rule of law or with this
Indenture; (ii) the Trustee shall not determine that the action so directed
would be unjustly prejudicial to the rights of any Holder not taking part in
such direction; (iii) the Trustee shall have the right to decline to follow any
such direction if the Trustee, being advised by counsel, determines that the
action so directed may not lawfully be taken or if the Trustee in good faith
shall determine that the proceedings so directed would involve it in personal
liability; or (iv) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction. In the event that the
Trustee takes any action or follows any direction pursuant to this Indenture,
the Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all risk, loss or expense caused by taking such action or
following such direction.
SECTION 6.06. Limitation of Suits. A Debentureholder may not pursue any
remedy with respect to this Indenture or the Debentures unless: (i) the Holder
gives to the Trustee written notice of a continuing Event of Default; (ii) the
Holders of at least 25% in principal amount of the outstanding Debentures make a
written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer and, if requested, provide to the Trustee indemnity and security
satisfactory to the Trustee against any loss, liability or expense; (iv) the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer and, if requested, provision of indemnity and security;
and (v) during such 60-day period the Holders of a majority in principal amount
of the Debentures do not give the Trustee a direction inconsistent with such
request.
A Debentureholder may not use this Indenture to prejudice the rights of
another Debentureholder or to obtain a preference or priority over another
Debentureholder.
SECTION 6.07. Rights of Holders to Receive Payment. Subject to Article
Ten and notwithstanding any other provisions of this Indenture, the right of any
Holder of a Debenture to receive payment of principal of and interest on the
Debenture, on or after the respective due dates expressed in the Debenture, or
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to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder, except as to a postponement of an interest payment consented to as
provided in clause (ii) of Section 9.02.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of interest or principal specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid, together with interest on overdue principal and, to
the extent that the payment of such interest is lawful, interest on overdue
installments of interest.
SECTION 6.09. Trustee May File Proof of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and any predecessor Trustee and the Debentureholders allowed in any
judicial proceedings relative to the Company, its creditors or its property.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Debentureholder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Debentureholder in any such proceedings.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
this Article Six, it shall pay out the money in the following order: (i) first,
to the Trustee and any predecessor Trustee for costs and expenses of collection
of such monies and for compensation payable to the Trustee or its agents and
counsel and all other expenses, liabilities, advances and other amounts
incurred, made or due under Section 7.07; (ii) second, to holders of Senior
Indebtedness of the Company to the extent required by Article Ten; (iii) third,
to Debentureholders for amounts due and unpaid on the Debentures for principal
and interest, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Debentures for principal and interest,
respectively; and (iv) fourth, to the Company. The Trustee may fix a record date
and payment date for any payment to Debentureholders pursuant to this Section.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard for the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the outstanding Debentures.
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ARTICLE SEVEN
TRUSTEE
-------
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default; (i) the
Trustee need perform only those duties that are specifically set forth in this
Indenture and no others; and (ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture;
the Trustee, however, shall examine the certificates and opinions submitted in
accordance with Section 11.03 to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that: (i) this paragraph does not limit the effect of
paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power or risk its own funds or otherwise incur any financial liability unless it
receives indemnity satisfactory to it against any and all loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with Company.
(g) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
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SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform with the
provisions of Section 11.04. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or opinion.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advise or opinion of such
counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders of the Debentures, pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee security
and indemnity, satisfactory to the Trustee in its sole discretion, against all
costs, expenses and liabilities which might be incurred by the Trustee therein
or thereby.
(g) The Trustee shall not be obligated to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or any other paper or document; provided, however, the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit. Nothing contained in this Indenture shall create any
liability to the Trustee in the event it elects to make or not to make a further
inquiry or investigation to which it is entitled as aforesaid.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Debentures
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights. The Trustee, however, must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
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this Indenture or the Debentures; it shall not be accountable for the Company's
use of the proceeds from the Debentures; and, subject to any liabilities which
may be found to exist under the provisions of the Federal securities laws, shall
not be responsible for any statement of the Company in this Indenture or any
document issued in connection with the sale of the Debentures or any statement
in the Debentures other than its certificate of authentication or in any
prospectus used in connection with the sale of such Debentures, other than
statements provided in writing by the Trustee for use in such prospectus.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each
Debentureholder notice of the Default within 90 days after it occurs, or if it
becomes known to the Trustee after such 90 days, as soon as practicable after it
becomes known to the Trustee. Except in the case of a Default in payment of
principal of or interest on any Debenture or any amounts due on redemption, the
Trustee may withhold the notice if and so long as the board of directors of the
Trustee, the executive or any trust committee of such board and/or Responsible
Officers of the Trustee in good faith determine(s) that withholding the notice
is in the interest of Debentureholders.
SECTION 7.06. Reports by Trustees to Holders. Within 60 days after each
May 15, beginning with May 15, 1998, the Trustee shall mail to each
Debentureholder a brief report dated as of such May 15 that complies with TIA
ss. 313(a). The Trustee also shall comply with TIA ss. 313(b), (c) and (d).
A copy of each such report at the time of its mailing to
Debentureholders shall be filed by the Company with the SEC and each stock
exchange on which the Debentures are listed. The Trustee shall furnish the
Company with copies of such reports sufficiently in advance of its mailing to
Debentureholders to permit the Company to make such filings in a timely manner.
The Company shall notify the Trustee when the Debentures are listed on any stock
exchange.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation for its services as the Company and the Trustee shall
from time to time agree in writing. The Trustee's compensation hereunder shall
not be limited by any law on compensation relating to the trustee of an express
trust. The Company shall reimburse the Trustee upon request for reasonable
disbursements, advances and expenses incurred or made by it in connection with
its duties hereunder. The Company shall indemnify each of the Trustee and any
predecessor Trustee against any loss or liability incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder, including the reasonable expenses and attorneys' fees of defending
itself against any claim of liability arising hereunder. The Company shall
defend any claim against the Trustee of which the Company has notice. The
Trustee may have separate counsel, and if it does, the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not reimburse any
expenses or indemnify against any loss or liability incurred by the Trustee
through the Trustee's negligence or bad faith.
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The obligations of the Company under this Section 7.07 to indemnify and
compensate the Trustee to pay or reimburse the Trustee for such expenses,
disbursements, and advances shall constitute Indebtedness. To secure the
Company's payment obligations in this Section, the Trustee shall have a lien
prior to the Debentures on all money or property held or collected by the
Trustee, except that held in trust to pay principal of or interest on particular
Debentures.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.01(4) or (5), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and the appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section. The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Debentures may remove the
Trustee by so notifying the Trustee and the Company, and may appoint a successor
Trustee with the Company's consent. The Company may remove the Trustee if: (i)
the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged a
bankrupt or an insolvent; (iii) a receiver or other public officer takes charge
of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately thereafter,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee (subject to the lien provided for in Section 7.07), the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession to
each Debentureholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in principal amount of the outstanding Debentures may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Debentureholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee, provided, however, that if the
Trustee shall fail to comply with TIA ss. 310(b)(i), only a Debentureholder who
has been a bona fide holder of the Debentures for at least six months and has
requested the Trustee in writing to comply with such provision may so petition
such court.
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SECTION 7.09. Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into or transfers all or substantially all
of its corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification. There shall at all times
be a trustee hereunder which shall be a corporation organized and doing business
under the laws of the United States or of any state thereof authorized under
such laws to exercise corporate trust powers, shall be subject to supervision or
examination by Federal or state authority and shall at all times have a combined
capital and surplus of at least $1,000,000. If such trustee publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervisory or examining authority, then for the purposes of this Section 7.10,
the combined capital and surplus of such trustee shall be deemed to be its
combined capital and surplus as set forth in its most recent published annual
report of condition. This Indenture shall always have a trustee who satisfies
the requirements of TIA ss.310(a)(1) and (2) and the Trustee shall comply with
TIA ss.310(b).
SECTION 7.11. Preferential Collection of Claims Against the Company.
The Trustee shall be subject to TIA ss. 311(a), excluding any creditor
relationship arising as provided in TIA ss. 311(b). A Trustee who has resigned
or been removed shall be subject to TIA ss. 311(a) to the extent indicated.
SECTION 7.12. Paying Agents. The Company shall cause each Paying Agent
other than the Trustee to execute and deliver to it and the Trustee an
instrument in which such Agent shall agree with the Trustee, subject to the
provisions of this Section 7.12; (i) that it will hold sums held by it as Agent
for the payment of principal of or interest on the Debentures (whether such sums
have been paid to it by the Company or by any obligor on the Debentures) in
trust for the benefit of Holders of the Debentures; (ii) that it will at any
time during the continuance of any Event of Default, upon written request from
the Trustee, deliver to the Trustee all sums so held in trust by it; (iii) that
it will give the Trustee written notice within three Business Days of any
failure of the Company (or by any obligor on the Debentures) in the payment of
any installment of the principal of or interest on the Debentures when the same
shall be due and payable; and (iv) that it will comply with the provisions of
the TIA applicable to it.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
----------------------
SECTION 8.01. Termination of the Company's Obligations. The Company may
terminate all of its obligations under the Debentures and this Indenture if all
Debentures previously authenticated and delivered (other than destroyed, lost or
stolen Debentures which have been replaced or paid) have been delivered to the
Trustee for cancellation or if:
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(1) the Debentures mature within one year or all of them are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption;
(2) the Company irrevocably deposits in trust with the Trustee
money or direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States for the payment of which
guarantee or obligation the full faith and credit of the United States
is pledged ("U.S. Government Obligations"), sufficient to pay principal
of and interest on the outstanding Debentures to maturity or
redemption, as the case may be, and immediately after making the
deposit, the Company shall give notice of such event to the
Debentureholders; provided, however, that if such irrevocable deposit
in trust with the Trustee of cash or U.S. Government Obligations is
made, the Company shall have delivered to the Trustee either an Opinion
of Counsel with no material qualifications in form and substance
satisfactory to the Trustee to the effect that Holders of the
Debentures (i) will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit (and the defeasance
contemplated in connection therewith) and (ii) will be subject to
Federal income tax on the same amounts and in the same manner and at
the same times as would have been the case if such deposit and
defeasance had not occurred, or an applicable favorable ruling to that
effect is received from or published by the Internal Revenue Service;
(3) the Company has paid or caused to be paid all sums then
payable by the Company to the Trustee hereunder as of the date of such
deposit; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with. The Company's
obligations in paragraph 9 of the Debentures and in Sections 2.03,
2.04, 2.05, 2.07, 2.08, 4.01, 7.07 and 8.03, however, shall survive
until the Debentures are no longer outstanding. Thereafter, the
Company's obligations in such paragraph 9 and in Sections 7.07 and 8.03
shall survive.
After such irrevocable deposit and delivery of an Officers' Certificate
and Opinion of Counsel pursuant to this Section 8.01, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Debentures and this Indenture except for those surviving obligations
specified above.
SECTION 8.02. Application of Trust Money. The Trustee shall hold in
trust money and U.S. Government Obligations deposited with it pursuant to
Section 8.01. It shall apply the deposited money through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on
Debentures. Money and U.S. Government Obligations so held in trust shall not be
subject to Article Ten.
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SECTION 8.03. Repayment to the Company. Subject to Section 7.07, the
Trustee and the Paying Agent shall promptly pay to the Company upon request any
excess money or securities held by them at any time. The Trustee and the Paying
Agent shall pay to the Company upon request any money held by them for the
payment of principal or interest that remains unclaimed for two years, provided
such request is made by the Company within one year after the expiration of such
two year period that such money remains unclaimed. Thereafter, the Company shall
have no right to request repayment of unclaimed money, and such unclaimed money
shall be held and disposed of by the Trustee in accordance with applicable law.
The Trustee and the Paying Agent shall have no right to request or require that
the Company accept repayment of any unclaimed money.
The Trustee or the Paying Agent, before being required to make any
repayment to the Company of unclaimed money, may at the expense of the Company
mail to each Holder who has failed to claim a payment of interest or principal
which is due, notice that such money remains unclaimed and that, after a date
specified therein (which shall not be less than 30 days from the date of such
mailing), any unclaimed balance of such money then remaining will be repaid to
the Company. After payment to the Company, Debentureholders entitled to such
money must look to the Company for payment as general creditors unless
applicable abandoned property law designates another person, and all liability
of the Trustee or Paying Agent with respect to such money shall thereupon cease.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
SECTION 9.01. Without Consent of Holders. The Company, with the consent
of Trustee, may amend or supplement this Indenture or the Debentures without
notice to or consent of any Debentureholder: (i) to cure any ambiguity,
omission, defect or inconsistency; (ii) to comply with Section 5.01; or (iii) to
make any change that does not adversely affect the rights of any
Debentureholder. The Trustee shall not be obligated to enter into any
supplemental indenture which affects its own rights, duties or immunities under
this Indenture.
SECTION 9.02. With Consent of Holders. The Company, with the consent of
the Trustee, may amend or supplement this Indenture or the Debentures without
notice to any Debentureholder, but with the written consent of the Holders of at
least a majority in principal amount of the outstanding Debentures. The Holders
of a majority in principal amount of the outstanding Debentures may waive
compliance by the Company with any provision of this Indenture or the Debentures
without notice to any Debentureholder. Without the consent of each
Debentureholder affected, however, an amendment, supplement or waiver, including
a waiver pursuant to Section 6.04, may not: (i) reduce the amount of Debentures
whose Holders must consent to an amendment, supplement or waiver; (ii) reduce
the rate of or extend the time for payment of interest on any Debenture (except
that Holders of not less than 75% in principal amount of all outstanding
Debentures may consent, on behalf of the Holders of all of the outstanding
Debentures, to the postponement of any interest payment for a period not
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exceeding three years from its due date); (iii) reduce the principal of or
extend the fixed maturity of any Debenture; (iv) waive a default in the payment
of the principal of or interest on, or other redemption payment with respect to,
any Debenture, (v) make any Debenture payable in money other than that stated in
the Debenture; (vi) make any change in Article Ten that adversely affects the
rights of any Debentureholder; or (vii) make any change in Section 6.04, 6.07 or
the third sentence of this Section 9.02.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders a notice briefly
describing the amendment.
It shall not be necessary for the consent of the Holders under this
section to approve the particular form of any proposed amendment or supplement,
but it shall be sufficient if such consent approved the substance thereof.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors or any duly authorized committee thereof, authorizing the
execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence satisfactory to the Trustee of the consent of the
Debentureholders as aforesaid, the Trustee shall join with the Company in
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
accepting the additional trust created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
7.01) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.04. Compliance with Trust Indenture Act. Every amendment to
or supplement of this Indenture or the Debentures shall comply with the TIA as
then in effect.
SECTION 9.05. Revocation and Effect of Consents. Until an amendment,
supplement or waiver becomes effective, a consent to an amendment, supplement or
waiver by a Holder of a Debenture is a continuing consent by the Holder and
every subsequent Holder of that Debenture or portion of that Debenture that
evidences the same debt as the consenting Holder's Debenture, even if notation
of the consent is not made on any Debenture. Any such Holder or subsequent
Holder, however, may revoke the consent as to his Debenture or portion of a
Debenture. Such revocation shall be effective only if the Trustee receives the
notice of revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Debentures.
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The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is six months after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
After an amendment, supplement or waiver becomes effective, it shall
bind every Debentureholder unless it makes a change described in any of clauses
(i) through (vii) of Section 9.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Debenture who has consented to it and every
subsequent Holder of a Debenture or portion of a Debenture that evidences the
same debt as the consenting Holder's Debenture (except that an amendment,
supplement or wavier postponing any interest payment for a period not exceeding
three years from its due date shall, as provided in clause (ii) of Section 9.02,
bind all Debentureholders upon the consent of Holders of not less than 75% in
principal amount of all outstanding Debentures).
SECTION 9.06. Notation on or Exchange of Debentures. If an amendment,
supplement or waiver changes the terms of a Debenture, the Trustee may require
the Holder of the Debenture to deliver it to the Trustee. The Trustee may place
an appropriate notation on the Debenture about the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Debenture shall issue and the Trustee shall
authenticate a new Debenture that reflects the changed terms. Failure to make
the appropriate notation or issue a new Debenture shall not affect the validity
and effect of such amendment, supplement or waiver.
SECTION 9.07. Trustee to Sign Amendments, etc. The Trustee may but need
not sign any amendment, supplement or waiver authorized pursuant to this Article
if the amendment, supplement or waiver adversely affects the rights of the
Trustee. The Trustee shall be entitled to request and receive an indemnity
satisfactory to it before signing any amendment, supplement or waiver.
ARTICLE TEN
SUBORDINATION
-------------
SECTION 10.01. Agreement to Subordinate. The Company, for itself and
its successors, and each Holder, by his acceptance of Debentures, agrees that
the payment of the principal of, interest on or any other amounts due on the
Debentures is subordinated in right of payment, to the extent and in the manner
stated in this Article Ten, to the prior payment in full of all Senior
Indebtedness. Each Holder by his acceptance of the Debentures authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
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appropriate to effectuate, as between the holders of Senior Indebtedness and
such Holder, the subordination provided in this Article Ten and appoints the
Trustee his attorney-in-fact for such purpose.
This Article Ten shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions of this Article Ten are made for the
benefit of the holders of Senior Indebtedness, and such holders are made
obligees under this Article Ten and they and/or each of them may enforce such
provisions of this Article Ten. The Trustee has no fiduciary duties or
obligations to holders of Senior Indebtedness.
"Senior Indebtedness" means Indebtedness of the Company outstanding at
any time, whether outstanding on the date hereof or hereafter created, which (i)
is secured, in whole or in part, by any asset or assets owned by the Company or
a Subsidiary, or (ii) arises from unsecured borrowings by the Company from a
commercial bank, a savings bank, a savings and loan association, an insurance
company, a company whose securities are traded in a national securities market,
or any majority-owned subsidiary of any of the foregoing, or (iii) arises from
unsecured borrowings by the Company from any pension plan (as defined in ss.
3(2) of the Employee Retirement Income Security Act of 1974, as amended), or
(iv) arises from borrowings by the Company which are evidenced by commercial
paper, or (v) other unsecured borrowings by the Company which are subordinate to
Indebtedness of a type described in clauses (i), (ii) or (iv) above if,
immediately after the issuance thereof, the total capital, surplus and retained
earnings of the Company exceed the aggregate of the outstanding principal amount
of such borrowings, or (vi) is a guarantee or other liability of the Company of
or with respect to Indebtedness of a Subsidiary of a type described in any of
clause (ii), (iii) or (iv) above.
SECTION 10.02. Debentures Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of the Company. Upon
any distribution of assets of the Company in any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise);
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full of all principal thereof, interest due thereon and other
amounts due thereon before the Holders of the Debentures are entitled to receive
any payment on account of the principal of or interest on the Debentures;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holders of the
Debentures or the Trustee on behalf of the Holders of the Debentures would be
entitled except for the provisions of this Article Ten, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated or the
payment of the Debentures, shall be paid by the liquidating trustee or agent or
other person making such payment or distribution directly to the holders of the
Senior Indebtedness or their representative (pro rata as to each such holder or
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representative on the basis of the respective amounts of unpaid Senior
Indebtedness held or represented by each), to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution or provision therefor to the holders
of such Senior Indebtedness, except that Holders of the Debentures shall be
entitled to receive securities that are subordinated to Senior Indebtedness to
at least the same extent as the Debentures; and
(c) in the event that notwithstanding the foregoing provisions of this
Section 10.02, any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Debentures, shall be received by the Trustee or the Holders of
the Debentures on account of principal of or interest on the Debentures before
all Senior Indebtedness is paid in full, or effective provision made for its
payment, such payment or distribution (subject to the provisions of Sections
10.05 and 10.06) shall be received and held in trust for and shall be paid over
to the holders of the Senior Indebtedness remaining unpaid or unprovided for or
their representative (pro rata as provided in subsection (b) above), for
application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such Senior
Indebtedness, except that Holders of the Debentures shall be entitled to receive
securities that are subordinated to Senior Indebtedness to at least the same
extent as the Debentures.
The Company shall give prompt written notice to the Trustee of any dissolution,
winding up, liquidation or reorganization of the Company and of any fact known
to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Debentures.
SECTION 10.03. Debentureholders to be Subrogated to Rights of Holders
of Senior Indebtedness. Subject to the payment in full of all Senior
Indebtedness pursuant to this Article Ten, the Holders of the Debentures shall
be subrogated equally and ratably to the right of the holders of the Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on the Debentures
shall be paid in full, and for the purpose of such subrogation no payments or
distributions to the holders of the Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Holders of the Debentures by virtue of this
Article Ten which otherwise would have been made to the Holders of the
Debentures shall, as among the Company, its creditors other than holders of the
Senior Indebtedness and the Holders of the Debentures, be deemed to be payment
by the Company to or on account of the Senior Indebtedness, it being understood
that the provisions of this Article Ten are intended solely for the purpose of
defining the relative rights of the Holders of the Debentures, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
SECTION 10.04. Obligation of the Company Unconditional. Nothing
contained in this Article Ten or elsewhere in this Indenture or in any Debenture
is intended to or shall impair, as between the Company, its creditors other than
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Holders of Senior Indebtedness and the Holders of the Debentures, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Debentures the principal of and interest on the Debentures as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the Holders of the Debentures and
creditors of the Company, other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article Ten of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy. Upon
any distribution of assets of the Company referred to in this Article Ten, the
Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders of
the Debentures shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Trustee or the Holders of the Debentures, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Ten.
Nothing contained in this Article Ten or elsewhere in this Indenture or
in any Debenture is intended to or shall affect the obligation of the Company to
make or prevent the Company from making, at any time except during the pendency
of any dissolution, winding-up, liquidation or reorganization proceeding,
payments at any time of the principal of or interest on the Debentures.
SECTION 10.05. Knowledge of Trustee. Notwithstanding any provisions of
this Indenture, the Trustee shall not be charged with actual knowledge of the
existence of any facts which would prohibit the making of any payment of monies
to or by the Trustee, or the taking or not taking of any other action by the
Trustee, until two Business Days after the Trustee through a Responsible Officer
shall have received written notice thereon from the Company, any Debentureholder
or any Paying Agent or the holder or representative of any class of Senior
Indebtedness.
SECTION 10.06. Application by Trustee of Monies Deposited With It. If
at least two Business Days prior to the date on which by the terms of this
Indenture any monies deposited with the Trustee or any Paying Agent may become
payable for any purpose (including, without limitation, the payment of either
the principal of or the interest on any Debenture) the Trustee shall not have
received with respect to such monies the notice provided for in Section 10.05,
then the Trustee shall have full power and authority to receive such monies and
to apply the same to the purpose for which they were received and shall not be
affected by any notice to the contrary which may be received by it on or after
such date. This Section shall be construed solely for the benefit of the Trustee
and Paying Agent and shall not otherwise affect the rights of holders of Senior
Indebtedness.
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SECTION 10.07. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness. No right of any present or
future holders of any Senior Indebtedness to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of Senior Indebtedness
may extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Company, all without affecting the liabilities and obligations
of the parties to the Indenture or the Holders. No provision in any supplemental
indenture which affects the superior position of the holders of any then
existing Senior Indebtedness shall be effective against the holders of the
Senior Indebtedness who have not consented thereto.
SECTION 10.08. Debentureholders Authorize Trustee to Effectuate
Subordination of Debentures. Each Holder of the Debentures by acceptance thereof
authorizes and expressly directs the Trustee on its, his or her behalf to take
such action as may be necessary or appropriate in the sole discretion of the
Trustee to effectuate the subordination provided in this Article Ten and
appoints the Trustee its, his or her attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise),
the immediate filing of a claim for the unpaid balance of its, his or her
Debentures in the form required in said proceedings and cause said claim to be
approved; provided, however, that the Trustee shall not be liable for any action
or failure to act in accordance with this Article Ten. If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or claims,
then the holders of Senior Indebtedness have the right to file and are hereby
authorized to file an appropriate claim for and on behalf of the Holders of said
Debentures.
SECTION 10.09. Right of Trustee to Hold Senior Indebtedness. The
Trustee shall be entitled to all of the rights set forth in this Article Ten in
respect of any Senior Indebtedness at any time held by it to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall be
construed to deprive the Trustee of any of its rights as such holder.
SECTION 10.10. Article Ten Not to Prevent Events of Default. The
failure to make a payment on account of principal shall not be construed as
preventing the occurrence of an Event of Default under Section 6.01.
SECTION 10.11. No Fiduciary Duty Created to Holders of Senior
Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
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any fiduciary duty to the holders of Senior Indebtedness by virtue of the
provisions of this Article Ten.
SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in this
Article Ten shall apply to amounts due to the Trustee pursuant to Section 7.07.
ARTICLE ELEVEN
CONVERSION OF SECURITIES
------------------------
SECTION 11.01. Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Article, at the option of the
Holder thereof, the principal amount of any Debenture or any portion thereof
which is $10,000 or an integral multiple of $10,000, together with all accrued
interest on the principal so converted, may be converted into fully paid and
non-assessable shares (calculated as to each conversion to the nearest 1/100 of
a share) of Class A Common Stock of the Company, at the conversion price,
determined as hereinafter provided, in effect at the time of conversion. Such
conversion right shall expire at the close of business on April 1, 2008. In case
a Debenture or portion thereof is called for redemption, such conversion right
in respect of the Debenture or portion so called shall expire at the close of
business on the date which is ten days prior to the Redemption Date unless the
Company defaults in making the payment due upon redemption.
The price at which shares of Class A Common Stock shall be delivered
upon conversion (herein called the "conversion price") shall be initially $_____
per share of Class A Common Stock. The conversion price shall be adjusted
periodically as set forth in the schedule set out in Section 8 of the Forms of
Debenture attached hereto as Exhibits A and B. In addition, the Company reserves
the right, from time to time in its discretion, to establish conversion prices
per share which are less than the conversion prices so specified, which lower
prices shall remain in effect for such periods as the Company may determine and
as shall be set forth in the written notice to holders of Debentures required by
Section 11.05. The conversion price shall also be adjusted in certain instances
as provided in this Article.
SECTION 11.02. Exercise of Conversion Privilege. In order to exercise
the conversion privilege, the Holder of any Debenture to be converted shall
surrender such Debenture, duly endorsed or assigned to the Company or in blank,
at any office or agency of the Company maintained for that purpose pursuant to
Section 2.03, accompanied by written notice to the Company (substantially in the
form set forth in the form of Debenture) that the Holder elects to convert such
Debenture or, if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Debentures for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Debentures as Holders shall cease, and the Person or Persons
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entitled to receive the Class A Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such Class A Common
Stock at such time. As promptly as practicable on or after the conversion date,
the Company shall issue and shall deliver at such office or agency a certificate
or certificates for the number of full shares of Class A Common Stock issuable
upon conversion, together with payment in lieu of any fraction of a share, as
provided in Section 11.03.
In the case of any Debenture which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Debenture of
authorized denominations in aggregate principal amount equal to the unconverted
portion of the principal amount of such Debenture.
SECTION 11.03. Fractions of Shares. No fractional shares of Class A
Common Stock shall be issued upon conversion of Securities. If more than one
Security shall be surrendered for conversion at one time by the same Holder, the
number of full shares which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Debentures (or
specified portions) so surrendered, together with accrued interest on the
principal so converted. Instead of any fractional share of Class A Common Stock
which would otherwise be issuable upon conversion of any Debenture (or specified
portions thereof), the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the portion of the principal and/or accrued
interest not so converted.
SECTION 11.04. Adjustment of Conversion Price. (a) In case the Company
shall pay or make a dividend or other distribution on any class of capital stock
of the Company in shares of Class A Common Stock, the conversion price in effect
at the opening of business on the day following the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution shall be reduced to a conversion price determined by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Class A Common Stock outstanding at the close of business on the
date fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purposes of this paragraph (a), the number of shares of Class A Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company or which shall have been otherwise acquired by the Company but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Class A Common Stock. The Company will not pay any
dividend or make any distribution on shares of Class A Common Stock held in the
treasury of the Company.
(b) Subject to the last sentence of paragraph (e) of this Section, in
case the Company shall issue rights or warrants to all holders of its Class A
Common Stock entitling them to subscribe for or purchase shares of Class A
Common Stock at a price per share less than the current market price per share
(determined as provided in paragraph (f) of this Section) of the Class A Common
Stock on the date fixed for the determination of the shareholders entitled to
receive such rights or warrants, the conversion price in effect at the opening
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of business on the day following the date fixed for such determination shall be
reduced to a conversion price determined by multiplying such conversion price by
a fraction of which the numerator shall be the number of shares of Class A
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Class A Common Stock which the
aggregate of the offering price of the total number of shares of Class A Common
Stock so offered for subscription or purchase would purchase at such current
market price and the denominator shall be the number of shares of Class A Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Class A Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (b), the number of shares of
Class A Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Class A Common
Stock. The Company will not issue any rights or warrants in respect of shares of
Class A Common Stock held in the treasury of the Company.
(c) In case outstanding shares of Class A Common Stock shall be
subdivided into a greater number of shares of Class A Common Stock, the
conversion price in effect at the opening of business on the day following the
day upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of Class A Common Stock
shall each be combined into a smaller number of shares of Class A Common Stock,
the conversion price in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(d) Subject to the last sentence of this paragraph (d) and the last
sentence of paragraph (e) of this Section, in case the Company shall, by
dividend or otherwise, distribute to all holders of its Class A Common Stock
evidences of its indebtedness, shares of any class of capital stock, cash or
assets (including securities, but excluding those rights or warrants referred to
in paragraph (b) of this Section, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in paragraph (a) of this
Section), the conversion price shall be adjusted so that the same shall equal
the price determined by multiplying the conversion price in effect immediately
prior to the close of business on the date fixed for the determination of
shareholders entitled to receive such distribution by a fraction of which the
numerator shall be the current market price per share (determined as provided in
paragraph (f) of this Section) of the Class A Common Stock on the date fixed or
such determination less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution filed with the Trustee) of the portion of the assets, securities or
evidences of indebtedness so distributed applicable to one share of Class A
Common Stock and the denominator shall be such current market price per share of
the Class A Common Stock, such adjustment to become effective immediately prior
to the opening of business on the day following the date fixed for the
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determination of shareholders entitled to receive such distribution. If the
Board of Directors determines the fair market value of any distribution for
purposes of this paragraph (d) by reference to the actual or when issued trading
market for any securities comprising such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
current market price per share pursuant to paragraph (f) of this Section.
Notwithstanding the foregoing, in the event that the Company shall distribute
rights or warrants (other than those referred to in paragraph (b) of this
Section) ("Rights") pro rata to holders of Class A Common Stock, the Company
shall make proper provision so that each Holder of a Debenture who converts such
Debenture (or any portion thereof) after the record date for such distribution
and prior to the expiration or redemption of the Rights shall be entitled to
receive upon such conversion, in addition to the shares of Class A Common Stock
issuable upon such conversion (the "Conversion Shares"), a number of Rights to
be determined as follows: (i) if such conversion occurs on or prior to the date
for the distribution to the holders of Rights of separate certificates
evidencing such Rights (the "Distribution Date"), the same number of Rights to
which a holder of a number of shares of Class A Common Stock equal to the number
of Conversion Shares is entitled at the time of such conversion in accordance
with the terms and provisions of and applicable to the Rights; and (ii) if such
conversion occurs after the Distribution Date, the same number of Rights to
which a holder of the number of shares of Class A Common Stock into which the
principal amount of the Debenture so converted was convertible immediately prior
to the Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of and applicable to the Rights.
(e) The reclassification of Class A Common Stock into securities other
than Class A Common Stock (other than any reclassification upon a consolidation
or merger to which Section 11.11 applies) shall be deemed to involve (i) a
distribution of such securities other than Class A Common Stock to all holders
of Class A Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of shareholders entitled
to receive such distribution" within the meaning of paragraph (d) of this
Section), and (ii) a subdivision or combination, as the case may be, of the
number of shares of Class A Common Stock outstanding immediately prior to such
reclassification into the number of shares of Class A Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the meaning
of paragraph (c) of this Section). Rights or warrants issued by the Company to
all holders of its Class A Common Stock entitling the holders thereof to
subscribe for or purchase shares of Class A Common Stock, which rights or
warrants (i) are deemed to be transferred with such shares of Class A Common
Stock, (ii) are not exercisable and (iii) are also issued in respect of future
issuances of Class A Common Stock, in each case in clauses (i) through (iii)
until the occurrence of a specified event or events ("Trigger Event"), shall for
purposes of this Section 11.04 not be deemed issued until the occurrence of the
earliest Trigger Event.
(f) For the purpose of any calculation under paragraphs (b) and (d) of
this Section, the current market price per share of Class A Common Stock on any
41
<PAGE>
date shall be deemed to be the average of the Closing Prices for the 20
consecutive Trading Days selected by the Company commencing not more than 20
Trading Days before, and ending not later than the day in question, provided,
however, that (i) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
conversion price pursuant to paragraph (a), (b), (c) or (d) above occurs on or
after the 20th Trading Day prior to the day in question and prior to the "ex"
date for the issuance or distribution requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction by which the
conversion price is so required to be adjusted as a result of such other event,
(ii) if the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (a), (b), (c) or (d) above occurs on or after the "ex"
date for the issuance or distribution requiring such computation and on or prior
to the day in question, the Closing Price for each Trading Day on and after the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the conversion price is so
required to be adjusted as a result of such other event, and (iii) if the "ex"
date for the issuance or distribution requiring such computation is on or prior
to the day in question, after taking into account any adjustment required
pursuant to clause (ii) of this proviso, the Closing Price for each Trading Day
on or after such "ex" date shall be adjusted by adding thereto the amount of any
cash and the fair market value on the day in question (as determined by the
Board Directors in a manner consistent with any determination of such value for
purposes of paragraph (d) of this Section, whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Class A Common Stock as of the close of business on the day before
such "ex" date. For purposes of this paragraph, the term "ex" date, (i) when
used with respect to any issuance or distribution, means the first date on which
the Class A Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained without the right to
receive such issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Class A Common Stock, means the first
date on which the Class A Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or combination becomes
effective, and (iii) when used with respect to any tender offer means the first
date on which the Class A Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such tender offer.
(g) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price,
provided, however, that any adjustment which by reason of this paragraph (g) is
not required to be made shall be carried forward and taken into account in any
subsequent adjustment in the same calendar year; and provided, further that all
calculations under this paragraph (g) shall be made to the nearest cent.
(h) In addition to the adjustments in conversion price required by
paragraphs (a), (b), (c) and (d), of this Section, the Company may from time to
42
<PAGE>
time in its discretion make such decreases in the conversion price as it
considers to be advisable in order to avoid or diminish any federal income tax
to any holders of shares of Class A Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or subscribe
for stock or from any event treated as such for federal income tax purposes or
for any other reasons.
SECTION 11.05. Notice of Adjustments of Conversion Price. Whenever the
conversion price is adjusted as herein provided:
(a) if the adjustment is pursuant to Section 11.04, the Company shall
compute the adjusted conversion price in accordance with Section 11.04 and shall
prepare a certificate signed by the chief financial officer or the Treasurer of
the Company setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency maintained for the
purpose of conversion of Debentures pursuant to Section 2.03; and
(b) if the adjustment is pursuant to exercise of the Company's
discretion pursuant to Section 11.03, an Officer's Certificate setting forth the
reduced conversion price and the duration of the lower conversion price shall
forthwith be filed at each office or agency maintained for the purpose of
conversion of Debentures pursuant to Section 2.03; and
(c) a notice stating that the conversion price has been reduced or
adjusted and setting forth the reduced or adjusted conversion price (and the
duration, if applicable) shall forthwith be required, and as soon as practicable
after it is required, such notice shall be mailed by the Company to all Holders
at their last addresses as they shall appear in the register of Debentures.
SECTION 11.06. Notice of Certain Corporate Actions. In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Class A Common Stock payable otherwise than in cash out of its retained
earnings; or
(b) the Company shall authorize the granting to the holders of its
Class A Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Class A Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Class A
Common Stock, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any share holders of the Company is
required), or of the sale or transfer of all or substantially all of the assets
of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
43
<PAGE>
up of the Company; then the Company shall cause to be filed with the Trustee,
and shall cause to be mailed to all Holders at their last addresses as they
shall appear in the register of Debentures, at least 20 days (or 10 days in any
case specified in clause (a) or (b) above) prior to the applicable record date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants, or, if
a record is not to be taken, the date as of which the holders of Class A Common
Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (ii) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up. If at any time
the Trustee shall not be the conversion agent, a copy of such notice shall also
forthwith be filed by the Company with the Trustee.
SECTION 11.07. Company to Reserve Class A Common Stock. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Class A Common Stock, for the purpose of
effecting the conversion of Debentures, the full number of shares of Class A
Common Stock then issuable upon the conversion of all outstanding Debentures.
SECTION 11.08. Taxes on Conversions. The Company will pay any and all
taxes that may be payable in respect of the issue or delivery of shares of Class
A Common Stock on conversion of Debentures pursuant hereto, excluding any income
taxes of the Holder. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Class A Common Stock in a name other than that of the
Holder of the Debenture to be converted, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the Company
the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
SECTION 11.09. Covenant as to Class A Common Stock. The Company
covenants that all shares of Class A Common Stock which may be issued upon
conversion of Debentures will upon issue be fully paid and nonassessable and,
except as provided in Section 11.08, the Company will pay all taxes, liens and
charges with respect to the issue thereof.
SECTION 11.10. Cancellation of Converted Debentures. All Debentures
delivered for conversion shall be delivered to the Trustee to be canceled by or
at the direction of the Trustee, which shall dispose of the same as provided in
Section 2.12.
SECTION 11.11 Provisions in Case of Consolidation, Merger or Sale of
Assets. In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger or consolidation of another Person
into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Class A Common Stock of the Company), or any sale or transfer of all or
44
<PAGE>
substantially all of the assets of the Company, the Person formed by such
consolidation or resulting from such merger or which acquires such assets or the
Company, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Debenture then
outstanding shall have the right thereafter, during the period such Debenture
shall be convertible as specified in Section 11.01, to convert such Debenture
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by a holder of the number of
shares of Class A Common Stock of the Company into which such Debenture might
have been converted immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Class A Common Stock of the Company is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company, or to which such sale or transfer was made, as
the case may be (a "Constituent Person"), or an Affiliate of a Constituent
Person, and failed to exercise his right of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer is not the same for each share of Class A Common Stock of the Company
in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing share shall be deemed to be the
kind and amount so receivable per share by a plurality of the non-electing
shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
ARTICLE TWELVE
MISCELLANEOUS
-------------
SECTION 12.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 12.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered or mailed as follows:
(a) Notices or communications to the Company or the Trustee shall be
given only by hand delivery or by certified or registered first class mail,
return receipt requested, or by facsimile transmission promptly followed by hand
delivery or certified or registered first class mail, return receipt requested,
as follows:
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If to the Company, addressed to:
INTERVEST BANCSHARES CORPORATION
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
If to the Trustee, addressed to:
THE BANK OF NEW YORK
101 Barclay Street, 21 West
New York, New York 10286
Attention: Corporate Trust Department
Any notice or communication to the Company or the Trustee shall be
deemed given on the day delivered and receipted for if delivered by hand, or on
the day the return receipt card is signed on behalf of the Company or the
Trustee if sent by certified or registered mail. The Company or the Trustee by
notice to the other and to Debentureholders may designate additional or
different addresses for subsequent notices or communications.
(b) Notices or communications to a Debentureholder shall be mailed by
first class mail to such Debentureholder at the address which appears on the
registration books of the Registrar and shall be sufficiently given to such
Debentureholder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed to a Debentureholder in
the manner provided in this paragraph (b), it is duly given, whether or not the
addressee receives it. If the Company mails a notice or communication to
Debentureholders it shall mail a copy of such notice to the Trustee and each
Agent at the same time.
SECTION 12.03. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee: (i) an Officers'
Certificate in form and substance satisfactory to the Trustee stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed actions have been complied with; and (ii) an Opinion of Counsel in form
and substance satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include: (i) a statement that the person
making such certificate or opinion has read such covenant or condition; (ii) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
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<PAGE>
are based; (iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 12.05. Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by, or at a meeting of, Debentureholders. The
Registrar or Paying Agent may make reasonable rules for its functions.
SECTION 12.06. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
City of New York, in the State of New York, or in the city in which the Trustee
administers its corporate trust business. If a payment date is a Legal Holiday
at a place of payment, payment may be made at such place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 12.07. Governing Law. The laws of the State of New York,
without regard to the principles of conflicts of law, shall govern this
Indenture and the Debentures.
SECTION 12.08. No Recourse Against Others. Liabilities of directors,
officers, employees and stockholders, as such, of the Company are waived and
released as provided in paragraph 14 of the Debentures.
SECTION 12.09. Successors. All agreements of the Company in this
Indenture and the Debentures shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 12.10. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 12.11. Separability. In case any provision in this Indenture or
in the Debentures shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim against any party
hereto.
47
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SIGNATURES
Dated as of _________ 1, 1998 INTERVEST BANCSHARES CORPORATION
By: ___________________________
Name: Lowell S. Dansker
Title: President
Attest:
- --------------------------------
Name: Lawrence G. Bergman
Title: Secretary
THE BANK OF NEW YORK
as Trustee
By: _________________________________
Name: _________________________________
Title: _________________________________
Attest:
- -------------------------------------
Name: _________________________
Title: _________________________
48
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Exhibit A
---------
(FORM OF ACCRUAL DEBENTURE MATURING July 1, 2008)
Number RA(__________/99)- $
INTERVEST BANCSHARES CORPORATION
Series __/__/98 Convertible Subordinated
Debenture due July 1, 2008
INTERVEST BANCSHARES CORPORATION, a corporation duly organized
and existing under the laws of the State of Delaware (the "Company"), promises
to pay to ___________________ or registered assigns the principal sum of
______________________ Dollars on July 1, 2008, together with interest accruing
on principal at _______ percent (___%) per annum, plus interest accruing each
calendar quarter on the balance of interest accrued as of (and including) the
last day of the preceding calendar quarter at _________ percent (___%) per
annum, and with all accrued interest payable with the principal sum on July 1,
2008. The provisions on the back of this certificate are incorporated as if set
forth on the face of the certificate.
Record Dates:
The first day of the third month
of each calendar quarter
DATED:
Authenticated to be one of the Debentures described in the Indenture referred to
herein:
THE BANK OF NEW YORK, as INTERVEST BANCSHARES CORPORATION
Registrar
By: _______________________ (Seal) By: __________________________
Authorized Signatory President
By: __________________________
Secretary
A-1
<PAGE>
(REVERSE OF DEBENTURE)
Series __/__/98 Convertible Subordinated
Debenture due July 1, 2008
1. Interest. The Company promises to pay interest on the
principal amount of this Debenture and interest on the balance of unpaid accrued
interest at the rate per annum shown above.
With respect to Debentures sold by the Company on the date $5,000,000
or more of Debentures are first approved for issuance (the "First Closing
Date"), interest will accrue on principal from the fifth day preceding the First
Closing Date. With respect to Debentures sold by the Company after the First
Closing Date, interest will accrue on principal commencing on the fifth day
preceding the date of the closing in which the Debenture is issued.
All interest will accrue quarterly but not be paid until maturity, at
which time all unpaid accrued interest will be payable together with the
principal amount. Interest on unpaid accrued interest will accrue each calendar
quarter based on the balance of unpaid accrued interest as of (and including)
the last day of the preceding calendar quarter. Interest will be credited on the
first day of the calendar quarter following the calendar quarter in which it
accrued. The first date on which interest will accrue on the balance of unpaid
accrued interest shall be the first day of the first calendar quarter after
interest on the principal balance commences accruing. Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months. For purposes
hereof, January 1, April 1, July 1 and October 1 shall be the first days of the
calendar quarters.
2. Method of Payment. Until maturity, the Company will accrue
interest on the Debentures in each calendar quarter and reflect such accrued
interest in its records for the account of the persons who are registered
holders of Debentures at the close of business on the first day of the third
month of the calendar quarter in which such interest is accruing. Holders must
surrender Debentures to a Paying Agent to collect accrued interest and principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest by its check
payable in such money. It may mail payments to a holder's registered address.
3. Paying Agent and Registrar. Initially, The Bank of New York
will act as Paying Agent. The Bank of New York, a New York banking corporation,
will also act as Registrar and will authenticate the Debentures. The Company may
change any Paying Agent, Registrar or co-Registrar without notice.
4. Indenture. This Debenture is one of a duly authorized
series of Debentures issued by the Company under an Indenture dated as of
_________ 1, 1998 (the "Indenture") between the Company and The Bank of New
York, as trustee (the "Trustee"). Capitalized terms herein are used as defined
in the Indenture unless otherwise indicated. Reference is hereby made to the
Indenture for a description of the rights, obligations, duties and immunities of
the Trustee and the Debentureholders and for the terms and conditions upon which
A-2
<PAGE>
the Debentures are and are to be issued. The Debentures are general unsecured
obligations of the Company limited to the aggregate principal amount of
$6,000,000.
5. Optional Redemption. The Company may at its option redeem
the Debentures in whole or in part at any time. The redemption price will be
equal to (i) the face amount of the Debentures to be redeemed plus a 2% premium
if the date of redemption is prior to July 1, 1999; (ii) the face amount of the
Debentures to be redeemed plus a premium of 1% if the date of redemption is on
or after July 1, 1999 and before July 1, 2000; and (iii) the face amount of the
Debentures to be redeemed if the date of redemption is on or after July 2000.
6. Selection and Notice of Redemption. If less than all of the
Debentures of any Maturity are to be redeemed, the Registrar shall select the
Debentures to be redeemed by such method as the Registrar shall deem fair and
appropriate, or if the Debentures are listed on a national securities exchange,
in accordance with the rules of such exchange. The Registrar shall make the
selection from the Debentures outstanding and not previously called for
redemption. The Registrar may select for redemption portions (equal to $10,000
or any integral multiple thereof) of the principal amount of Debentures that
have denominations larger than $10,000. Provisions of the Indenture that apply
to Debentures called for redemption also apply to portions of Debentures called
for redemption. Notice of redemption will be mailed at least 30 days but not
more than 90 days before the redemption date to each holder of Debentures to be
redeemed at his registered address. On and after the redemption date, interest
ceases to accrue on Debentures or portions thereof called for redemption.
7. Denominations, Transfer, Exchange. The Debentures are
issuable in registered form without coupons in denominations of $10,000 and
integral multiples of $10,000. A holder may transfer or exchange Debentures in
accordance with the Indenture. Commencing July 1, 2003, holders shall have the
right, during the period between April 1 and May 31 of each year, to exchange
this Debenture, for a Debenture providing for the guarterly payment of interest.
The Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Debenture or portion of a Debenture selected for redemption, or transfer or
exchange any Debentures for a period of 15 days before a selection of Debentures
to be redeemed.
8. Conversion. Subject to and upon compliance with the
provisions of the Indenture, the holder of this Debenture is entitled, at the
holder's election, at any time on or before the close of business on April 1,
2008, or in case this Debenture or a portion hereof is called for redemption,
then in respect of this Debenture or such portion hereof until and including,
but (unless the Company defaults in making the payment due upon redemption) not
after, the close of business on the date which is ten days prior to the
Redemption Date, to convert this Debenture (or any portion of the principal
amount hereof which is $10,000 or an integral or multiple thereof), at the
principal amount hereof, and all accrued interest on the principal so converted,
into fully paid and non-assessable shares of Class A Common Stock of the Company
at a conversion price equal to the following dollar amounts of aggregate
principal amount and accrued interest for each share of Class A Common Stock (or
at the lesser conversion price determined by the Company or at the current
adjusted conversion price if a reduction or adjustment has been made as provided
in the Indenture):
A-3
<PAGE>
Period of Conversion Price Per Share
-------------------- ---------------
Until December 31, 1998 $___________
From January 1, 1999 to June 30, 1999 $___________
From July 1, 1999 to June 30, 2000 $___________
From July 1, 2000 to June 30, 2001 $___________
From July 1, 2001 to June 30, 2002 $___________
From July 1, 2002 to June 30, 2003 $___________
From July 1, 2003 to June 30, 2004 $___________
From July 1, 2004 to June 30, 2005 $___________
From July 1, 2005 to June 30, 2006 $___________
From July 1, 2006 to June 30, 2007 $___________
From July 1, 2007 to April 1, 2008 $___________
Conversion will be by surrender of this Debenture, duly endorsed or assigned to
the Company or in blank, to the Company at its office or agency maintained for
that purpose, accompanied by written notice to the Company that the holder
hereof elects to convert this Debenture. No fractions of shares or script
representing fractions of shares will be issued on conversion, but instead of
any fractional interest the Company shall pay a cash adjustment equal to the
portion of the principal and/or interest not so converted into whole shares. The
conversion price is subject to reduction or adjustment as provided in the
Indenture. In addition, the Indenture provides that in the case of certain
consolidations or mergers to which the Company is a party or the transfer of
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any holders of Debentures, so that this Debenture, if
then outstanding, will convertible thereafter only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger or
transfer by a holder of the number of shares of Class A Common Stock into which
this Debenture might have been converted immediately prior to such
consolidation, merger or transfer.
9. Persons Deemed Owners. The registered holder of a Debenture
may be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee or Paying Agent will pay
the money back to the Company, if the Company requests such repayment within one
year after such two year period that such money remains unclaimed. If such
unclaimed money is so paid back to the Company, thereafter, holders entitled to
the money must look to the Company for payment as general creditors, unless an
applicable abandoned property law designates another person. If such unclaimed
money is not so paid back to the Company, it may be disposed of by the Trustee
in accordance with applicable law.
11. Amendment, Supplement, Waiver. Subject to certain
exceptions, the Indenture or the Debentures may be amended or supplemented, and
any past default or compliance with any provision may be waived, with the
consent of the holders of a majority in principal amount of the outstanding
Debentures. Without the consent of any Debentureholder, the Company may amend or
supplement the Indenture or the Debentures to cure any ambiguity, omission,
defect or inconsistency, to comply with Article Five of the Indenture (providing
for the assumption of the obligations of the Company under the Indenture by a
successor corporation), or to make any change that does not adversely affect the
rights of any Debentureholder.
A-4
<PAGE>
12. Defaults and Remedies. The Indenture provides that the
Trustee will give the Debentureholders notice of an uncured Default known to it,
within 90 days after the occurrence of an Event of Default (as defined in the
Indenture), or as soon as practicable after it learns of an Event of Default
which occurred more than 90 days beforehand; provided that, except in the case
of Default in the payment of principal of or interest on any of the Debentures
or any amount due on redemption, the Trustee may withhold such notice if it in
good faith determines that the withholding of such notice is in the interest of
the Debentureholders. In case an Event of Default occurs and is continuing, the
Trustee or the holders of not less than 25% of aggregate principal amount of the
Debentures then outstanding, by notice in writing to the Company (and to the
Trustee if given by the Debentureholders), may declare the principal of and all
accrued interest on all the Debentures to be due and payable immediately. Such
declaration may be rescinded by holders of a majority in principal amount of the
Debentures if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived and if the rescission would not conflict with any judgment or decree.
The Indenture requires the Company to file periodic reports with the Trustee as
to the absence of defaults.
13. Subordination. The indebtedness evidenced by all of the
Debentures is, to the extent provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness, and
this Debenture is issued subject to such provisions of the Indenture, and each
holder of this Debenture by accepting same, agrees to and shall be bound by such
provisions. "Senior Indebtedness" means Indebtedness of the Company outstanding
at any time, whether outstanding on the date hereof or hereafter created, which
(i) is secured, in whole or in part, by any asset or assets owned by the Company
or a Subsidiary, or (ii) arises from unsecured borrowings by the Company from a
commercial bank, a savings bank, a savings and loan association, an insurance
company, a company whose securities are traded in a national securities market,
or any majority-owned subsidiary of any of the foregoing, or (iii) arises from
unsecured borrowings by the Company from any pension plan (as defined in ss.
3(2) of the Employee Retirement Income Security Act of 1974, as amended), or
(iv) arises from borrowings by the Company which are evidenced by commercial
paper, or (v) other unsecured borrowings by the Company which are subordinate to
Indebtedness of a type described in clauses (i), (ii) or (iv) above if,
immediately after the issuance thereof, the total capital, surplus and retained
earnings of the Company exceed the aggregate of the outstanding principal amount
of such borrowings, or (vi) is a guarantee or other liability of the Company of
or with respect to Indebtedness of a Subsidiary of a type described in any of
clauses (ii), (iii) or (iv) above.
14. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Debentures or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Debentureholder by accepting a Debenture waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Debentures.
A-5
<PAGE>
16. Authentication. This Debenture shall not be valid until
the Registrar signs the certificate of authentication on the other side of this
Debenture.
17. Abbreviations. Customary abbreviations may be used in the
name of the Debentureholder or an assignee, such as: TEN COM (=tenants in
common), TEN ENT (=tenants by entirety), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
The Company will furnish to any Debentureholder upon written
request and without charge a copy of the Indenture. Requests may be made to
Intervest Bancshares Corporation, 10 Rockefeller Plaza, Suite 1015, New York,
New York 10020-1903.
A-6
<PAGE>
ASSIGNMENT
If you want to assign this Debenture, fill in the form below and have your
signature guaranteed by a commercial bank or trust company or a member firm of
any national securities exchange registered under the Securities Exchange Act of
1934.
I or we assign and transfer this Debenture to
- ----------------------------------------------------------
(Please insert assignee's social security or tax identification number)
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
_________________________________________________________ agent to transfer this
Debenture on the books of the Company. The agent may substitute another to act
for him.
Date: ___________________ Your signature:______________________________
------------------------------
(Sign exactly as your name appears
on the other side of this Debenture)
Signatures must be guaranteed by an
Eligible Guarantor Institution with
membership in an approved signature
guarantee program pursuant to Rule
17Ad-15 under the Securities Exchange
Act of 1934 : ___________________________
A-7
<PAGE>
{FORM OF CONVERSION NOTICE}
TO INTERVEST BANCSHARES CORPORATION
The undersigned Holder of this Debenture hereby irrevocably exercises
the option to convert this Debenture or portion hereof (which is $10,000
principal or an integral multiple thereof) below designated, together with
accrued interest on the principal portion converted, into shares of Class A
Common Stock of Intervest Bancshares Corporation in accordance with the terms of
the Indenture referred to in this Debenture, and directs that the shares
issuable and deliverable upon conversion, together with any check in payment for
fractional shares and any Debentures representing any unconverted principal
amount hereof, be issued and delivered to the registered Holder hereof unless a
different name has been indicated below. If shares of Class A Common Stock or
Debentures are to be issued in the name of a Person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Dated: ___________________________ ____________________________________
Fill in for registration of shares
of Class A Common Stock and _____________________________________
Securities if to be issued otherwise Signature(s)
than to the registered Holder.
_________________________________ Signature(s) must be guaranteed by an
Name Eligible Guarantor Institution with
_________________________________ membership in an approved signature
Address guarantee program pursuant to Rule 17Ad-15
_________________________________ under the Securities Exchange Act of 1934.
Please print name and address
(including zip code)
SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER
- ---------------------------------
Portion of Debenture to be Converted (in
an integral multiple of $10,000, if less
than all):
------------------------------------
A-8
<PAGE>
Exhibit B
(FORM OF QUARTERLY PAYMENT DEBENTURE MATURING JULY 1, 2008)
Number R(__________/2005)- $
INTERVEST BANCSHARES CORPORATION
Series __/__/98 Convertible Subordinated
Debenture due July 1, 2008
INTERVEST BANCSHARES CORPORATION , a corporation duly
organized and existing under the laws of the State of Delaware (the "Company"),
promises to pay to ______________________ or registered assigns the principal
sum of ______________________ Dollars on July 1, 2008, together with interest at
_____ percent (___%) per annum. The provisions on the back of this certificate
are incorporated as if set forth on the face of the certificate.
Interest Payment Dates:
The first day of each calendar quarter
Record Dates:
The first day of the third month
of the calendar quarter
DATED:
Authenticated to be one of the Debentures described in the Indenture referred to
herein:
THE BANK OF NEW YORK, as INTERVEST BANCSHARES CORPORATION
Registrar
By: _____________________________ By:________________________________
Authorized Signatory President
By:________________________________
Secretary
B-1
<PAGE>
(REVERSE OF DEBENTURE)
Series __/__/98 Convertible Subordinated
Debenture due July 1, 2008
1. Interest. The Company promises to pay interest on the
principal amount of this Debenture at the rate per annum shown above. The
Company will pay interest quarterly on January 1, April 1, July 1 and October 1
of each year. Interest will accrue from the 1st day of July in the year in which
the Debenture is issued in exchange for a Debenture providing for accrual of
interst. Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the
Debentures (except defaulted interest) to the persons who are registered holders
of Debentures at the close of business on the first day of the third month of
the calendar quarter. Holders must surrender Debentures to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. The Company may, however, pay principal and interest
by its check payable in such money. It may mail payments to a holder's
registered address.
3. Paying Agent and Registrar. Initially, The Bank of New York
will act as Paying Agent. The Bank of New York, a New York banking corporation,
will also act as Registrar and will authenticate the Debentures. The Company may
change any Paying Agent, Registrar or co-Registrar without notice.
4. Indenture. This Debenture is one of a duly authorized
series of Debentures issued by the Company under an Indenture dated as of
________1, 1998 (the "Indenture") between the Company and The Bank of New York,
as trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. Reference is hereby made to the Indenture
for a description of the rights, obligations, duties and immunities of the
Trustee and the Debentureholders and for the terms and conditions upon which the
Debentures are and are to be issued. The Debentures are general unsecured
obligations of the Company limited to the aggregate principal amount of
$6,000,000.
5. Optional Redemption. The Company may at its option redeem
the Debentures in whole or in part at any time. The redemption price will be
equal to (i) the face amount of the Debentures to be redeemed plus a 2% premium
if the date of redemption is prior to July 1, 1999; (ii) the face amount of the
Debentures to be redeemed plus a premium of 1% if the date of redemption is on
or after July 1, 1999 and before July 1, 2000; and (iii) the face amount of the
Debentures to be redeemed if the date of redemption is on or after July 2000.
B-2
<PAGE>
6. Selection and Notice of Redemption. If less than all of the
Debentures of any Maturity are to be redeemed, the Registrar shall select the
Debentures to be redeemed by such method as the Registrar shall deem fair and
appropriate, or if the Debentures are listed on a national securities exchange,
in accordance with the rules of such exchange. The Registrar shall make the
selection from the Debentures outstanding and not previously called for
redemption. The Registrar may select for redemption portions (equal to $10,000
or any integral multiple thereof) of the principal amount of Debentures that
have denominations larger than $10,000. Provisions of the Indenture that apply
to Debentures called for redemption also apply to portions of Debentures called
for redemption. Notice of redemption will be mailed at least 30 days but not
more than 90 days before the redemption date to each holder of Debentures to be
redeemed at his registered address. On and after the redemption date, interest
ceases to accrue on Debentures or portions thereof called for redemption.
7. Denominations, Transfer, Exchange. The Debentures are
issuable in registered form without coupons in denominations of $10,000 and
integral multiples of $10,000. A holder may transfer or exchange Debentures in
accordance with the Indenture. A Debenture containing a particular CUSIP Number
may not be exchanged for a Debenture containing another CUSIP Number. The
Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Debenture or portion of a Debenture selected for redemption, or transfer or
exchange any Debentures for a period of 15 days before a selection of Debentures
to be redeemed.
8. Conversion. Subject to and upon compliance with the
provisions of the Indenture, the holder of this Debenture is entitled, at the
holder's election, at any time on or before the close of business on April 1,
2008, or in case this Debenture or a portion hereof is called for redemption,
then in respect of this Debenture or such portion hereof until and including,
but (unless the Company defaults in making the payment due upon redemption) not
after, the close of business on the date which is ten days prior to the
Redemption Date, to convert this Debenture (or any portion of the principal
amount hereof which is $10,000 or an integral or multiple thereof), at the
principal amount hereof, and all accrued interest on the principal so converted,
into fully paid and non-assessable shares of Class A Common Stock of the Company
at a conversion price equal to the following dollar amounts of aggregate
principal amount and accrued interest for each share of Class A Common Stock (or
at the lesser conversion price determined by the Company or at the current
adjusted conversion price if a reduction or adjustment has been made as provided
in the Indenture):
Period of Conversion Price Per Share
-------------------- ---------------
Until December 31, 1998 $___________
From January 1, 1999 to June 30, 1999 $___________
From July 1, 1999 to June 30, 2000 $___________
From July 1, 2000 to June 30, 2001 $___________
From July 1, 2001 to June 30, 2002 $___________
From July 1, 2002 to June 30, 2003 $___________
From July 1, 2003 to June 30, 2004 $___________
From July 1, 2004 to June 30, 2005 $___________
From July 1, 2005 to June 30, 2006 $___________
From July 1, 2006 to June 30, 2007 $___________
From July 1, 2007 to April 1, 2008 $___________
B-3
<PAGE>
Conversion will be by surrender of this Debenture, duly
endorsed or assigned to the Company or in blank, to the Company at its office or
agency maintained for that purpose, accompanied by written notice to the Company
that the holder hereof elects to convert this Debenture. No fractions of shares
or script representing fractions of shares will be issued on conversion, but
instead of any fractional interest the Company shall pay a cash adjustment equal
to the portion of the principal and/or interest not so converted into whole
shares. The conversion price is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in the case of certain
consolidations or mergers to which the Company is a party or the transfer of
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any holders of Debentures, so that this Debenture, if
then outstanding, will convertible thereafter only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger or
transfer by a holder of the number of shares of Class A Common Stock into which
this Debenture might have been converted immediately prior to such
consolidation, merger or transfer.
9. Persons Deemed Owners. The registered holder of a Debenture
may be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee or Paying Agent will pay
the money back to the Company, if the Company requests such repayment within one
year after such two year period that such money remains unclaimed. If such
unclaimed money is so paid back to the Company, thereafter, holders entitled to
the money must look to the Company for payment as general creditors, unless an
applicable abandoned property law designates another person. If such unclaimed
money is not so paid back to the Company, it may be disposed of by the Trustee
in accordance with applicable law.
11. Amendment, Supplement, Waiver. Subject to certain
exceptions, the Indenture or the Debentures may be amended or supplemented, and
any past default or compliance with any provision may be waived, with the
consent of the holders of a majority in principal amount of the outstanding
Debentures. Without the consent of any Debentureholder, the Company may amend or
supplement the Indenture or the Debentures to cure any ambiguity, omission,
defect or inconsistency, to comply with Article Five of the Indenture (providing
for the assumption of the obligations of the Company under the Indenture by a
successor corporation), or to make any change that does not adversely affect the
rights of any Debentureholder.
12. Defaults and Remedies. The Indenture provides that the
Trustee will give the Debentureholders notice of an uncured Default known to it,
within 90 days after the occurrence of an Event of Default (as defined in the
Indenture), or as soon as practicable after it learns of an Event of Default
which occurred more than 90 days beforehand; provided that, except in the case
of Default in the payment of principal of or interest on any of the Debentures
or any amount due on redemption, the Trustee may withhold such notice if it in
good faith determines that the withholding of such notice is in the interest of
the Debentureholders. In case an Event of Default occurs and is continuing, the
Trustee or the holders of not less than 25% of aggregate principal amount of the
B-4
<PAGE>
Debentures then outstanding, by notice in writing to the Company (and to the
Trustee if given by the Debentureholders), may declare the principal of and all
accrued interest on all the Debentures to be due and payable immediately. Such
declaration may be rescinded by holders of a majority in principal amount of the
Debentures if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived and if the rescission would not conflict with any judgment or decree.
The Indenture requires the Company to file periodic reports with the Trustee as
to the absence of defaults.
13. Subordination. The indebtedness evidenced by all of the
Debentures is, to the extent provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness, and
this Debenture is issued subject to such provisions of the Indenture, and each
holder of this Debenture by accepting same, agrees to and shall be bound by such
provisions. "Senior Indebtedness" means Indebtedness of the Company outstanding
at any time, whether outstanding on the date hereof or hereafter created, which
(i) is secured, in whole or in part, by any asset or assets owned by the Company
or a Subsidiary, or (ii) arises from unsecured borrowings by the Company from a
commercial bank, a savings bank, a savings and loan association, an insurance
company, a company whose securities are traded in a national securities market,
or any majority-owned subsidiary of any of the foregoing, or (iii) arises from
unsecured borrowings by the Company from any pension plan (as defined in ss.
3(2) of the Employee Retirement Income Security Act of 1974, as amended), or
(iv) arises from borrowings by the Company which are evidenced by commercial
paper, or (v) other unsecured borrowings by the Company which are subordinate to
Indebtedness of a type described in clauses (i), (ii) or (iv) above if,
immediately after the issuance thereof, the total capital, surplus and retained
earnings of the Company exceed the aggregate of the outstanding principal amount
of such borrowings, or (vi) is a guarantee or other liability of the Company of
or with respect to Indebtedness of a Subsidiary of a type described in any of
clauses (ii), (iii) or (iv) above.
14. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Debentures or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Debentureholder by accepting a Debenture waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Debentures.
16. Authentication. This Debenture shall not be valid until
the Registrar signs the certificate of authentication on the other side of this
Debenture.
17. Abbreviations. Customary abbreviations may be used in the
name of the Debentureholder or an assignee, such as: TEN COM (=tenants in
common), TEN ENT (=tenants by entirety), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
B-5
<PAGE>
The Company will furnish to any Debentureholder upon written
request and without charge a copy of the Indenture. Requests may be made to
Intervest Bancshares Corporation, 10 Rockefeller Plaza, Suite 1015, New York,
New York 10020-1903.
B-6
<PAGE>
ASSIGNMENT
If you want to assign this Debenture, fill in the form below and have your
signature guaranteed by a commercial bank or trust company or a member firm of
any national securities exchange registered under the Securities Exchange Act of
1934.
I or we assign and transfer this Debenture to
- -----------------------------------------------------------
(Please insert assignee's social security or tax identification number)
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________________________ agent to
transfer this Debenture on the books of the Company. The agent may substitute
another to act for him.
Date: ____________________ Your signature: ___________________________
---------------------------------------------
(Sign exactly as your name appears on the other
side of this Debenture)
Signature(s) must be guaranteed by an
Eligible Guarantor Institution with
membership in an approved signature
guarantee program pursuant to Rule
17Ad-15 under the Securities Exchange
Act of 1934 :___________________________
B-7
<PAGE>
{FORM OF CONVERSION NOTICE}
TO INTERVEST BANCSHARES CORPORATION
The undersigned Holder of this Debenture hereby irrevocably exercises
the option to convert this Debenture or portion hereof (which is $10,000 or an
integral multiple thereof) below designated, together with accrued interest on
the principal portion converted, into shares of Class A Common Stock of
Intervest Bancshares Corporation in accordance with the terms of the Indenture
referred to in this Debenture, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares and any Debentures representing any unconverted principal amount hereof,
be issued and delivered to the registered Holder hereof unless a different name
has been indicated below. If shares of Class A Common Stock or Debentures are to
be issued in the name of a Person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated: ___________________________ ____________________________________
Fill in for registration of shares
of Class A Common Stock and _____________________________________
Securities if to be issued otherwise Signature(s)
than to the registered Holder.
_________________________________ Signature(s) must be guaranteed by an
Name Eligible Guarantor Institution with
_________________________________ membership in an approved signature
Address guarantee program pursuant to Rule 17Ad-15
_________________________________ under the Securities Exchange Act of 1934.
Please print name and address
(including zip code)
SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER
- ---------------------------------
Portion of Debenture to be Converted (in
an integral multiple of $10,000, if less
than all):
------------------------------------
B-8
Exhibit 5.1
April 10, 1998
Intervest Bancshares Corporation
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
Re: Intervest Bancshares Corporation
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion in connection with a Registration
Statement on Form SB- 2 (the "Registration Statement") filed by Intervest
Bancshares Corporation (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), in
connection with the Company's issuance and sale of up to $6,000,000 principal
amount of its Series __/__/98 Subordinated Convertible Debentures (the
"Debentures"). Capitalized terms, unless otherwise defined herein, shall have
the meanings set forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, Certificates of Public Officials and Officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and
assumptions referred to herein, we are of the opinion that:
a. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
b. The Debentures, when executed and authenticated in the manner set
forth in the Indenture and issued, sold and delivered against payment therefor
in accordance with the Underwriting Agreement, will constitute the legal, valid
and binding obligations of the Company, enforceable after the Company in
accordance with their terms, subject to (i) applicable bankruptcy, moratorium,
insolvency, reorganization and similar laws relating to or affecting creditor
rights generally and (ii) general principles of equity (regardless of whether
such principles are considered in a proceeding in equity or at law).
<PAGE>
c. When shares of Class A Common Stock which are issuable upon
conversion of the Debentures have been issued and delivered upon any conversion
of the Debentures in accordance with the terms of the Debentures, such shares of
Class A Common Stock will be duly and validly issued, fully paid and
nonassessable.
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as copies, and the truth of all facts recited in all relevant documents.
The opinions set forth above are limited to the laws of the states of
Delaware and New York and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the headings "Tax
Consequences - Warrants" and "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
Harris Beach & Wilcox, LLP
By: /s/ Thomas E. Willett
---------------------
Thomas E. Willett,
Member of the Firm
INTERVEST BANCSHARES CORPORATION
ESCROW AGREEMENT
THIS ESCROW AGREEMENT made as of this _____ day of _______, 1998, by
and among Intervest Bancshares Corporation, a Delaware corporation with its
principal offices at 10 Rockefeller Plaza, Suite 1015, New York, New York
10020-1903 ("Corporation"); Sage, Rutty & Co., Inc., a New York corporation with
its principal offices at 183 East Main Street, 4th Floor, Rochester, New York
14604 ("Underwriter"); and Manufacturers and Traders Trust Company, a New York
banking corporation with offices at 255 East Avenue, Rochester, New York
("Escrow Agent").
R E C I T A L S:
WHEREAS, the Corporation has filed a Form SB-2 Registration Statement
under the Securities Act of 1933 with the Securities and Exchange Commission
("Registration Statement") covering a proposed offering of a minimum of
$5,000,000 and maximum of $6,000,000 aggregate principal amount of its Series
__/__/98 Convertible Subordinated Debentures (the "Debentures"); and
WHEREAS, the Underwriter intends to sell the Debentures as the
Corporation's agent on a best efforts basis; and
WHEREAS, certain officers of the Corporation may also sell Debentures;
and
WHEREAS, under the terms of the offering, subscription funds received
on the sale of the Debentures will be deposited in an escrow account until
certain terms and conditions have been met; and
WHEREAS, the Corporation desires that the subscription funds be held in
escrow by the Escrow Agent on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Establishment and Custody of Escrow Fund.
(a) On or prior to the date of the commencement of the
offering of the Debentures, the parties shall establish an interest-bearing
escrow account with the Escrow Agent. The Corporation will notify the Escrow
Agent in writing of the effective date of the Registration Statement. The escrow
account shall be entitled "Intervest Bancshares Corporation Escrow Account." The
Corporation shall, prior to the establishment of such account, furnish to the
Escrow Agent a completed IRS Form W-9.
(b) On the next Business Day following receipt by the
Corporation or the Underwriter from an investor desiring to purchase Debentures
("Subscriber(s)") or from any participating selected dealer, of any subscription
documents and payment of the subscription price (in the minimum of $10,000) for
Debentures to be purchased, it will promptly transmit to the Escrow Agent the
following:
(i) Checks, bank drafts or money orders payable to
"M&T Bank, as Escrow Agent for Intervest Bancshares Corporation" or wire
transfers to the escrow account (such sums as held by Escrow Agent in collected
funds, as increased or decreased by any investments, reinvestments or
distributions made in respect thereof and any interest thereon as held from time
to time by the Escrow Agent pursuant to the terms of this Escrow Agreement,
being hereafter collectively referred to as the "Escrow Fund"). Such funds shall
be delivered to M&T Bank, P.O. Box 22900, Rochester, New York 14629, Attn: Lynn
M. Carleton for deposit in accordance with Section 2; and
(ii) With each deposit to the Escrow Fund, a
statement containing the name, address and tax identification number of each
Subscriber.
(c) Checks or other forms of payment not made payable to the
Escrow Agent shall be returned by the Escrow Agent to the purchaser who
submitted the check.
(d) For purposes of this Escrow Agreement, a "Business Day" is
a day upon which the Escrow Agent is open for the conduct of business.
1
<PAGE>
(e) The Escrow Agent will acknowledge receipt of the Escrow
Fund and will hold the Escrow Funds subject to the terms and conditions of this
Escrow Agreement.
(f) The Escrow Agent shall notify the Corporation when the
total amount of subscription funds in the Escrow Fund, less the amount of any
such checks returned for insufficient funds, equals at least $5,000,000 (the
"Minimum Funds"). No investment profits or losses and no interest earned on any
investment of the Escrow Fund shall be considered for purposes of this
calculation.
(g) During the term of this Escrow Agreement, the Corporation
understands that it is not entitled to any funds received into escrow and no
amounts deposited shall become the property of the Corporation or any other
entity, or be subject to the debts of the Corporation or any other entity.
2. Investment of Escrow Fund. Moneys held in the Escrow Fund shall be
invested and reinvested by the Escrow Agent in its money market account. Moneys
held in the Escrow Fund will, in any event, be invested only in investments
permissible under Rule 15c2-4 under the Securities Exchange Act of 1934.
3. Duties of Escrow Agent. Acceptance by the Escrow Agent of its duties
under this Escrow Agreement is subject to the following terms and conditions,
which all parties to this Escrow Agreement agree shall govern and control with
respect to the rights, duties, liabilities and immunities of the Escrow Agent.
(a) The duties and responsibilities of the Escrow Agent shall
be limited to those expressly set forth in this Escrow Agreement and the Escrow
Agent shall not be subject to, nor obligated to recognize, any other agreements
between the Corporation, Underwriter and any Subscriber.
(b) The duties of the Escrow Agent are only such as are herein
specifically provided and such duties are purely ministerial in nature. The
Escrow Agent's primary duty shall be to keep custody of and safeguard the Escrow
Fund during the period of the escrow, to invest monies held in the Escrow Fund
in accordance with Section 2 hereof and to make disbursements from the Escrow
Fund in accordance with Section 4 hereof.
(c) The Escrow Agent shall be under no obligations in respect
of the Escrow Fund other than to faithfully follow the instructions herein
contained or delivered to the Escrow Agent in accordance with this Escrow
Agreement. The Escrow Agent may rely and act upon any written notice,
instruction, direction, request, waiver, consent, receipt or other paper or
document which it in good faith believes to be genuine and what it purports to
be and the Escrow Agent shall be subject to no liability with respect to the
form, execution or validity thereof. If, in the opinion of the Escrow Agent, the
instructions it receives are ambiguous, uncertain or in conflict with any
previous instructions or this Escrow Agreement, then the Escrow Agent is
authorized to hold and preserve intact the Escrow Fund pending the settlement of
any such controversy by final adjudication of a court or courts of proper
jurisdiction.
(d) The Escrow Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted by it, in good faith, or
for any mistake of fact or law, or for anything which it may in good faith do or
refrain from doing in connection herewith, unless caused by its willful
misconduct or gross negligence. The Corporation shall indemnify and hold the
Escrow Agent harmless from and against any and all claims, losses, damages,
liabilities and expenses, including reasonable attorneys' fees, which may be
imposed upon the Escrow Agent or incurred by the Escrow Agent in connection with
its acceptance of the appointment as Escrow Agent hereunder or the performance
of its duties hereunder, unless the Escrow Agent is determined to have committed
an intentional wrongful act or to have been grossly negligent with respect to
its duties under this Escrow Agreement.
(e) The Escrow Agent shall return to the Corporation any sums
delivered to the Escrow Agent pursuant to this Escrow Agreement for which the
Escrow Agent has not received release instructions pursuant to Section 4 hereof,
and as to which four years have passed since delivery.
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(f) The Escrow Agent may consult with, and obtain advice from,
legal counsel (which may not be counsel to the Corporation) in the event of any
dispute or questions as to the construction of any of the provisions hereof or
its duties hereunder, and it shall incur no liability in acting in good faith in
accordance with the written opinion and instructions of such counsel. The fees
for consultation with such counsel shall be paid by the Corporation.
(g) Reference in this Escrow Agreement to the Registration
Statement is for identification purposes only, and its terms and conditions are
not thereby incorporated herein.
4. Distribution and Release of Funds.
(a) For purposes of this Escrow Agreement, the term
"Termination Date" shall mean the earlier of:
(i) _____________, 1998, or such later date set forth
in a written notice purportedly executed by the Corporation and delivered to the
Escrow Agent at least five (5) Business Days prior to ________________, 1998.
(ii) The date, if any, upon which the Escrow Agent
receives a written notice purportedly executed by the Corporation stating that
the offering has been terminated, or such later date set forth in such notice as
the effective date of such termination; or
(iii) Any date specified by the Corporation in
writing, after the date the Escrow Agent has confirmed that it has received in
the Escrow Fund at least the Minimum Funds in good, collected funds.
(b) On the Termination Date, the Escrow Agent shall certify to
the Corporation in writing the total amount of collected funds in the Escrow
Fund.
(c) The Escrow Agent shall return the funds deposited with it
to the Subscribers if, on the Termination Date, the Escrow Fund does not consist
of collected funds totaling at least the Minimum Funds. The Escrow Agent shall
have fully discharged this obligation to return Subscribers' funds if it has
mailed to each Subscriber, at the address furnished to it by the Corporation,
the Underwriter or any selected dealer, by registered or certified mail, return
receipt requested, a bank check made payable to each Subscriber for the amount
originally deposited by that Subscriber, plus the Subscriber's pro rata share of
net interest (defined below) earned without regard to the date the Subscriber's
funds were deposited. For purposes of this Escrow Agreement, "net interest"
shall mean the interest earned on the Escrow Fund, less any fees or expenses of
the Escrow Agent paid from the Escrow Fund pursuant to Section 5.
(d) At such time as (i) the total amount of collected funds in
the Escrow Fund equals at least the Minimum Funds, and (ii) the Escrow Agent has
received, on or before the Termination Date, written instructions executed by
the Underwriter and the Corporation, the Escrow Agent shall distribute the
entire Escrow Fund, less commissions, fees and expense reimbursement due to the
Underwriter and any selected dealers, pursuant to such instructions. The
commissions, fees and expense reimbursement due to the Underwriter and selected
broker-dealers shall be set forth in the written instructions, and the Escrow
Agent shall distribute the commissions, fees and expense reimbursement due to
the Underwriter and selected dealers directly to the Underwriter. Subject to the
foregoing, distributions may be made to third parties at the direction of the
Corporation. Net interest earned on the Escrow Fund shall be paid to the
Corporation.
(e) If the Corporation rejects a subscription for which the
Escrow Agent has already collected funds, the Escrow Agent shall promptly issue
a refund check to the rejected Subscriber. Otherwise, the Escrow Agent shall
promptly remit the rejected Subscriber's check directly to the Subscriber. Any
check returned unpaid to the Escrow Agent will be returned to the Underwriter or
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selected dealer that submitted the check. Any check or other form of payment
received by the Escrow Agent not payable to "M&T Bank, as Escrow Agent for
Intervest Bancshares Corporation" shall be returned to the Subscriber by the
Escrow Agent.
(f) For purposes hereof, "collected funds" shall mean all
funds received by the Escrow Agent which have cleared normal banking channels
and are in the form of cash. Furthermore, a check which is not (i) a certified
check or (ii) a bank draft or a cashiers check drawn on a bank reasonably
acceptable to the Escrow Agent, shall constitute "collected funds" only if it
has not been returned for insufficient funds within ten (10) Business Days after
its receipt by the Escrow Agent. No investment profits or losses and no interest
earned on any investments of the Escrow Fund shall be considered for purposes of
the above calculation.
(g) It shall be a condition to the return of funds to any
subscriber hereunder that such subscriber shall have delivered to the Escrow
Agent a completed IRS Form W-9. The Corporation shall include in the Prospectus
which is part of the Registration Statement and/or in the subscription forms to
be executed by subscribers, notice of the requirement for delivery of such IRS
Form W-9 as a condition to the return of funds deposited in the Escrow Account.
(h) This Escrow Agreement shall terminate on the final
distribution of the Escrow Fund, at which time the Escrow Agent shall be forever
and irrevocably released and discharged from any and all further responsibility
or liability with respect to the Escrow Fund.
5. Compensation. The Corporation agrees to pay the Escrow Agent a fee
of $300 as compensation for its services in connection with establishing the
Escrow Fund, payable at the time this Escrow Agreement is executed, whether or
not any Debentures are sold. In addition, the Corporation shall pay an annual
maintenance fee of $100, prorated for the number of months the Escrow Account is
open, payable whether or not any Debentures are sold. The Corporation shall pay,
in addition to the foregoing fees, the following charges:
$700.00 Handling and processing fees.
$ 7.50 Per check disbursed.
$ 10.00 Per prorated net interest computation
if funds are returned to investors.
$ 10.00 Per Form 1099 required to be
transmitted by the Escrow Agent.
$ 25.00 Per check returned for insufficient funds.
Except for the set-up fee due upon execution of this Escrow Agreement, the fees
and charges shall be paid by the Corporation on the date(s) the Escrow Fund is
distributed pursuant to Section 4. The Escrow Agent shall have the right to
cause any fees due hereunder to be paid out of the interest earned on the Escrow
Account.
6. Termination. This Escrow Agreement shall terminate no later than the
Termination Date, or on such earlier date as the Escrow Agent shall have paid
out a total of at least $5,000,000 in collected funds in accordance with the
provisions of this Escrow Agreement.
7. Resignation and Removal of Escrow Agent. The Escrow Agent may at any
time resign and be discharged of the duties and obligations created by this
Escrow Agreement by giving at least sixty (60) days' written notice to the
Corporation and the Underwriter; the Escrow Agent may be removed at any time
upon sixty (60) days' notice by an instrument purportedly signed by an
authorized person of the Corporation and the Underwriter. Any successor Escrow
Agent shall be appointed and approved by the Corporation and the Underwriter.
Any such successor Escrow Agent shall deliver to the former Escrow Agent a
written instrument, acknowledged by the Corporation and the Underwriter,
accepting such appointment hereunder and thereupon it shall take delivery of the
Escrow Fund to hold and distribute in accordance with the terms hereof. If no
successor Escrow Agent shall have been appointed within thirty (30) days after
the Corporation and the Underwriter are notified of the Escrow Agent's
resignation, the Escrow Agent shall return the Escrow Fund to the Subscribers in
accordance with the procedure set forth in Section 4(c). Upon the delivery of
the Escrow Fund in accordance with this Section 7, the Escrow Agent shall be
discharged from any further duties hereunder.
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8. Binding Effect. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
9. Headings. The headings contained in this Escrow Agreement are
intended for convenience and shall not in any way determine the rights of the
parties to this Escrow Agreement.
10. Waiver. Waiver of any terms or conditions of this Escrow Agreement
by any party shall not be construed as (a) a waiver of a subsequent breach or
failure of the same term or condition, or (b) a waiver of any other term or
condition of this Escrow Agreement.
11. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Escrow Agreement to produce or account for
more than one such counterpart.
12. Modification. This Escrow Agreement constitutes the entire
agreement between the parties as to the escrow of Subscribers' funds, and shall
not be modified except in writing signed and acknowledged by all the parties.
13. Notices. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given on the date delivered by the United
States Mail, registered or certified mail, return receipt requested, postage
prepaid to the address of the Corporation and Underwriter as first above
written, and to the Escrow Agent at P.O. Box 22900, Rochester, New York 14629,
Attn: Lynn M. Carleton, provided, however, that notices may be given by telex,
cable, telecopier, courier service, telephone, personal delivery or otherwise,
effective the date of such communication, provided that notices given by such
means of communications are confirmed by mail as aforesaid, postmarked within
one business day after such other form of communication.
14. Governing Law. This Escrow Agreement shall be construed and
enforced in accordance with the laws of the State of New York. The parties
consent to the personal jurisdiction of all courts of the State of New York, and
agree that such jurisdiction shall be exclusive.
IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date and year first above written.
CORPORATION: INTERVEST BANCSHARES CORPORATION
By: ________________________________________
Its: ________________________________________
ESCROW AGENT: MANUFACTURERS AND TRADERS TRUST COMPANY
By: _______________________________________
Its: _______________________________________
UNDERWRITER: SAGE, RUTTY & CO., INC.
By: ______________________________________
Its: ______________________________________
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EXHIBIT 24.2
Accountant's Consents
<PAGE>
The Board of Directors
Intervest Bancshares Corporation
New York, New York:
We consent to the use of our report dated January 23, 1998 relating to
the consolidated balance sheets as of December 31, 1997 and 1996 and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
years then ended of Intervest Bancshares corporation and to the use of our name
under the caption of "Experts," in the Registration Statement on Form SB-2 of
Intervest Bancshares Corporation.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
April 8, 1998
