<PAGE> 1
As filed with the Securities and Exchange Commission on July 7, 1998
Registration No. 333-51095
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
FLORIDA BANKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 6712 58-2364573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
4110 SOUTHPOINT BOULEVARD
SUITE 212, SOUTHPOINT SQUARE II
JACKSONVILLE, FLORIDA 32216-0925
(904) 296-2329
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
CHARLES E. HUGHES, JR.,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FLORIDA BANKS, INC.
4110 SOUTHPOINT BOULEVARD
SUITE 212, SOUTHPOINT SQUARE II
JACKSONVILLE, FLORIDA 32216-0925
(904) 296-2329
(Name, address, including zip code and telephone number, including area
code, of agent for service) Copies to:
TERRY FERRARO SCHWARTZ, ESQ. A. GEORGE IGLER, ESQ.
SMITH, GAMBRELL & RUSSELL, LLP IGLER & DOUGHERTY, P.A.
PROMENADE II, SUITE 3100 1501 PARK AVENUE EAST
1230 PEACHTREE STREET, N.E. TALLAHASSEE, FLORIDA 32301
ATLANTA, GEORGIA 30309 (850) 878-2411
(404) 815-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: Upon the effective date of the merger of First National Bank of
Tampa with and into a wholly owned subsidiary of the Registrant.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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 AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
FIRST NATIONAL BANK OF TAMPA
100 West Kennedy Boulevard
Tampa, Florida 33602
July 10, 1998
Dear Shareholder:
On behalf of the Board of Directors of First National Bank of Tampa
("First National"), we cordially invite you to attend a Special Meeting of
Shareholders (the "Special Meeting") to be held at the offices of First
National, which are located at First National Plaza, 100 West Kennedy Boulevard,
Tampa, Florida, on July 24, 1998 at 11:00 a.m. local time.
As described in the enclosed Proxy Statement-Prospectus, at the Special
Meeting holders of First National's Common Stock will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger dated
as of March 30, 1998 (the "Merger Agreement") between First National and Florida
Banks, Inc. ("Florida Banks"), whereby First National will be merged (the
"Merger") with and into Interim Bank No. 1, N.A., a wholly-owned subsidiary of
Florida Banks ("Interim"), with Interim being the corporation surviving the
Merger. Immediately upon consummation of the Merger (other than shares as to
which dissenters' rights are properly exercised), each issued and outstanding
share of First National Common Stock will be converted into and exchanged for
the right to receive $6.6586 worth of Florida Banks Common Stock valued at the
price of such Florida Banks Common Stock in the initial public offering of
Florida Banks Common Stock that is being closed immediately following the
closing of the Merger. Cash will be paid in lieu of fractional shares.
PLEASE REVIEW CAREFULLY AND CONSIDER THOUGHTFULLY THE ACCOMPANYING NOTICE
OF SPECIAL MEETING AND PROXY STATEMENT-PROSPECTUS. The Proxy
Statement-Prospectus contains a detailed description of the Merger Agreement,
its terms and conditions and the transactions contemplated by the Merger
Agreement.
FIRST NATIONAL'S BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST
INTERESTS OF FIRST NATIONAL'S SHAREHOLDERS, HAS APPROVED UNANIMOUSLY THE MERGER
AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT! First National's management team would greatly
appreciate your attendance at the Special Meeting. However, since the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of First National Common Stock is necessary to adopt the Merger Agreement and to
approve the Merger, it is important that your shares be represented at the
Special Meeting, whether or not you plan to attend in person. IF YOU DO NOT
VOTE, THE EFFECT OF YOUR FAILURE TO VOTE IS THE SAME AS A VOTE AGAINST APPROVAL
OF THE MERGER AGREEMENT. Accordingly, we urge you to complete, sign and date the
enclosed proxy card and return it in the enclosed prepaid envelope as soon as
possible, even if you currently plan to attend the Special Meeting. Submitting a
proxy will not prevent you from voting in person, but will ensure that your vote
is counted if you should be unable to attend the Special Meeting. If you do
attend the Special Meeting and desire to vote in person, you may do so by
withdrawing your proxy at that time. Your prompt cooperation is greatly
appreciated.
Very truly yours,
W. Andrew Krusen, Jr. John S. McMullen
Chairman of the Board President and Chief Executive Officer
<PAGE> 3
FIRST NATIONAL BANK OF TAMPA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1998
To the Shareholders of
First National Bank of Tampa:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Special Meeting") of First National Bank of Tampa ("First National") will be
held at First National's offices, which are located at First National Plaza, 100
West Kennedy Boulevard, Tampa, Florida, on July 24, 1998, at 11:00 a.m. local
time, and at any adjournment or postponement thereof, to consider and vote upon
a proposal to approve and adopt the Agreement and Plan of Merger dated as of
March 30, 1998 between First National and Florida Banks, Inc. ("Florida Banks")
(the "Merger Agreement"), whereby First National will be merged (the "Merger")
with and into a wholly-owned subsidiary of Florida Banks that will be the
survivor of such Merger. Immediately upon consummation of the Merger, each
issued and outstanding share of First National Common Stock (other than shares
as to which dissenters' rights are properly exercised) will be converted into
and exchanged for the right to receive $6.6586 worth of Florida Banks Common
Stock valued at the price (the "IPO Price") of the Florida Banks Common Stock in
the initial public offering of Florida Banks Common Stock that is being closed
immediately following the closing of the Merger, rounded to the third nearest
decimal point. Assuming an IPO Price of $11.00 per share (which represents the
mid-point of the estimated range), each share of First National Common Stock
outstanding immediately before the Merger is effected will be convertible into
approximately 0.605 shares of Florida Banks Common Stock ($6.6586 divided by
$11.00 and rounded to the nearest third decimal place). Cash will be paid in
lieu of fractional shares. The Merger Agreement is more completely described in
the accompanying Proxy Statement-Prospectus, and a copy of the Merger Agreement
is attached as Appendix A to the accompanying Proxy Statement-Prospectus.
NOTICE OF RIGHT TO DISSENT. First National shareholders have the right to
dissent from the proposed adoption of the Merger Agreement and to demand payment
of the fair value of their shares in the event the Merger Agreement is adopted
and the Merger is consummated. The right of First National shareholders to
receive such payment is contingent upon strict compliance with the requirements
set forth in Title 12, Chapter 2, Section 215a of the United States Code
("Section 215a"). PERFECTING THE RIGHT TO DISSENT REQUIRES, AMONG OTHER THINGS,
THAT THE SHAREHOLDER EITHER NOTIFY FIRST NATIONAL OF HIS OR HER INTENTION TO
DISSENT NO LATER THAN THE VOTE OF THE SHAREHOLDERS AT THE SPECIAL MEETING OR TO
VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT AND THAT SUCH SHAREHOLDER
THEREAFTER PERFECT HIS OR HER DISSENTERS' RIGHTS BY WRITTEN NOTICE TO FIRST
NATIONAL WITHIN 30 DAYS OF THE DATE OF CONSUMMATION OF THE MERGER. IN NO EVENT
IS ANY SHAREHOLDER ENTITLED TO DISSENTERS' RIGHTS IF HE OR SHE VOTES IN FAVOR OF
THE ADOPTION OF THE MERGER AGREEMENT. The full text of Section 215a is set forth
as Appendix B to the accompanying Proxy Statement-Prospectus. For a summary of
these requirements, see "The Merger--Dissenters' Rights of First National
Shareholders" in the accompanying Proxy Statement-Prospectus.
<PAGE> 4
Only holders of record of First National Common Stock at the close of
business on June 1, 1998 will be entitled to notice of, and to vote at, the
Special Meeting or any adjournments or postponements thereof. PURSUANT TO THE
NATIONAL BANK ACT, THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF
THE SHARES OF FIRST NATIONAL COMMON STOCK OUTSTANDING AND ENTITLED TO VOTE AT
THE SPECIAL MEETING IS REQUIRED IN ORDER TO ADOPT THE MERGER AGREEMENT.
Your vote is important. Whether or not you plan to attend the Special
Meeting in person, please complete, sign and date the enclosed proxy and return
it promptly in the enclosed postage prepaid envelope. While this will assure
your representation at the Special Meeting and will avoid the costs of
additional communications, this will not prevent you from voting in person at
the Special Meeting. You may revoke your proxy at any time before it is voted by
signing and returning a later dated proxy with respect to the same shares, by
filing with the President of First National a written revocation bearing a later
date, or by attending and voting at the Special Meeting.
By Order of the Board of Directors
Beate F. Frank, Secretary
Tampa, Florida
July 10, 1998
WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
<PAGE> 5
FLORIDA BANKS, INC.
PROSPECTUS WITH RESPECT TO UP TO 1,250,000 SHARES OF
FLORIDA BANKS COMMON STOCK
FIRST NATIONAL BANK OF TAMPA
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS OF
FIRST NATIONAL BANK OF TAMPA TO BE HELD ON JULY 24, 1998
First National Bank of Tampa ("First National") is furnishing its
shareholders this Proxy Statement-Prospectus in connection with the solicitation
of proxies by the Board of Directors of First National for use at its Special
Meeting of Shareholders to be held on July 24, 1998 commencing at 11:00 a.m.
local time, and at any adjournment or postponement thereof (the "Special
Meeting").
At the Special Meeting, First National shareholders will be asked to
consider and vote upon a proposal to approve and adopt the Agreement and Plan of
Merger dated as of March 30, 1998 between First National and Florida Banks, Inc.
("Florida Banks") (the "Merger Agreement"), whereby First National will be
merged (the "Merger") with and into Interim Bank No. 1, N.A. ("Interim"), a
national bank to be chartered under the laws of the United States as a
wholly-owned subsidiary of Florida Banks, and First National shareholders
(except those shareholders who properly exercise dissenters' rights) will become
shareholders of Florida Banks.
The Merger Agreement assumes that 2,065,000 shares of First National
Common Stock will be outstanding immediately before the Merger is effected and
fixes consideration payable to First National shareholders at $6.6586 per share
of First National Common Stock, or aggregate maximum consideration totaling
$13.75 million (the "Merger Consideration"). The Merger Consideration is payable
in shares of Florida Banks Common Stock valued at the price (the "IPO Price") of
the Florida Banks Common Stock in Florida Bank's initial public offering (the
"Florida Banks IPO"). Therefore, while aggregate Merger Consideration is fixed
at an aggregate of $13.75 million, or $6.6586 worth of Florida Banks Common
Stock per share of First National Common Stock, the total number of shares of
Florida Banks Common Stock issuable in exchange for shares of First National
Common Stock will vary depending upon the IPO Price.
To illustrate, assuming an IPO Price of $11.00 per share (which represents
the mid-point of the estimated range), each outstanding share of First National
Common Stock would be convertible into approximately 0.605 shares of Florida
Banks Common Stock ($6.6586 divided by $11.00 and rounded to the nearest third
decimal place), or $6.6586 worth of Florida Banks Common Stock. Assuming that
2,065,000 shares of First National Common Stock are outstanding immediately
before the Merger is effected, and that dissenters' rights are properly
exercised with respect to none of such 2,065,000 shares, an aggregate maximum of
1,250,000 shares of Florida Banks Common Stock would be issuable, with an
aggregate value of $13.75 million. Cash will be paid in lieu of fractional
shares.
-------------------- (continued on next page)
THE SHARES OF FLORIDA BANKS COMMON STOCK TO BE ISSUED IN THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF FLORIDA BANKS COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR BANK DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING
OR NONBANKING AFFILIATE OF FLORIDA BANKS, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
---------------
The date of this Proxy Statement-Prospectus is July 10, 1998.
<PAGE> 6
The Florida Banks IPO will not be closed until immediately after the
closing of the Merger, and as of the date of this Proxy Statement-Prospectus,
the IPO Price was not yet determinable. This means that, as of the date hereof
and on the date of the Special Meeting and the vote on the Merger, the IPO Price
will not be determinable, and First National shareholders will not know the
number of shares of Florida Banks Common Stock to which they will be entitled to
receive in payment of the Merger Consideration. However, at any IPO Price, First
National shareholders will be entitled to receive $6.6586 worth of Florida Banks
Common Stock in exchange for each share of First National Common Stock.
Immediately upon consummation of the Merger, Interim will change its name
to Florida Bank, N.A. and will continue to be a wholly-owned subsidiary of
Florida Banks. A copy of the Merger Agreement is attached as Appendix A and is
incorporated by reference into this Proxy Statement-Prospectus.
First National shareholders who properly dissent from the adoption of the
Merger Agreement are entitled to the rights and remedies of dissenting
shareholders as set forth in Title 12, Chapter 2, Section 215a of the United
States Code. HOWEVER, FIRST NATIONAL SHAREHOLDERS SHOULD NOTE THAT THE MERGER
AGREEMENT GRANTS FLORIDA BANKS THE RIGHT TO TERMINATE THE MERGER AGREEMENT IF
HOLDERS OF AT LEAST 10% OF THE ISSUED AND OUTSTANDING SHARES OF FIRST NATIONAL
COMMON STOCK PROPERLY CLAIM SUCH DISSENTERS' RIGHTS.
The Merger's consummation is subject to the satisfaction of several
conditions, including, among others, the affirmative vote to approve the Merger
Agreement by the holders of at least two-thirds of the issued and outstanding
shares of First National Common Stock as of the June 1, 1998 record date and the
approval of appropriate regulatory authorities. See "The Merger--Conditions
Precedent to the Merger."
Neither the Florida Banks Common Stock nor the First National Common Stock
is traded on any exchange, and there is no established public trading market for
any of such shares in their respective local areas. See "Price Range of Common
Stock and Dividends."
Mercer Capital Management, Inc. has rendered its opinion dated June 25,
1998 to First National's Board of Directors that the consideration provided in
the Merger Agreement is fair, from a financial point of view, to the holders of
First National Common Stock (the "First National Shareholders"). See "The
Merger--Opinion of First National's Financial Advisor."
THE FIRST NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT FIRST NATIONAL
SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE TO VOTE IS
EQUIVALENT TO VOTING AGAINST THE MERGER AGREEMENT.
First National Shareholders should note that certain members of First
National's management and directors have certain interests in and may derive
certain benefits as a result of the consummation of the Merger in addition to
any interests they may have as First National Shareholders generally. See "The
Merger--Interests of Certain Persons in the Merger."
This Proxy Statement-Prospectus also constitutes a prospectus of Florida
Banks with respect to the shares of Florida Banks Common Stock issuable to First
National Shareholders upon consummation of the Merger. Florida Banks has
supplied all information contained in this Proxy Statement-Prospectus relating
to Florida Banks, and First National has supplied all information contained in
this Proxy Statement-Prospectus relating to First National.
This Proxy Statement-Prospectus is included as part of a Registration
Statement on Form S-4 (together with any amendments and exhibits thereto, the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") by Florida Banks relating to the registration under the Securities
Act of 1933, as amended (the "Securities Act"), of an estimated maximum of
1,250,000 shares of Florida Banks Common Stock to be issued in connection with
the Merger.
This Proxy Statement-Prospectus, Notice of Special Meeting, and the
accompanying form of proxy for the Special Meeting are first being sent to First
National Shareholders on or about July 10, 1998.
ii
<PAGE> 7
AVAILABLE INFORMATION AND REPORTS TO SECURITY HOLDERS
Florida Banks has filed with the Commission the Registration Statement
under the Securities Act relating to the shares of Florida Banks Common Stock to
be issued in connection with the Merger. For further information regarding
Florida Banks and the shares of Florida Banks Common Stock to which this Proxy
Statement-Prospectus relates, reference is made to such Registration Statement,
including the exhibits and schedules filed as a part thereof, which may be
inspected without charge at the Commission's public reference facilities
maintained by the Commission at its principal office located at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, the Northeast Regional Office
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
the Midwest Regional Office located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, upon payment of prescribed fees. Such material also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. This Proxy Statement-Prospectus constitutes the Proxy
Statement-Prospectus of Florida Banks and First National filed as part of the
Registration Statement and does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission. Neither First National nor Florida
Banks is currently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon consummation of the
Florida Banks IPO, Florida Banks will be subject to the reporting requirements
of the Exchange Act and will thereafter file annual and quarterly reports with
the Commission. First National has historically furnished its shareholders with
annual reports containing financial statements audited by an independent public
accounting firm. Florida Banks, which was formed in October 1997, is a
development stage company. Florida Banks has provided its shareholders with
certain financial information upon such shareholder's written request to Florida
Banks.
Statements made in this Proxy Statement-Prospectus as to the contents
of any contract, agreement or other document referred to are necessarily
summaries of such documents. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN OR INCORPORATED INTO THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FLORIDA BANKS OR FIRST
NATIONAL.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, NOR DOES IT CONSTITUTE
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
SPEAKS AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY INDICATED.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES MADE HEREUNDER SHALL, UNDER ANY
<PAGE> 8
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FIRST NATIONAL OR FLORIDA BANKS SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS OR THAT THE INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE IS CORRECT AT ANY TIME SUBSEQUENT
TO THAT DATE.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT COVER ANY RESALES OF THE
FLORIDA BANKS COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY FIRST NATIONAL
SHAREHOLDERS DEEMED TO BE "AFFILIATES" OF FIRST NATIONAL OR FLORIDA BANKS UPON
THE CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS
PROXY STATEMENT-PROSPECTUS IN CONNECTION WITH ANY SUCH RESALES.
2
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TABLE OF CONTENTS
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SUMMARY...........................................................................................................3
General.....................................................................................................3
The Parties.................................................................................................4
Special Meeting and Vote Required to Approve the Merger.....................................................5
The Merger..................................................................................................6
SELECTED FINANCIAL DATA..........................................................................................11
PRO FORMA FINANCIAL DATA.........................................................................................14
THE SPECIAL MEETING OF FIRST NATIONAL SHAREHOLDERS...............................................................16
General....................................................................................................16
Voting and Revocation of Proxies...........................................................................16
Solicitation of Proxies....................................................................................16
Record Date and Voting Rights..............................................................................17
Recommendation of the First National Board.................................................................17
THE MERGER.......................................................................................................19
Description of the Merger..................................................................................19
Effective Time and Closing of the Merger...................................................................20
Exchange of Certificates...................................................................................20
Background of and Reasons for the Merger...................................................................21
Conditions Precedent to the Merger.........................................................................29
Conduct of Business Prior to the Merger....................................................................30
Amendment, Waiver and Termination..........................................................................33
Expenses...................................................................................................34
Material Federal Income Tax Consequences...................................................................35
Interests of Certain Persons in the Merger.................................................................36
Dissenters' Rights of First National Shareholders..........................................................37
Accounting Treatment.......................................................................................39
Bank Regulatory Matters....................................................................................39
Status of Regulatory Approvals and Other Information .....................................................39
Restrictions on Affiliate Resales..........................................................................40
Recommendation of the First National Board.................................................................41
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY..................................................................42
Market Prices..............................................................................................42
Dividend Policy............................................................................................42
INFORMATION ABOUT FLORIDA BANKS..................................................................................43
General....................................................................................................43
Industry and Demographic Overview..........................................................................44
History of Florida Banks...................................................................................44
Strategy of Florida Banks..................................................................................45
</TABLE>
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Management of Florida Banks................................................................................53
Security Ownership of Certain Beneficial Owners and Management of Florida Banks............................59
Facilities.................................................................................................61
Employees..................................................................................................61
Legal Proceedings..........................................................................................61
Monetary Policies..........................................................................................61
Certain Transactions.......................................................................................62
INFORMATION ABOUT FIRST NATIONAL.................................................................................63
General....................................................................................................63
History of First National..................................................................................63
Asset/Liability Management.................................................................................64
Competition................................................................................................64
Data Processing............................................................................................65
Security Ownership of Certain Beneficial Owners and Management of First National...........................66
Facilities.................................................................................................66
Employees..................................................................................................66
Legal Proceedings..........................................................................................66
Monetary Policies..........................................................................................66
Certain Transactions.......................................................................................66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................................68
Florida Banks..............................................................................................68
First National.............................................................................................68
Summary ...................................................................................................68
Results of Operations ....................................................................................70
Financial Condition........................................................................................77
Year 2000..................................................................................................97
Accounting Pronouncements..................................................................................97
Effects of Inflation and Changing Prices...................................................................98
Monetary Policies......................................................................................... 98
DESCRIPTION OF FLORIDA BANKS CAPITAL STOCK AND
FIRST NATIONAL BANK OF TAMPA CAPITAL STOCK.................................................................99
Florida Banks .............................................................................................99
First National............................................................................................101
COMPARISON OF SHAREHOLDER RIGHTS................................................................................102
Removal of Directors; Filling Vacancies on the Board of Directors.........................................102
Quorum of Shareholders....................................................................................103
Adjournment and Notice of Shareholder Meetings............................................................103
Call of Special Shareholder Meetings......................................................................104
Shareholder Consent in Lieu of Meeting....................................................................104
Dissenters' Rights........................................................................................105
Derivative Actions........................................................................................105
Dividends and Distributions...............................................................................106
Director Qualifications and Number........................................................................106
Indemnification of Officers and Directors.................................................................107
</TABLE>
ii
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<TABLE>
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Director Liability........................................................................................108
Amendment of Articles of Incorporation and By-Laws........................................................109
Vote Required for Extraordinary Corporate Transactions....................................................110
Interested Shareholder Transactions.......................................................................110
Fiduciary Duty............................................................................................110
Provisions with Possible Anti-Takeover Effects............................................................111
LEGAL OPINIONS..................................................................................................112
EXPERTS.........................................................................................................112
OTHER MATTERS...................................................................................................112
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
</TABLE>
iii
<PAGE> 12
SUMMARY
The following is a brief summary of certain information set forth
elsewhere in this Proxy Statement-Prospectus and is not intended to be complete.
This summary should be read in conjunction with, and is qualified in its
entirety by reference to, the more detailed information contained elsewhere in
this Proxy Statement-Prospectus and the accompanying Appendices.
Certain statements contained or incorporated by reference in this Proxy
Statement-Prospectus are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
financial results, plans for future business development activities, capital
spending or financing sources, capital structure and the effects of regulation
and competition, and are thus prospective. Such forward looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, competition and other uncertainties.
GENERAL
This Proxy Statement-Prospectus relates to the proposed adoption of the
Agreement and Plan of Merger dated as of March 30, 1998 between First National
Bank of Tampa ("First National") and Florida Banks, Inc. ("Florida Banks") (the
"Merger Agreement"), whereby First National will be merged (the "Merger") with
and into Interim Bank No. 1, N.A. ("Interim"), a national bank to be chartered
under the laws of the United States as a wholly-owned subsidiary of Florida
Banks, and First National Shareholders (except those shareholders who properly
exercise dissenters' rights) will become shareholders of Florida Banks.
The Merger Agreement assumes that 2,065,000 shares of First National
Common Stock will be outstanding immediately before the Merger is effected and
fixes consideration payable to First National shareholders at $6.6586 per share
of First National Common Stock, or aggregate maximum consideration totaling
$13.75 million (the "Merger Consideration"). The Merger Consideration is payable
in shares of Florida Banks Common Stock valued at the price (the "IPO Price") of
the Florida Banks Common Stock in Florida Bank's initial public offering (the
"Florida Banks IPO"). Therefore, while aggregate Merger Consideration is fixed
at an aggregate of $13.75 million, or $6.6586 worth of Florida Banks Common
Stock per share of First National Common Stock, the total number of shares of
Florida Banks Common Stock issuable in exchange for shares of First National
Common Stock will vary depending upon the IPO Price.
To illustrate, assuming an IPO Price of $11.00 per share (which
represents the mid-point of the estimated range), each share of First National
Common Stock outstanding immediately before the effectiveness of the Merger
would be convertible into approximately 0.605 shares of Florida Banks Common
Stock ($6.6586 divided by $11.00 and rounded to the nearest third decimal
place), or $6.6586 worth of Florida Banks Common Stock. Assuming that 2,065,000
shares of First National Common Stock are outstanding immediately before the
Merger is effected, and that dissenters' rights are exercised with respect to
none of such shares, an aggregate maximum of 1,250,000 shares of Florida Banks
Common Stock would be issuable, with an aggregate value of $13.75 million.
The table below summarizes the shares of Florida Banks Common Stock
issuable in exchange for shares of First National Common Stock at various IPO
Prices. As shown in the table, although the per share and maximum number of
shares of Florida Banks Common Stock issuable in exchange for shares of First
National Common Stock declines as the IPO Price increases, the per share and
aggregate Merger Consideration remains the same at any IPO Price.
3
<PAGE> 13
<TABLE>
<CAPTION>
PER SHARE IPO SHARES OF FLORIDA BANKS COMMON STOCK ISSUABLE IN AGGREGATE MERGER
MERGER PRICE EXCHANGE FOR SHARES OF FIRST NATIONAL COMMON STOCK CONSIDERATION
CONSIDERATION --------------------------------------------------
Per Share of First National Maximum Shares Issuable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$6.6586 $ 9.00 0.740 1,527,777 $13.75 million
$6.6586 $10.00 0.659 1,375,000 $13.75 million
$6.6586 $11.00 0.605 1,250,000 $13.75 million
$6.6586 $12.00 0.555 1,145,833 $13.75 million
$6.6586 $13.00 0.512 1,057,692 $13.75 million
</TABLE>
Cash will be paid in lieu of issuing any fractional shares of Florida
Banks Common Stock.
Pursuant to the Florida Banks IPO, which is being closed immediately
following the closing of the Merger, Florida Banks plans to issue 4,000,000
shares of Florida Banks Common Stock (4,600,000 shares if the underwriters fully
exercise their over-allotment option) at an estimated price per share of between
$10 and $12. Following the Florida Banks IPO's closing, Florida Banks will be a
publicly-traded company subject to the reporting requirements of the Exchange
Act.
This Proxy Statement-Prospectus is first being mailed to holders of
First National Common Stock ("First National Shareholders") on or about July 10,
1998. At the Special Meeting, the First National Shareholders will consider and
vote on whether to approve and adopt the Merger Agreement and the transactions
contemplated thereby. A copy of the Merger Agreement is attached as Appendix A
to this Proxy Statement-Prospectus and is incorporated herein by reference.
THE PARTIES
FLORIDA BANKS. Florida Banks was organized under the laws of the State
of Florida on October 15, 1997. The principal executive offices of Florida Banks
are located at 4110 Southpoint Boulevard, Suite 212, Southpoint Square II,
Jacksonville, Florida 32216-0925, and its telephone number is (904) 296-2329.
Florida Banks is a development stage company with no history of operations as a
holding company. See "The Merger" and "Information About Florida Banks."
FIRST NATIONAL. First National is a national bank chartered under the
laws of the United States. First National provides primarily commercial banking
services through its offices located in Hillsborough County, Florida. As of
December 31, 1997 and for the fiscal year ended December 31, 1997, First
National reported total assets of $60.4 million, total shareholders' equity of
$6.3 million and net income of $376,000. First National's offices are located at
100 West Kennedy Boulevard, Tampa, Florida 33602, and its telephone number is
(813) 221-7900. See "The Merger" and "Information About First National."
4
<PAGE> 14
SPECIAL MEETING AND VOTE REQUIRED TO APPROVE THE MERGER
DATE, TIME AND PLACE OF THE SPECIAL MEETING. The Special Meeting of
First National Shareholders will be held at the offices of First National, which
are located at First National Plaza, 100 West Kennedy Boulevard, Tampa, Florida,
on July 24, 1998 at 11:00 a.m. local time, (together with any adjournments or
postponements, the "Special Meeting").
PURPOSE OF THE SPECIAL MEETING. The purpose of the Special Meeting is
to consider and vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby.
RECORD DATE. Only holders of record of First National Common Stock at
the close of business on June 1, 1998 (the "Record Date") are entitled to notice
of and to vote at the Special Meeting. On the Record Date, 2,065,000 shares of
First National Common Stock were outstanding and entitled to vote. First
National has represented that as of the Effective Time (as defined below), no
more than 2,065,000 shares of First National Common Stock will be outstanding.
VOTE REQUIRED. The affirmative vote of at least two-thirds of the
outstanding shares of First National Common Stock is required to approve the
Merger Agreement. As of the Record Date, directors and executive officers of
First National and their affiliates beneficially owned an aggregate of 905,875
shares of First National Common Stock (approximately 43.9% of the shares then
outstanding). Pursuant to the Merger Agreement, the members of the Board of
Directors of First National (the "First National Board") will vote their shares
in favor of the Merger Agreement at the Special Meeting.
VOTING AND REVOCATION OF PROXIES. A First National Shareholder may use
the accompanying proxy if he or she is unable to attend the Special Meeting in
person or wishes to have his or her shares voted by proxy even if he or she does
attend the meeting. A First National Shareholder may revoke any proxy given
pursuant to this solicitation by delivering to the President of First National,
no later than the vote of First National Shareholders at the Special Meeting, a
written notice revoking the proxy or a duly executed proxy relating to the same
shares bearing a later date, or by attending the Special Meeting and voting in
person at the Special Meeting. A First National Shareholder's attendance at the
Special Meeting will not, in and of itself, constitute a revocation of the
proxy. All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If a proxy is signed and returned without indicating
any voting instructions, it will be voted "FOR" the proposal to approve the
Merger Agreement. The First National Board is unaware of any other matters that
may be presented for action at the Special Meeting. However, if other matters do
properly come before the Special Meeting, it is intended that shares represented
by proxies in the accompanying form will be voted or not voted by the persons
named in the proxies in their discretion.
All written notices of revocation and other communications with respect
to the revocation of First National proxies should be addressed to First
National Bank, 100 West Kennedy Boulevard, Tampa, Florida 33602, Attention:
President. NO NOTICE OF REVOCATION OR LATER PROXY WILL BE ACCEPTED AFTER THE
FIRST NATIONAL SHAREHOLDERS VOTE AT THE SPECIAL MEETING.
Approval of the Merger Agreement by the shareholders of Florida Banks
is not required.
5
<PAGE> 15
THE MERGER
GENERAL. Subject to the terms and conditions of the Merger Agreement,
at the Effective Time, First National will merge with and into Interim, a
national bank to be chartered under the laws of the United States. Interim will
be the surviving entity in the Merger and, immediately upon consummation of the
Merger, Interim will change its name to Florida Bank, N.A. and will operate as a
wholly-owned subsidiary of Florida Banks. At the Effective Time, each
outstanding share of First National Common Stock (other than shares held by
First National Shareholders who perfect and do not withdraw their dissenters'
rights) will be converted into and exchanged for the right to receive $6.6586
worth of Florida Banks Common Stock valued at the IPO Price of the Florida Banks
Common Stock in the Florida Banks IPO (the "Exchange Ratio"). The Florida Banks
IPO will be closed immediately following the closing of the Merger. To
illustrate, assuming an IPO Price of $11.00 per share (which represents the
mid-point of the estimated range), each share of First National Common Stock
issued and outstanding immediately before the effectiveness of the Merger would
be convertible into approximately 0.605 shares of Florida Banks Common Stock
($6.6586 divided by $11.00 and rounded to the nearest third decimal place), or
$6.6586 worth of Florida Banks Common Stock. Assuming that 2,065,000 shares of
First National Common Stock are outstanding immediately before the Merger is
effected, and that dissenters' rights are exercised with respect to none of such
shares, an aggregate maximum of 1,250,000 shares of Florida Banks Common Stock
would be issuable with an aggregate value of $13.75 million. Each share of
Florida Banks' capital stock outstanding before the Merger will continue to be
outstanding after the Effective Time. The Exchange Ratio may be adjusted to
prevent dilution if Florida Banks changes the number of shares of Florida Banks
Common Stock issued and outstanding prior to the Effective Time by effecting a
stock split, stock dividend, recapitalization, reclassification or similar
transaction.
FRACTIONAL SHARES. Cash will be issued in lieu of any fractional shares
of Florida Banks Common Stock otherwise issuable to former holders of First
National Common Stock.
EXCHANGE OF CERTIFICATES. Upon the First National Shareholders'
approval of the Merger Agreement, First National Shareholders will receive
transmittal forms and instructions for surrender and exchange of their shares of
First National Common Stock. First National Shareholders should not send in
their share certificates with their proxy cards. See "The Merger--Exchange of
Certificates."
SHARE OWNERSHIP FOLLOWING MERGER. Immediately following the Effective
Time, assuming 2,065,000 shares of First National Common Stock outstanding
immediately before the Effective Time and no exercise of dissenters' rights,
former First National Shareholders would own approximately 1,250,000 shares of
Florida Banks Common Stock. Assuming 377,800 shares of Florida Banks Common
Stock outstanding immediately prior to the Effective Time and excluding shares
issuable in the Florida Banks IPO, such 1,250,000 shares would represent
approximately 77% of the then-outstanding Florida Banks Common Stock; if the
4,000,000 shares to be issued in the Florida Banks IPO (excluding any shares
issued upon exercise of the underwriters' overallotment option) are included,
such 1,250,000 shares would represent approximately 22% of the then-outstanding
Florida Banks Stock.
CONDITIONS TO MERGER. Consummation of the Merger and the transactions
contemplated by the Merger Agreement is subject to the satisfaction or waiver of
certain conditions. Such conditions include, among others, approval of the
Merger Agreement by the First National Shareholders, the effectiveness under the
Securities Act of the Registration Statement of which this Proxy
Statement-Prospectus is a part, Florida Banks' execution of a definitive
underwriting agreement for the firm commitment underwriting of shares of Florida
Banks Common Stock having an aggregate gross purchase price of at least $30
million which
6
<PAGE> 16
agreement will be enforceable by Florida Banks on the date the Florida Banks IPO
is closed, and approval of appropriate regulatory agencies. In addition, Florida
Banks' obligation to effect the Merger is also subject to, among other things,
receipt of an accountants' opinion dated as of the Effective Time, whose
contents must be acceptable to Florida Banks in its sole discretion, with
respect to certain matters under the Internal Revenue Code of 1986, as amended
(the "Code") and receipt of agreements from affiliates of First National
restricting their ability to transfer shares of First National Common Stock or
Florida Banks Common Stock. First National's obligation to effect the Merger is
also subject to, among other things, receipt within five days of the date of
this Proxy Statement-Prospectus of a fairness opinion from Mercer Capital
Management, Inc., First National's financial advisor ("Mercer Capital"). See
"The Merger--Conditions Precedent to the Merger."
EFFECTIVE TIME OF THE MERGER. Pursuant to the Merger Agreement, the
Merger and the other transactions contemplated by the Merger Agreement will
become effective on the date and at the time the parties receive certification
of the Merger from the Office of the Comptroller of the Currency (the "OCC")
(the "Effective Time"). Subject to the terms and conditions of the Merger
Agreement, unless the parties to the Merger mutually agree otherwise, the
parties will use their reasonable best efforts to cause the Effective Time to
occur on the date that the Merger and the other transactions contemplated by the
Merger Agreement are closed (the "Closing"). If the First National Shareholders
and applicable regulatory authorities approve the Merger, the parties expect
that the Effective Time will occur on or before August 15, 1998, although there
can be no assurance as to whether or when the Merger will occur. See "The
Merger--Effective Time of the Merger" and "--Conditions Precedent to the
Merger."
RECOMMENDATION OF THE FIRST NATIONAL BOARD. THE FIRST NATIONAL BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE FIRST NATIONAL BOARD BELIEVES THAT ADOPTION OF THE MERGER AGREEMENT
AND CONSUMMATION OF THE MERGER IS IN THE BEST INTERESTS OF FIRST NATIONAL AND
THE FIRST NATIONAL SHAREHOLDERS AND RECOMMENDS THAT THE FIRST NATIONAL
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. First National
Shareholders should note that certain members of First National's management and
directors have certain interests in and may derive certain benefits as a result
of the Merger in addition to their interests as First National Shareholders
generally. See "The Merger--Interests of Certain Persons in the Merger."
In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the First National Board consulted with its
legal advisors regarding the legal terms of the Merger Agreement. The First
National Board also consulted with its financial advisor, Mercer Capital, as to
the financial fairness of the consideration First National Shareholders are to
receive in the Merger. For a discussion of the factors the First National Board
considered in reaching its conclusions, see "The Merger--Background of and
Reasons for the Merger."
OPINION OF FIRST NATIONAL'S FINANCIAL ADVISOR. Mercer Capital, in its
capacity as financial advisor to First National, has rendered an opinion to the
First National Board that the consideration provided in the Merger Agreement is
fair, from a financial point of view, to the First National Shareholders. A copy
of Mercer Capital's opinion, dated June 25, 1998, is attached as Appendix C to
this Proxy Statement-Prospectus and should be read carefully, with particular
attention to the assumptions made, matters considered and limitations of the
review undertaken by Mercer Capital in rendering such opinion. See "The
Merger--Background of and Reasons for the Merger--Opinion of First National's
Financial Advisor."
CERTAIN DIFFERENCES IN SHAREHOLDER RIGHTS. The rights of Florida Banks
shareholders and other corporate matters relating to the Florida Banks Common
Stock are controlled by the Second Amended and Restated Articles of
Incorporation of Florida Banks (the "Florida Banks Articles"), the Amended and
7
<PAGE> 17
Restated Bylaws of Florida Banks (the "Florida Banks Bylaws") and the Florida
Business Corporation Act (the "FBCA"). The rights of First National Shareholders
and other corporate matters relating to the First National Common Stock are
controlled by the First National Articles of Association, as amended (the "First
National Articles"), the First National Bylaws (the "First National Bylaws") and
the National Bank Act. The dissenters' rights of the First National Shareholders
incident to the Merger are governed by Title 12, Chapter 2, Section 215a of the
United States Code ("Section 215a"), a copy of which is attached to this Proxy
Statement-Prospectus as Appendix B. Upon consummation of the Merger, First
National Shareholders will become shareholders of Florida Banks whose rights
will be governed by the Florida Banks Articles, the Florida Banks Bylaws and the
provisions of the FBCA. See "Description of Florida Banks Capital Stock and
First National Capital Stock," "Comparison of Shareholder Rights" and "The
Merger--Dissenters' Rights of First National Shareholders."
AMENDMENT, WAIVER AND TERMINATION. Under its terms, the Merger
Agreement may be amended by a subsequent writing signed by each party upon the
approval of each of the First National Board and the Board of Directors of
Florida Banks (the "Florida Banks Board"). However, after the Special Meeting,
no amendment that materially reduces or modifies the consideration to be
received by First National Shareholders pursuant to the Merger may be made
without the further approval of the First National Shareholders. The Merger
Agreement provides that up to the Effective Time, either party may waive any of
the conditions precedent to its obligations to the extent legally permitted.
The Florida Banks Board and the First National Board may terminate the
Merger Agreement by mutual agreement. In addition, either the Florida Banks
Board or the First National Board may terminate the Merger Agreement if: (i)
there is an inaccuracy of any representation or warranty of the other party that
cannot or has not been cured within 30 days of written notice of such breach,
and the inaccuracy would provide the terminating party the ability to refuse to
consummate the Merger; (ii) there is a material breach by the other party of any
covenant, agreement or obligation contained in the Merger Agreement that cannot
or has not been cured within 30 days of giving written notice of the breach to
the breaching party; (iii) the required approval of the First National
Shareholders or any applicable regulatory authority is not obtained; (iv) the
Merger is not consummated by September 30, 1998 or (v) any of the conditions
precedent to the obligations of the terminating party cannot be fulfilled by
September 30, 1998, and such party is not in breach of any representation or
warranty in the Merger Agreement at the time of such termination.
In addition, the Merger Agreement may be terminated: (i) by the First
National Board if prior to the Effective Time, (a) an entity or group has made a
bona fide Acquisition Proposal (as defined in the Merger Agreement), that the
First National Board determines in good faith is more favorable to the First
National Shareholders than the Merger or (b) Mercer Capital withdraws its
fairness opinion or (ii) by the Florida Banks Board if: (a) First National
Shareholders owning in the aggregate more than 10% of the issued and outstanding
First National Common Stock exercise dissenters' rights or (b) First National
does not receive the tax opinion referred to in "The Merger--Material Federal
Income Tax Consequences." See "The Merger--Amendment, Waiver and Termination"
and "The Merger--Description of the Merger."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
Smith, Gambrell & Russell, LLP, has delivered an opinion, based upon certain
customary assumptions and representations, to the effect that, for federal
income tax purposes, First National Shareholders will recognize no gain or loss
as a result of the Merger to the extent that they receive Florida Banks Common
Stock solely in exchange for their shares of First National Common Stock. For a
more complete description of the federal income tax consequences of the Merger
and the transactions contemplated thereby, see "The Merger--Material Federal
Income Tax Consequences."
8
<PAGE> 18
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of First
National's management and of the First National Board may be deemed to have
interests in, and may derive benefits from, the Merger in addition to their
interests, if any, as First National Shareholders. These interests include,
among others, agreements by Florida Banks to indemnify present and former
directors, officers, employees and agents of First National from and after the
Effective Time against certain liabilities arising prior to the Effective Time
to the full extent permitted under Florida law, the First National Articles and
the First National Bylaws. In addition, subject to certain restrictions, at the
Effective Time, Florida Banks will pay $25,000 in cash to each First National
Board member who will not, upon consummation of the Merger, become either a
local advisory director of Florida Bank, N.A. or a director or executive officer
of Florida Banks. Following the Effective Time, Florida Banks will also
generally provide to those former First National officers and employees who
continue to serve as officers and directors of Florida Bank, N.A. employee
benefits under employee benefit plans. For purposes of participation and vesting
(but not benefit accrual under any employee benefit plans of Florida Banks other
than the First National benefit plans) under such employee benefit plans, the
service of the employees of First National before the Effective Time will be
treated as service with Florida Banks participating in such employee benefit
plans. Florida Banks will honor according to their terms all employment,
severance, consulting, and other compensation contracts disclosed by First
National pursuant to the Merger Agreement between First National and any current
or former director, officer, or employee thereof, and for all provisions for
vested benefits or other vested amounts earned or accrued through the Effective
Time under the First National benefit plans. Florida Banks has also agreed to
provide written employment contracts to Messrs. John S. McMullen and T. Edwin
Stinson, Jr., which will take effect at the Effective Time. The employment
contracts must be executed within 30 days following the date of the Merger
Agreement; otherwise Messrs. McMullen and Stinson will retain and be governed by
their respective employment agreements with First National. Directors of Florida
Banks and Florida Bank, N.A. will not receive any compensation based on their
attendance at board meetings until Florida Bank, N.A. becomes cumulatively
profitable. Upon consummation of the Florida Banks IPO, directors of Florida
Banks will be entitled to receive stock option awards under the 1998 Plan. In
addition, members of the Florida Banks Board will be reimbursed for
out-of-pocket expenses incurred in connection with attendance at Board meetings.
The members of the local advisory boards of directors will receive compensation
in a format to be determined by the Florida Bank, N.A. Board. Such compensation
may be incentive-based and include cash and options to purchase Florida Banks
Common Stock. See "The Merger--Interests of Certain Persons in the Merger."
DISSENTERS' RIGHTS. Each holder of First National Common Stock who
dissents from the adoption of the Merger Agreement is entitled to the rights and
remedies of dissenting shareholders as set forth in Section 215a. To perfect
dissenters' rights, a shareholder must strictly comply with the procedures set
forth in Section 215a, which require, among other things, that the shareholder
either (i) give First National written notice of his or her dissent no later
than the vote of the shareholders at the Special Meeting or (ii) vote against
the adoption of the Merger Agreement at the Special Meeting. Dissenting
shareholders will be entitled to receive an amount of cash equal to the "fair
value" of their shares, as determined by either an independent appraisal
committee or, under certain circumstances, an independent, OCC-selected
appraiser, upon written request made to Florida Banks at any time before 30 days
after the Effective Time, accompanied by the surrender of their stock
certificates. Any First National Shareholder who returns a signed proxy but
fails to provide voting instructions for his or her shares will be deemed to
have voted in favor of the adoption of the Merger Agreement and will not be
entitled to assert dissenters' rights. IN NO EVENT WILL ANY SHAREHOLDER BE
ENTITLED TO DISSENTERS' RIGHTS IF HE OR SHE VOTES IN FAVOR OF THE ADOPTION OF
THE MERGER AGREEMENT. First National Shareholders should note that Florida Banks
has the right to terminate the Merger Agreement if holders of at least 10% of
the issued and outstanding shares of First National Common Stock claim
dissenters' rights with respect to the Merger pursuant to Section 215a. See "The
Merger--Dissenters' Rights of First National Shareholders."
9
<PAGE> 19
ACCOUNTING TREATMENT. The Merger will be accounted for under the
purchase method of accounting, the financial statements of First National will
become the historical financial statements of Florida Banks and no goodwill will
be recorded on Florida Banks' balance sheet as a result of the Merger. See "The
Merger--Accounting Treatment."
REGULATORY APPROVALS. Consummation of the Merger is subject to the
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), the OCC and the Federal Deposit Insurance Corporation ("FDIC").
The Merger may not be consummated until expiration of all applicable waiting
periods. Florida Banks and First National have filed all required applications
for regulatory review and approval or notice with the Federal Reserve Board, the
OCC and the FDIC in connection with the Merger, and on June 17, 1998, Florida
Banks received the necessary Federal Reserve Board approval of the Merger from
the Federal Reserve Bank of Atlanta. However, there can be no assurance that
such approvals will be obtained or as to the date of any such approvals. See
"The Merger--Conditions Precedent to the Merger" and "The Merger--Bank
Regulatory Matters."
RESALES BY AFFILIATES. First National has agreed to use its reasonable
efforts to obtain from each of those individuals identified by it as an
affiliate an appropriate agreement that such individual will not transfer any
shares of Florida Banks Common Stock it receives as a result of the Merger,
except in compliance with the applicable provisions of the Securities Act. See
"The Merger--Restrictions on Resales by Affiliates." Florida Banks' receipt of
agreements restricting affiliate resales is a condition to Florida Banks'
obligation to effect the Merger.
SHARE INFORMATION AND MARKET PRICES. As of July 2, 1998, there were
377,800 shares of Florida Banks Common Stock outstanding held by 28 holders of
record. As of the Record Date, there were 2,065,000 shares of First National
Common Stock outstanding held by 83 holders of record. There currently is no
market for the First National Common Stock, and no assurance can be given as to
the IPO Price of the Florida Banks Common Stock or the price at which the
Florida Banks Common Stock will trade following the closing of the Merger and
the Florida Banks IPO. See "Price Range of Common Stock and Dividends--Market
Prices."
10
<PAGE> 20
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of Florida Banks
and First National for the periods indicated. As Florida Banks had no operations
during 1997 and had no equity and de minimis assets and liabilities at December
31, 1997, the selected financial data of Florida Banks as of December 31, 1997
and for the period then ended is not relevant and therefore is not included
herein. The selected financial data of First National as of December 31, 1997
and 1996 and for each of the three years ended December 31, 1997, 1996 and 1995
are derived from the financial statements of First National, which have been
audited by Deloitte & Touche LLP, independent auditors. The selected financial
data of First National as of December 31, 1995, 1994 and 1993 and for the years
ended December 31, 1994 and 1993 are derived from the financial statements of
First National, which were audited by other independent certified public
accountants. The selected financial data of First National for the three months
ended March 31, 1998 and 1997 have been derived from First National's unaudited
financial statements. The selected financial data of Florida Banks for the three
months ended March 31, 1998 have been derived from Florida Banks' unaudited
financial statements. In the opinion of management, all unaudited financial
statements used to derive the information presented have been prepared on the
same basis as the audited financial statements and include all adjustments
consisting only of normal recurring accruals necessary for a fair presentation
of the results for the periods presented. The information for the three months
ended March 31, 1998 is not necessarily indicative of the operating results to
be expected for any future period. These selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Florida Banks' financial statements and notes
thereto, First National's financial statements and notes thereto, and financial
and other information included elsewhere herein.
<TABLE>
<CAPTION>
FLORIDA
BANKS FIRST NATIONAL
-------- --------------------------------------------------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31, YEAR ENDED DECEMBER 31,
-------- --------- ---------------------------------------------------------
1998 1998 1997 1997 1996 1995 1994 1993
-------- ---- ---- ---- ---- ---- ---- ----
SUMMARY INCOME
STATEMENT: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.......... $ -- $ 1,067 $ 1,037 $4,302 $3,614 $2,937 $ 2,075 $ 1,772
Interest expense......... -- 595 556 2,296 1,872 1,474 1,005 954
------- -------- -------- ------ ------ ------ ------- --------
Net interest income...... -- 472 481 2,006 1,742 1,463 1,070 818
Provision (benefit) for loan 15
losses..................... -- 15 60 60 (138) (15) --
------- -------- -------- ------ ------ ------ ------- --------
Net interest income after
provision for loan losses.. -- 457 466 1,946 1,682 1,602 1,085 818
Noninterest income......... -- 152 168 504 517 375 385 542
Noninterest expense(1)..... 4,416 525 455 1,842 1,598 1,621 1,568 2,684
------- -------- -------- ------ ------ ------ ------- --------
Income (loss) before
provision for income taxes
and cumulative effect of
change in accounting....... (4,416) 84 180 608 601 356 (99) (1,325)
Change in accounting for
organizational costs(27)... (27)
Provision for income
taxes(1)................... -- 32 69 232 217 -- -- --
------- -------- -------- ------ ------ ------ ------- --------
Net income (loss).......... $(4,443) $ 52 $ 111 $ 376 $ 384 $ 356 $ (99) $ (1,325)
======= ======== ======== ====== ====== ====== ======= ========
Earnings (loss) per
common share(2):
Basic...................... $(20.87) $ .03 $ .06 $ .21 $ .21 $ .20 $ (.05) $ (2.69)
Diluted.................... $(20.87) .03 .06 .19 .20 .19 (.05) (2.69)
</TABLE>
- --------------------
(1) Noninterest expense for Florida Banks for the three months ended March 31,
1998 includes a nonrecurring, noncash charge of $4,317,000 relating to the
February 3, 1998 sale of Common Stock and Warrants included in the Units
sold to accredited foreign investors and the February 11, 1998 sale of
297,000 shares of Florida Banks Common Stock the 14 officers, directors and
consultants. The expense and corresponding increase to paid in capital
relating to the sale of such Common Stock will be adjusted to the actual
initial public offering price. See Note 2 to the Florida Banks financial
statements.
(2) The provision for income taxes for 1997 and 1996 is comprised solely of
deferred income taxes. The benefit of the utilization of net operating loss
carry forwards for 1997 and 1996 (periods subsequent to the effective date
of First National's quasi-reorganization) has been reflected as increases
to additional paid-in capital.
(3) The earnings per share amounts are based upon First National's historical
weighted average number of shares outstanding and do not reflect any pro
forma adjustments relating to the exchange of shares upon consummation of
the Merger or the Florida Banks IPO.
11
<PAGE> 21
<TABLE>
<CAPTION>
FIRST NATIONAL
------------- ----------------------------------------------------------------
AT MARCH 31, AT DECEMBER 31,
------------- ----------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ----- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities $ 11,525 $ 10,765 $ 8,551 $ 6,760 $ 7,495 $ 4,590
Loans, net of deferred loan fees.. 36,116 33,720 31,627 26,571 20,292 17,041
Earning assets.................... 56,731 54,731 52,588 38,801 32,377 26,481
Total assets...................... 62,173 60,396 55,505 41,748 34,959 29,337
Noninterest-bearings deposits..... 6,500 6,442 8,122 5,719 4,660 3,696
Total deposits.................... 45,214 45,460 45,526 34,633 31,886 26,093
Other borrowed funds.............. 10,368 8,317 6,408 4,212 780 628
Total shareholders' equity........ 6,347 6,314 3,269 2,678 2,143 2,421
PERFORMANCE RATIOS(1):
Net interest margin(2)............ 3.51% 3.89% 4.05% 4.13% 3.77% 3.02%
Efficiency ratio(3)............... 84.21 73.39 70.76 88.16 107.84 197.45
Return on average assets.......... .35 .70 .85 .95 (.32) (4.22)
Return on average equity.......... 3.26 10.62 13.18 14.85 (4.14) (68.70)
ASSET QUALITY RATIOS:
Allowance for loan losses to total
loans......................... 1.40% 1.42% 1.36% 1.28% 2.27% 2.60
Non-performing loans to total
loans(4)...................... 1.20 -- -- -- 0.60 0.90
Net charge-offs (recoveries) to
average loans................. (.03) 0.03 (0.11) (0.07) (0.18) 0.42
CAPITAL AND LIQUIDITY RATIOS:
Total capital (to risk-weighted
assets)....................... 14.49% 14.29% 12.26% 12.42% 13.28% 15.41
Tier 1 capital (to risk-weighted
assets)....................... 13.24 13.00 11.01 11.01 12.03 14.14
Tier 1 capital (to average assets) 7.88 7.42 6.42 6.64 6.30 7.56
Average loans to average
deposits................... 75.37 75.77 75.83 67.26 65.11 60.72
Average equity to average total
assets........................ 10.76 6.54 6.45 6.40 7.75 6.15
</TABLE>
(1) Amounts have been annualized.
(2) Computed by dividing net interest income by average earning assets.
(3) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
(4) First National had no non-performing loans at December 31, 1997, 1996 and
1995.
-12-
<PAGE> 22
PRO FORMA FINANCIAL DATA
On March 30, 1998, Florida Banks executed a definitive merger agreement
with First National, pursuant to which Florida Banks will acquire all of the
outstanding capital stock of First National in exchange for shares of Common
Stock. The aggregate purchase price for First National will be $13.75 million.
The total number of shares of Common Stock to be issued in the Merger will be
based upon the initial public offering price of the Common Stock. The Merger
will be accounted for as if First National had acquired Florida Banks, the
financial statements of First National will become the historical financial
statements of Florida Banks and there will be no goodwill recorded as a result
of the Merger.
The unaudited pro forma financial data set forth below assume that
Florida Banks was formed on January 1, 1997 and gives effect to the acquisition
of First National as if such acquisition had occurred on January 1, 1997. The
pro forma financial data set forth below does not include the effects of the
Florida Banks IPO. The pro forma financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," Florida Banks' Financial Statements and Notes thereto, First
National's Financial Statements and Notes thereto and financial and other
information included elsewhere herein. The pro forma results are not necessarily
indicative of the results that would have been achieved had the acquisition of
First National occurred on January 1, 1997, or of future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 THREE MONTHS ENDED MARCH 31, 1998
---------------------------- --------------------------------------
FLORIDA FLORIDA
BANKS BANKS
FLORIDA FIRST PRO FORMA FLORIDA FIRST PRO FORMA
BANKS NATIONAL CONSOLIDATED BANKS NATIONAL CONSOLIDATED
----- -------- ------------ ----- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income ............................. $ -- $ 4,302 $ 4,302 $ -- $ 1,067 $ 1,067
Interest expense ............................ -- 2,296 2,296 -- 595 595
------ ------- ------- ------- ------- --------
Net interest income ......................... -- 2,006 2,006 -- 472 472
Provision for loan losses ................... -- 60 60 -- 15 15
------ ------- ------- ------- ------- --------
Net interest income after provision
for loan losses .......................... 1,946 1,946 -- 457 457
Noninterest income .......................... -- 504 504 -- 152 152
Noninterest expense(1) ...................... -- 1,842 1,842 4,416(2) 525 4,941
------ ------- ------- ------- ------- --------
Income (loss) before provision for income
taxes and cumulative effect of change
in accounting ............................. 608 608 (4,416) 84 (4,332)
Change in accounting for organizational costs -- -- -- (27) -- (27)
Provision for income taxes .................. -- 232 232 -- 32 --
------ ------- ------- ------- ------- --------
Net income (loss) ........................... $ -- $ 376 $ 376 $(4,443) $ 52 $ (4,391)
====== ======= ======= ------- --------
Pro forma earnings (loss) per share ......... $ .30(3) $ .23(4) $(20.87) $ 0.04(3) $ (20.63)(4)
======= =======
<CAPTION>
SUMMARY BALANCE SHEET DATA: At March 31, 1998
-----------------------------------
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 409 $ 11,689 $ 12,098
Investment securities.................. -- 11,525 11,525
Loans, net of deferred loan fees....... -- 36,116 36,116
Earning assets......................... -- 56,731 56,731
Total assets........................... 484 62,173 62,657
Noninterest-bearing deposits........... -- 6,500 6,500
Total deposits......................... -- 45,214 45,214
Other borrowed funds................... -- 10,368 10,368
Total shareholders' equity............. 484 6,347 6,831
</TABLE>
- ------------------
(1) The pro forma financial data do not give effect to certain employment
agreements between Florida Banks and Messrs. Hughes, McMullen and
Stinson who will serve as President and Chief Executive Officer,
President of the Tampa Market, and Chief Financial Officer,
respectively. On an annual basis such contracts will increase
noninterest expense by $276,000.
(2) Noninterest expense for Florida Banks for the three months ended March
31, 1998 includes a nonrecurring, noncash charge of $4,317,000 relating
to the February 3, 1998 sale of Florida Banks Common Stock and Warrants
included in the Units sold to accredited foreign investors and the
February 11, 1998 sale of 297,000 shares of Florida Banks Common Stock
to 14 officers, directors and consultants. The expense and
corresponding increase to paid in capital relating to the sale of such
Common Stock will be adjusted to the actual initial public offering
price. See Note 2 to the Florida Banks financial statements.
(3) Pro forma earnings per share for First National have been computed
based on an estimated 1,250,000 shares of Florida Banks Common Stock to
be issued to the First National Shareholders (assuming all Bank options
are exercised and Bank warrants expire without exercise) in connection
with the Merger based on an assumed IPO Price of $11.00 per share (the
mid-point of the estimated range).
(4) Pro forma earnings per share for Florida Banks have been computed based
on an estimated 1,627,800 shares of Florida Banks Common Stock
outstanding, which includes an estimated 1,250,000 shares of Florida
Banks Common Stock to be issued to First National Shareholders in
connection with the Merger and 377,800 shares of Florida Banks Common
Stock outstanding at March 31, 1998.
13
<PAGE> 23
THE SPECIAL MEETING OF FIRST NATIONAL SHAREHOLDERS
GENERAL
This Proxy Statement-Prospectus is first being furnished to First
National Shareholders on or about July 10, 1998 and is accompanied by the Notice
of Special Meeting and a form of proxy that is solicited by the First National
Board for use at the Special Meeting of Shareholders of First National to be
held at the offices of First National, which are located at First National
Plaza, 100 West Kennedy Boulevard, Tampa, Florida, on July 24, 1998, at 11:00
a.m. local time, and at any adjournments or postponements thereof. The purpose
of the Special Meeting is to take action with respect to the approval of the
Merger Agreement and the transactions contemplated thereby.
VOTING AND REVOCATION OF PROXIES
A First National Shareholder may use the accompanying proxy if he or
she is unable to attend the Special Meeting in person or wishes to have his or
her shares voted by proxy even if he or she does attend the meeting. A First
National Shareholder may revoke any proxy given pursuant to this solicitation by
delivering to the President of First National, no later than the vote of First
National Shareholders at the Special Meeting, a written notice revoking the
proxy or a duly executed proxy relating to the same shares bearing a later date,
or by attending the Special Meeting and voting in person at the Special Meeting.
A First National Shareholder's attendance at the Special Meeting will not, in
and of itself, constitute a revocation of the proxy. All shares represented by
valid proxies received pursuant to this solicitation, and not revoked before
they are exercised, will be voted in the manner specified therein. If a proxy is
signed and returned without indicating any voting instructions, it will be voted
"FOR" the proposal to approve the Merger Agreement. The First National Board is
unaware of any other matters that may be presented for action at the Special
Meeting. However, if other matters do properly come before the Special Meeting,
it is intended that shares represented by proxies in the accompanying form will
be voted or not voted by the persons named in the proxies in their discretion.
All written notices of revocation and other communications with respect
to the revocation of First National proxies should be addressed to First
National Bank, 100 West Kennedy Boulevard, Tampa, Florida 33602, Attention:
President. NO NOTICE OF REVOCATION OR LATER PROXY WILL BE ACCEPTED AFTER THE
FIRST NATIONAL SHAREHOLDERS VOTE AT THE SPECIAL MEETING.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, or other form of communication by directors, officers and employees
of First National, who will not be specially compensated for such solicitation.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by First National, Florida Banks or any other person. The
delivery of this Proxy Statement-Prospectus shall not, under any circumstances,
create any implication that there has been no change in the business or affairs
of First National or Florida Banks since the date of the Proxy
Statement-Prospectus.
14
<PAGE> 24
First National will bear all costs of solicitation of proxies from
First National Shareholders, except for the costs incurred in printing this
Proxy Statement-Prospectus and related materials, of which Florida Banks and
First National have each agreed to bear and pay one-half of such costs.
RECORD DATE AND VOTING RIGHTS
The First National Board has fixed the close of business on June 1,
1998 as the Record Date for the determination of the holders of First National
Common Stock entitled to receive notice of and to vote at the Special Meeting.
At the close of business on the Record Date, there were outstanding 2,065,000
shares of First National Common Stock held by 83 holders of record. Each share
of First National Common Stock outstanding on the Record Date is entitled to one
vote as to (i) the approval of the Merger Agreement and the transactions
contemplated thereby and (ii) any other proposal that may properly come before
the Special Meeting.
As of the Record Date, the directors and executive officers of First
National and their affiliates held an aggregate of approximately 905,875 shares,
or approximately 43.9%, of the outstanding First National Common Stock.
The National Bank Act requires the affirmative vote of at least
two-thirds of the issued and outstanding capital stock entitled to vote to
approve a proposed merger transaction of a national bank with and into a
national bank, unless the merging bank's articles of incorporation or board of
directors require a greater number of votes. Neither the First National Articles
nor the First National Board requires a greater number of votes. Since adoption
of the Merger Agreement requires the affirmative vote of at least two-thirds of
the issued and outstanding shares of First National Common Stock as of the
Record Date, the failure to vote the shares in favor of adopting the Merger
Agreement for any reason whatsoever, whether by withholding the vote or by
abstaining, will have the same effect as casting a vote against the Merger
Agreement. However, abstentions will be counted as present for determining the
presence of a quorum.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE
OF AT LEAST TWO-THIRDS OF THE ISSUED AND OUTSTANDING SHARES OF FIRST NATIONAL
COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS WILL HAVE THE
SAME EFFECT AS NEGATIVE VOTES. ACCORDINGLY, THE FIRST NATIONAL BOARD URGES ALL
FIRST NATIONAL SHAREHOLDERS TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECOMMENDATION OF THE FIRST NATIONAL BOARD
THE FIRST NATIONAL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF FIRST NATIONAL AND THE FIRST NATIONAL SHAREHOLDERS AND
RECOMMENDS THAT FIRST NATIONAL SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the First National Board, among other things,
consulted with its legal advisors regarding the legal terms of the Merger
Agreement and with its financial advisor, Mercer Capital, as to the financial
fairness of the consideration First National Shareholders are to receive in the
Merger. For a discussion of the factors the First National Board considered in
reaching its conclusion, see "The Merger--Background of and Reasons for the
Merger."
First National Shareholders should note that certain members of First
National's management have certain interests in and may derive certain benefits
as a result of the Merger in addition to their interests as First National
Shareholders generally. See "The Merger--Interests of Certain Persons in the
Merger."
15
<PAGE> 25
Pursuant to the terms of the Merger Agreement, the members of the First
National Board will vote their shares in favor of the Merger Agreement and the
transactions contemplated thereby at the Special Meeting.
FIRST NATIONAL SHAREHOLDERS SHOULD NOT SEND
ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
16
<PAGE> 26
THE MERGER
The following summary of certain terms and provisions of the Merger
Agreement is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference and, with the exception of certain
exhibits thereto, is included as Appendix A to this Proxy Statement-Prospectus.
All shareholders are urged to read carefully the Merger Agreement and the other
Appendices to this Proxy Statement-Prospectus.
DESCRIPTION OF THE MERGER
At the Effective Time, First National will merge with and into Interim,
and First National's separate existence will cease. Interim will be the
surviving entity in the Merger, and Interim's Articles of Association and Bylaws
in effect at the Effective Time will continue to govern until amended or
repealed. Immediately upon consummation of the Merger, Interim will change its
name to Florida Bank, N.A. and will operate as a wholly-owned subsidiary of
Florida Banks ("Florida Bank, N.A."). The Merger is subject to the approval of
the Federal Reserve Board, the OCC and the FDIC. See "The Merger--Bank
Regulatory Matters."
At the Effective Time, except as otherwise described in this Proxy
Statement-Prospectus and in the Merger Agreement, each share of First National
Common Stock outstanding immediately prior to the Effective Time will cease to
be outstanding and will be converted into and exchanged for the right to receive
that number of shares of Florida Banks Common Stock equal to the quotient
obtained by dividing 6.6586 by the IPO Price of the Florida Banks Common Stock,
rounded to the third nearest decimal place (the "Exchange Ratio"). The Exchange
Ratio may be adjusted to prevent dilution if Florida Banks changes the number of
shares of Florida Banks Common Stock issued and outstanding prior to the
Effective Time by effecting a stock split, stock dividend, recapitalization,
reclassification or similar transaction. In no event will more than 2,065,000
shares of First National Common Stock be converted. Assuming that the IPO Price
of the Florida Banks Common Stock is $11.00 per share (which represents the
mid-point of the estimated range) and that the Exchange Ratio remains 6.6586,
each share of First National Common Stock outstanding immediately prior to the
Effective Time will be convertible into approximately 0.605 shares of Florida
Banks Common Stock. Therefore, following the Effective Time and assuming that
2,065,000 shares of First National Common Stock are outstanding at the Effective
Time and that all shares are converted, former First National Shareholders would
own 1,250,000 shares, or approximately 77%, of the-then outstanding Florida
Banks Common Stock (assuming 377,800 shares of Florida Banks Common Stock
outstanding immediately prior to the Effective Time and excluding shares
issuable in the Florida Banks IPO); if the 4,000,000 shares to be issued in the
Florida Banks IPO (assuming no exercise of the underwriters' over-allotment
option) are included, such 1,250,000 shares would represent approximately 22% of
the-then outstanding Florida Banks Common Stock.
Florida Banks will issue no fractional shares of Florida Banks Common
Stock pursuant to the Merger. Instead, each First National Shareholder who would
otherwise have been entitled to receive a fraction of a share of Florida Banks
Common Stock (after taking into account all certificates delivered by such
holder) will receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Florida Banks Common Stock
multiplied by the IPO Price. No holder will be entitled to dividends, voting
rights or any other rights as a shareholder in respect of any fractional shares.
See "The Merger--Exchange of Certificates."
Shares of Florida Banks capital stock, including the Florida Banks
Common Stock outstanding immediately before the Merger, will continue to be
outstanding after the Effective Time. In addition, each share of the common
stock of Interim that is issued and outstanding immediately prior to the
Effective Time will remain outstanding and entirely issued to Florida Banks.
17
<PAGE> 27
EFFECTIVE TIME AND CLOSING OF THE MERGER
The Effective Time will occur on the date and at the time the parties
receive certification of the Merger from the OCC. Subject to the terms and
conditions of the Merger Agreement, Florida Banks and First National have agreed
to use their best efforts to cause the Effective Time to occur on the date of
the Closing. The parties have further agreed that the Merger Closing will occur
immediately before the closing of the Florida Banks IPO. The Closing will take
place at a time, place and date specified by the parties as they, acting through
their chief executive officers or chief financial officers, may agree.
EXCHANGE OF CERTIFICATES
Within 15 business days after the Effective Time, Florida Banks will
cause Brian Echols at SunTrust Bank of Atlanta (the "Exchange Agent") to mail to
the former holders of record of First National Common Stock issued and
outstanding as of the Effective Time a letter of transmittal and related forms
(the "Letter of Transmittal") for use in forwarding stock certificates
previously representing shares of First National Common Stock for surrender in
exchange for certificates representing Florida Banks Common Stock. Risk of loss
and title to the certificates representing shares of First National Common Stock
will pass only upon proper delivery of such certificates to the Exchange Agent.
FIRST NATIONAL SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates for
First National Common Stock, together with a properly completed Letter of
Transmittal, each surrendering First National Shareholder will promptly receive
a certificate or certificates representing the aggregate number of whole shares
of Florida Banks Common Stock to which the holder is entitled pursuant to the
Exchange Ratio, together with all declared but unpaid dividends or other
distributions (without interest) in respect of such shares, and, where
applicable, a check for the cash amount (without interest) representing any
fractional share to which such holder would otherwise be entitled. A certificate
for shares of Florida Banks Common Stock, or any check representing cash in lieu
of a fractional share or declared but unpaid dividends, may be issued in a name
other than the name in which the surrendered certificate is registered only if
(i) the certificate surrendered is properly endorsed, accompanied by a
guaranteed signature if required by the Letter of Transmittal and otherwise in
proper form for transfer and (ii) the person requesting the issuance of such
certificate either pays to the Exchange Agent any transfer or other taxes
required by reason of the issuance of a certificate for such shares in a name
other than the registered holder of the certificate surrendered or establishes
to the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. The Exchange Agent will issue stock certificates evidencing Florida
Banks Common Stock in exchange for lost, stolen, mutilated or destroyed
certificates of First National Common Stock only after receiving a lost stock
affidavit and a bond indemnifying Florida Banks against any claim arising out of
the allegedly lost, stolen, mutilated or destroyed certificate. In no event will
the Exchange Agent, Florida Banks or First National be liable to any persons for
any Florida Banks Common Stock or dividends thereon or cash delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
At the Effective Time, First National's stock transfer books will be
closed, and First National Shareholders will no longer be able to transfer their
shares of First National Common Stock. At and after the Effective Time, each
unsurrendered certificate that formerly represented shares of First National
Common Stock outstanding immediately prior to the Effective Time will represent
only the right to receive the shares of Florida Banks Common Stock into which
such shares are converted and any cash payment in lieu of
18
<PAGE> 28
fractional shares pursuant to the Merger Agreement. However, the Merger
Agreement obligates Florida Banks to pay or make any dividend or distribution
remaining unpaid on the First National Common Stock at the Effective Time. In
addition, whenever Florida Banks declares a dividend or other distribution on
the Florida Banks Common Stock with a record date on or after the Effective
Time, the declaration must include dividends or distributions on all shares
issuable pursuant to the Merger; provided that beginning 30 days after the
Effective Time, no First National Shareholder will receive dividends or other
distributions payable to the holders of Florida Banks Common Stock as of any
time subsequent to the Effective Time until the First National Shareholder
surrenders for exchange the certificates representing his or her shares of First
National Common Stock. Upon surrender of First National Common Stock
certificates, First National Shareholders will be paid any dividends or other
distributions on Florida Banks Common Stock that are payable to holders as of
any dividend record date on or following the Effective Time. No interest will be
payable with respect to withheld dividends or other distributions. After the
expiration of six (6) months following the Effective Time, any First National
Shareholders who have not theretofore surrendered their certificates
representing shares of First National Common Stock must thereafter look only to
Florida Bank for payment of their shares of Florida Banks Common Stock and any
cash in lieu of fractional shares and any unpaid dividends and distributions on
the Florida Banks Common Stock deliverable in respect of each share of First
National Common Stock held by such First National Shareholder, in each case,
without any interest payable thereon.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
In late 1997, T. Stephen Johnson & Associates, Inc., a financial
services consulting firm ("TSJ&A"), began to develop a strategy for the creation
of a statewide community banking system in Florida by entering certain markets
which TSJ&A in its bank consulting business had determined were attractive
locations to begin to implement this community banking strategy. TSJ&A
determined that its strategy could be best implemented by acquiring an existing
bank and expanding that bank's operations into new markets by opening branch
offices funded through capital accessed in a public offering of securities.
TSJ&A had an historical relationship with First National, having assisted the
previous management of First National in 1992 in implementing a compliance
program designed to comply with the formal agreement entered into with the OCC
dated December 18, 1991. TSJ&A had followed the progress of First National and
was aware of the improvement in First National's condition occurring since First
National's reorganization. Accordingly, in September 1997 T. Stephen Johnson,
Chairman of TSJ&A, met with Mr. Andrew Krusen, Chairman of First National, to
discuss a possible merger transaction. Discussions regarding this transaction
continued until January 15, 1998, when Florida Banks and First National signed a
letter of intent regarding a merger transaction. From the date of signing the
letter of intent until the signing of the Merger Agreement, Florida Banks
conducted a due diligence review of the operations of First National.
Florida Banks believed that a merger with First National would provide
it with a platform to implement Florida Banks' business plan. Florida Banks
believes that First National is presently operating in a manner in the Tampa
market that is parallel to Florida Banks' strategy for both the Tampa market and
other markets in that First National has locally responsive management
emphasizing high level of personalized customer service targeting small and
medium sized business customers in its market area.
First National Reasons for the Merger
In reaching its conclusion to approve the Merger, the First National
Board considered its fiduciary duties to act on an informed basis in good faith
without conflict of interest and in a belief that the Merger is in the best
interest of First National and the First National Shareholders. The First
National Board considered a
19
<PAGE> 29
number of factors, and the First National Board did not assign any relative or
specific weight to the factors considered. The material factors considered were:
(i) The financial terms of the Merger. In this regard, the First
National Board was of the view that the Exchange Ratio was fair relative to
First National's book value and the potential earnings per share of the
resulting institution and opportunities available to a larger institution with a
substantially larger capital base.
(ii) The likelihood that the combined entity with its significantly
larger asset and shareholder base will be able to list its shares on the Nasdaq
National Market and thus offer the First National Shareholders an opportunity to
sell all or a part of their shares in the combined entity, although no assurance
can be given regarding any such listing, its timing, or the price at which the
shares may trade.
(iii) The proposed composition of the Florida Banks Board following
consummation of the Merger, which will include two former First National
directors (Messrs. Krusen and McMullen) and the designation of Mr. McMullen as
President of the Tampa market and Mr. T. Edwin Stinson, Jr. as Chief Financial
Officer of Florida Banks and First National.
(iv) The relative prospects of First National's continuing as an
independent entity compared with its combining with Florida Banks, particularly
as to shareholder value.
(v) The belief that the larger combined entity will be able to offer
a broader variety of banking products and services.
(vi) The fact that the exchange of the First National Common Stock for
the Florida Banks Common Stock is anticipated to be generally tax free to First
National Shareholders.
(vii) The likelihood of the Merger being approved by the appropriate
regulatory authorities.
(vii) The opinion of First National's financial advisor as to the
fairness of the Exchange Ratio, from a financial point of view, to First
National Shareholders. See "The Merger--Background of and Reasons for the
Merger--Opinion of First National's Financial Advisor."
Opinion of First National's Financial Advisor
During February 1998, the First National Board retained Mercer Capital
to serve as financial advisor and to provide the First National Board with an
opinion regarding the fairness of the Merger, from a financial point of view, to
First National Shareholders. First National selected Mercer Capital on the basis
of Mercer Capital's reputation and its experience in evaluating mergers among
financial institutions and in representing the institutions in merger
transactions. Mercer Capital, as part of its financial advisory and business
valuation practice, is regularly engaged to value the securities of banks, issue
fairness opinions and assist in other aspects of structuring mergers among
financial institutions.
As part of its engagement, representatives of Mercer Capital visited
with First National's management in Tampa, Florida and discussed the proposed
transaction by telephone with representatives of Florida Banks' legal counsel
and representatives of the underwriters in the Florida Banks IPO. On June 25,
1998, Mercer Capital delivered its written opinion dated June 25, 1998 to the
First National Board, stating that the Merger is fair, from a financial point of
view, to the First National Shareholders.
20
<PAGE> 30
The following summary of Mercer Capital's opinion is entirely qualified
by reference to the full text of the opinion, which is dated as of the date of,
and attached as Appendix C to, this Proxy Statement-Prospectus. First National
Shareholders should read the opinion carefully, directing particular attention
to the sections describing Mercer Capital's review process, including procedures
followed, assumptions made, matters considered and various qualifications and
limitations both to Mercer Capital's review and to the opinion itself. Mercer
Capital's opinion was directed to the First National Board and does not
constitute a recommendation regarding how any First National Shareholder should
vote at the Special Meeting. Furthermore, Mercer Capital expressed no opinion as
to how the prices of any security of First National or Florida Banks might
develop in future trading.
The First National Board imposed no limitations upon Mercer Capital's
investigations or the procedures it followed in rendering its opinions. In
addition, Mercer Capital does not have and has not previously had any
relationship with Florida Banks and did not receive any instructions or other
guidance from Florida Banks with respect to the procedures or analysis Mercer
Capital followed or undertook in rendering its opinion.
Preparing a fairness opinion requires various methods of financial
analysis to be applied to particular circumstances after the most appropriate
methods of financial analysis are determined. In connection with rendering its
opinion, Mercer Capital performed a variety of financial analyses, which are
summarized below. A fairness opinion does not lend itself easily to partial
analysis or summary description. Mercer Capital believes that its analyses must
be considered as a whole and that selection of portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the process underlying Mercer
Capital's opinion.
Mercer Capital neither compiled nor audited the financial statements of
First National or Florida Banks, nor did Mercer Capital independently verify the
information reviewed. Mercer Capital relied upon such information as being
complete and accurate in all material respects. Mercer Capital did not make an
independent valuation of the loan portfolio, adequacy of the loan loss reserve
or other assets or liabilities of either institution.
Factors Mercer Capital considered in rendering its opinion included:
(i) the terms of the Merger Agreement; (ii) the arms' length process by which
the Merger Agreement was negotiated; (iii) a review of First National's
historical financial performance and projected financial performance; (iv) a
comparison of the pricing of the Merger relative to other recent bank change of
control transactions; (v) an analysis of the potential pricing of First National
if merged into established regional bank holding companies presently active in
acquiring banks located in Florida; (vi) an analysis of the potential value to
be realized for First National Shareholders were First National to remain
independent for the foreseeable future; (vii) an analysis of the estimated
pro-forma changes in book value per share and earnings per share from the
perspective of First National Shareholders; and (viii) tax consequences of the
merger for First National Shareholders.
As part of its investigation, Mercer Capital reviewed: (i) the Merger
Agreement; (ii) First National's draft audited financial statements for the
fiscal year ended December 31, 1997; (iii) First National's audited financial
statements for the fiscal years ended December 31, 1993 through 1996; (iv) First
National's quarterly Call Reports of Condition and Income filed with the OCC for
the fiscal years ended December 31, 1993 through 1997; (v) First National's 1997
proxy statement; (vi) First National's budget for fiscal year 1998; (vii) First
National's Strategic, Capital, and Profit Plan, last updated April 1997; (viii)
public market pricing data of publicly-held banks that Mercer Capital deemed to
be potential acquirors of First National; and (ix) transaction data involving
other acquired banks.
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Valuation Methodology.
Transaction Summary. Mercer Capital noted that consideration
for the First National Common Stock will be based on a fixed aggregate
price and a floating exchange rate. The nominal price at the Closing of
the Merger is to be $6.6586 per share of First National Common Stock,
or $13.75 million for the maximum of 2,065,000 shares of First National
Common Stock to be converted pursuant to the Merger, of which 2,065,000
shares are currently outstanding. The ratio at which shares of First
National Common Stock are to be exchanged for shares of Florida Banks
Common Stock will be determined by dividing the number 6.6586 by the
IPO Price (the "Exchange Ratio"). Under this pricing formula, at any
IPO Price, the resulting Exchange Ratio will provide First National
Shareholders with Florida Banks Common Stock having an aggregate market
value at closing of $13.75 million, or $6.6586 per exchanged share of
First National Common Stock.
Implied Valuation Ratios. Mercer Capital observed that the
aggregate price of $13.75 million corresponds to 209.8% of First
National's reported shareholders' equity (which includes proceeds of
the exercise of options to purchase 240,000 shares of First National
Common Stock at an exercise price of $1.00 per share) of $6.6 million
at December 31, 1997 and 36.6x its reported 1997 net income of
$376,000. In accordance with GAAP, at December 31, 1997, First National
eliminated the valuation reserve on its $7.0 million net operating loss
carryforward and recognized a related deferred tax asset of $2.5
million. Elimination of the valuation reserve on the deferred tax asset
resulted in a dollar for dollar increase in reported shareholders'
equity, from $4.1 million to $6.3 million (before considering option
proceeds). In addition, First National recorded amortization expense of
$232,000 related to the deferred tax asset during 1997. Absent this
amortization expense, 1997 net income would not have differed
materially from pre-tax income of $608,000.
Under GAAP, the tax asset related to a net operating loss
carryforward is calculated, in effect, by multiplying the gross amount
of the carryforward by the subject corporation's income tax rate. The
tax benefits resulting from a large net operating loss carryforward
such as First National's are realized over a number of years and are
contingent upon the subject corporation's generation of sufficient
taxable income to be offset by the carryforward before it expires. In
addition, under Section 382 of the Code, a substantial change in
corporate ownership may trigger significant limits upon the amount of
the carryforward which may be used in any given year. Given that the
expected cash flow benefits of the carryforward are at some risk and
are realized over a number of years (approximately ten years in the
case of First National), the GAAP accounting treatment may tend to
exaggerate net tangible book value from an economic point of view. At
the same time, the GAAP treatment of carryforwards may tend to present
net income in a manner which understates the corporation's annual
economic earnings or net cash flow during the life of the carryforwards
because net income, reflecting the annual amortization expense
associated with the tax asset, is reported as if the corporation's
earnings were fully taxable when in fact actual cash payments of income
taxes during the period may be minimal.
Given these factors, Mercer Capital chose also to consider an
alternate treatment of First National's large net operating loss
carryforward in calculating comparative valuation ratios. The alternate
treatment is to eliminate the tax asset from reported equity and also
to eliminate the related amortization expense from reported income.
This treatment is not dissimilar to bank regulatory accounting
principles ("RAP") in which net operating loss carryforward benefits
are recognized primarily in the periods in which they are actually
realized.
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Under RAP treatment of the net operating loss carryforward,
the Merger price corresponds to 336.5% of adjusted book value
(reflecting the proceeds of the exercise of stock options and the
elimination of the deferred tax asset) of $4.1 million and 22.6x 1997
pre-tax earnings of $608,000 (essentially the same as net income after
eliminating amortization expense related to the deferred tax asset).
Comparable Transaction Analysis. Mercer Capital reviewed the
prices paid for various banks which have been acquired based upon
certain available public information as compiled by SNL Securities.
Mercer Capital noted that the relative pricing of most bank merger
transactions is measured in terms of the price/book value ("P/BV),
price/tangible book value ("P/TBV"), price/earnings ("P/E"),
price/assets ("P/A") and tangible book value premium/core deposit
("TBVP/CD") ratios. The bank acquisition data was divided into the
following three groups: (i) banks based in the southeastern United
States (the "Southeast"); (ii) banks based in Florida; and (iii) banks
nationwide with assets of $25 million to $100 million and an
equity-to-assets ratio of 6% to 12% ("the National Guideline Group").
Valuation ratios were calculated based upon the acquisition price and
the acquired institution's most recently released financial statements
as of the announcement date.
For each group, average and median P/E, P/BV, P/TBV, P/A and
TBVP/CD ratios were calculated for the years ended December 31, 1996
and 1997 and the period January 1, 1998 to April 15, 1998. The
1997-1998 median P/E, P/BV, P/TBV, P/A and TBVP/CD ratios were then
multiplied, respectively, by First National's net income for the fiscal
year ended December 31, 1997 and its December 31, 1997 book value,
tangible book value, assets and core deposits (as adjusted for the
proceeds of the exercise of stock options) to develop an overall
indicated range for First National. The values for the common equity of
First National indicated under each valuation multiple are summarized
in the following paragraphs.
Price/Earnings Ratio. The median P/E ratios were,
respectively, 21.3x for Southeastern banks, 20.4x for Florida banks and
17.5x for the National Guideline Group. Applying these multiples to
First National's 1997 GAAP net income of $376,000 implies a value
ranging from $6.6 million to $8.0 million. Applying the median ratios
to First National's RAP net income of $608,000 implies a value ranging
between $10.6 million and $13.0 million. The multiples implied by the
aggregate Merger price of $13.75 million offered by Florida Banks are
36.6x First National's 1997 GAAP net income and 22.6x its 1997 RAP net
income.
Price/Book Value Ratio. The median P/BV ratios were,
respectively, 252.3% for the Southeastern banks, 251.5% for Florida
banks and 210.4% for the National Guideline Group. Applying these
multiples to First National's December 31, 1997 GAAP book value of $6.6
million (including option proceeds) implies a value ranging from $13.8
million to $16.5 million. Applying the median ratios to First
National's RAP equity of $4.1 million implies a value ranging between
$8.6 million and $10.3 million. The ratios implied by the aggregate
merger price of $13.75 million offered by Florida Banks are 209.8% of
First National's year-end 1997 GAAP equity and 336.5% of its year-end
1997 RAP equity.
Price/Tangible Book Value Ratio. Median P/TBV ratios were,
respectively, 250.4% for the Southeastern banks, 255.1% for Florida
banks and 211.5% for the National Guideline Group. Applying these
multiples to First National's December 31, 1997 GAAP book value of $6.6
million (including option proceeds) implies a value ranging from $13.9
million to $16.7 million. Applying the median ratios to First
National's RAP equity of $4.1 million implies a value ranging between
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$8.6 million and $10.4 million. The ratios implied by the aggregate
Merger price of $13.75 million offered by Florida Banks are 209.8% of
First National's year-end 1997 GAAP equity and 336.5% of its year-end
1997 RAP equity.
Price/Assets Ratio. Median P/A ratios were, respectively,
24.6% for the Southeastern banks, 23.4% for Florida banks and 18.0% for
the National Guideline Group. Applying these multiples to First
National's December 31, 1997 GAAP total assets of $60.6 million
(including option proceeds) implies a value ranging from $10.9 million
to $14.9 million. Applying the median ratios to First National's RAP
total assets of $58.2 million implies a value ranging between $10.5
million and $14.3 million. The ratios implied by the aggregate Merger
price of $13.75 million offered by Florida Banks are 22.7% of First
National's year-end 1997 GAAP assets and 23.6% of its year-end 1997 RAP
assets.
Tangible Book Value Premium/Core Deposits Ratio. The median
TBVP/CD ratios were, respectively, 20.7% for the Southeastern banks,
19.7% for Florida banks and 12.5% for the National Guideline Group.
Applying these multiples to First National's December 31, 1997
estimated core deposits of $35.2 million and its GAAP book value of
$6.6 million (including option proceeds) implies a value ranging from
$11.0 million to $13.9 million. Applying the median ratios to First
National's estimated core deposits and its RAP book value of $4.1
million implies a value ranging between $8.5 million and $11.4 million.
The TBVP/CD ratios implied by the aggregate merger price of $13,750,000
offered by Florida Banks are a 20.4% on a GAAP basis and 27.4% on a RAP
basis.
Overall Analysis. Applying the five median ratios for each of
the three groups of acquired institutions to First National on both a
GAAP and a RAP basis provided 30 indications of value, ranging from a
low of $6.6 million to a high of $16.7 million. The average and median
indicated values were, respectively, $11.9 million and $11.2 million.
The Merger price of $13.75 million substantially exceeds the average
and median of the indicated values. The implied price/earnings ratio
for First National exceeds the medians of each of the three groups of
acquired banks when calculated on a RAP basis and substantially exceeds
those medians on a GAAP basis. The indicated values at the higher end
of the range result from capitalizing First National's GAAP equity,
which Mercer Capital considered to be a highly favorable (from the
point of view of First National's present shareholders) representation
of its economic net worth. Based upon the preceding observations,
Mercer Capital concluded that the purchase consideration of offered by
Florida Banks for First National compared favorably with recent bank
acquisition transactions.
Dilution Analysis. Mercer Capital conducted a dilution
analysis whereby hypothetical non-dilutive prices for First National
were generated under the assumption that various potential
publicly-traded buyers would structure an offer so that the pro-forma
earnings per share on the shares of the acquiror issued to First
National's Shareholders would equal the pro-forma earnings contributed
by First National. The analysis is based upon First National's 1997
earnings (under both the GAAP and RAP definitions) and the consensus
earnings per share estimates of the potential buyers as reported by SNL
Securities.
The valuation analysis was based upon hypothetical
non-dilutive mergers with Union Planters, SouthTrust, Regions
Financial, Republic Bancshares, Republic Banking Corporation, F.N.B.
Corporation of Pennsylvania, Colonial BancGroup, Compass Bancshares,
AmSouth Bancorporation and Alabama National. The analysis calculated a
range of values for each assumed buyer based upon First National's 1997
earnings (presented on both a GAAP basis and a RAP basis), plus
after-tax cost savings that a buyer might realize. Expense savings were
assumed to range from
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0% to 35% of First National's non-interest operating expenses. Due to
the likely decline in customer service implied by the expense savings
as well as by the change in ownership, core deposits were assumed to
experience run off as expense savings were realized, ranging from 0%
run-off at 0% overhead savings to 10% run-off at 35% overhead savings.
Under the GAAP definition of First National's earnings, the
analysis indicated an overall range of $6.3 million (at 0% expense
savings) to $15.7 million (at 35% expense savings). The bulk of the
indicated values fell well below the $13.75 million purchase
consideration offered by Florida Banks, regardless of the assumed level
of overhead savings, and none of the values indicated under the
assumption of expense savings of 25% or less exceeded $13.5 million.
Even under the assumption of 35% expense savings, the hypothetical
merger prices for First National fell below $13.75 million for a
majority of the banks.
Under the higher RAP definition of First National's earnings,
the analysis indicated an overall range of $10.2 million (at 0% expense
savings) to $20.8 million (at 35% expense savings). None of the values
indicated under the assumption of 0% expense savings exceeded $13.3
million. The hypothetical purchase prices for First National only began
to exceed $13.75 million for a majority of the banks under the
assumption of expense savings of 15% or more.
Mercer Capital noted that the pricing of Florida Banks' offer
was near the mid-point of the range, considering both definitions of
earnings. Mercer Capital cautioned, however, that the implicit
assumption in the analysis is that the buyer "pays" the seller for all
expense savings and no revenues are lost in the acquisition, and, in
Mercer Capital's opinion, buyers rarely credit the seller with all
expense savings. It should also be noted that an informed buyer would
be unlikely to pay a price premised on the capitalization of First
National's RAP earnings into perpetuity, given that the net operating
loss carryforward will ultimately be exhausted.
Discounted Cash Flow Analysis. Mercer Capital prepared a
discounted cash flow ("DCF") analysis after reviewing First National's
1998 budget and strategic plan and discussing the performance outlook
with management of First National. Mercer Capital did not represent or
warrant that First National's actual future performance would reflect
that which was projected. The purpose of the DCF analysis is to develop
an estimate of value First National Shareholders might realize assuming
a merger was delayed five years. Indications of value derived using the
DCF method reflect interim cash flows (dividends) and a terminal cash
flow (the value of First National at the end of the projection period),
both discounted to the present at an appropriate required rate of
return. Mercer Capital's analysis included generally favorable
assumptions regarding balance sheet growth and improvement of margins.
Mercer Capital assumed that pre-tax income would rise to $1.5 million
in 2002 (representing a pre-tax return on assets of 1.8%, comparable to
that of peer sized metropolitan banks), that the net operating loss
carryforward would be largely exhausted by the end of the period, and
that dividends could be paid beginning in the year 2000. Applying
multiples of 20x to 21x to year 2002 net income of $1.0 million,
provides a terminal value of $20.0 million to $21.0 million.
Discounting the terminal value and the interim dividends to the present
at 15% to 16% per annum, implies a value in the range of $10.3 million
to $11.2 million for First National. Mercer Capital noted that the
range of values implied under the DCF analysis falls below the $13.75
million offered by Florida Banks, even when favorable assumptions
regarding First National's future performance are employed. Also, it
was noted that by delaying a sale in an effort to realize more value
that First National Shareholders would run the risk of losing value if
market and/or economic conditions changed, if the projected performance
was not achieved, the historically high level of
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prices offered in bank acquisitions at present was no longer prevalent
at a future sale date or other such events occurred.
Pro Forma Analysis of Per Share Data. Mercer Capital analyzed
the changes in pro forma net tangible book value per share and possible
pro forma earnings per share from the perspective of First National
Shareholders. Mercer Capital did not represent or warrant that the
actual pro forma data reflected in this Proxy Statement-Prospectus
would reflect that which was developed in its analysis.
Pro Forma Net Tangible Book Value Per Share. Mercer Capital
noted that the proposed terms of the Merger would result in a
substantial increase in net tangible book value per share for First
National Shareholders. Adding (i) First National's GAAP equity of $6.3
million; (ii) proceeds of option exercise of $240,000; (iii) minimum
net proceeds of the Florida Banks IPO of $30.0 million; and subtracting
(iv) the 7% underwriting discount of $2.1 million; (v) the $606,000
cost of redeeming the Series A Preferred Stock, representing the
company's organizational cost; and (vi) the $137,500 finders fee paid
by Florida Banks to TSJ&A indicate an aggregate net tangible book value
of Florida Banks of $33.7 million. Alternate estimates of pro forma net
tangible book value can be derived by substituting in the preceding
equation First National's RAP equity of $3.8 million (before option
proceeds) and the expected maximum gross Florida Banks IPO proceeds of
$55.2 million (including full exercise of the underwriters'
over-allotment option). Pro forma shares of Florida Banks Common Stock
outstanding will include 377,800 shares outstanding prior to
consummation of the Merger and the Florida Banks IPO, new shares to be
sold to the public in the Florida Banks IPO and new shares to be issued
in exchange for shares of First National Common Stock. It was noted
that warrants are outstanding to purchase 80,800 shares of Florida
Banks Common Stock at the Florida Banks IPO Price. The warrants expire
seven years after the date of the Florida Banks IPO. First National's
diluted book value per share on a GAAP basis as of December 31, 1997
was $3.17 per share. At the minimum Florida Banks IPO proceeds and at
the expected IPO Price of $10.00 to $12.00 per share of Florida Banks
Common Stock, pro forma net tangible book value rises to $4.61 to $4.68
per exchanged share of First National Common Stock, representing an
increase of 45% to 47%. At the maximum Florida Banks IPO proceeds, net
tangible book value rises to $5.13 to $5.18 per exchanged share of
First National Common Stock, an increase of 61% to 63%. On a RAP basis,
Mercer Capital estimated the Merger to be accretive of book value per
share basis to First National Shareholders on the order of 100% to
150%. The transaction tends to be more accretive of book value per
share to First National Shareholders as the Florida Banks IPO proceeds
increase and less accretive as the IPO Price increases.
Pro Forma Earnings Per Share. Mercer Capital noted that
Florida Banks has no history of operations and plans to expand through
further bank acquisitions and the opening of new banking offices in
Florida following consummation of the Merger and the Florida Banks IPO.
Implementation of Florida Banks' business plan may imply a period of
negative or meager earnings resulting in a decrease in earnings per
share from their pre-merger level. Although, in the absence of an
operating history for Florida Banks, there is no reliable basis on
which to estimate pro forma earnings per share, Mercer Capital believed
the Merger to be more likely to prove initially dilutive rather than
accretive of pro forma earnings per share for First National
Shareholders
Other Factors. Other factors Mercer Capital considered in rendering its
opinion included: (i) the prospect of First National Shareholders being able to
liquidate the shares of Florida Banks Common Stock received in the Merger via a
sale in the public market within two to three weeks of the Merger; (ii) the
enhancement in liquidity for First National Shareholders via the exchange of
their closely held stock for
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publicly traded stock; and (iii) the risks associated with Florida Banks'
expansion plans, its lack of an operating history and the lack of a trading
history for the Florida Banks Common Stock.
Mercer Capital also considered the prospect that First National
Shareholders may benefit from a future acquisition of Florida Banks given the
ongoing industry consolidation. Mercer Capital made no representation or
warranty, however, that such an event would occur, or if it did occur, that it
would occur on favorable terms.
Conclusion. Based upon all factors considered, including the overall
level of purchase consideration implied by the merger price of $6.6586 per share
of First National Common Stock and the accretive nature of the terms of the
Merger with respect to pro forma net tangible book value per share for First
National Shareholders, Mercer Capital concluded that purchase consideration
would be adequate at the date of Closing and that the proposed Merger of First
National Bank into Florida Banks was fair from a financial point of view to
First National Shareholders.
Compensation of Mercer Capital
In February 1998, First National retained Mercer Capital to assist in
effecting a transaction similar to the Merger and to act as its financial
advisor in connection with such proposed transaction. First National paid Mercer
Capital $10,000 for its services pursuant to the terms of the engagement letter.
First National also agreed to reimburse Mercer Capital for its reasonable
out-of-pocket expenses.
CONDITIONS PRECEDENT TO THE MERGER
The Merger will occur only if holders of at least two-thirds of the
First National Common Stock vote in favor of the adoption of the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the Merger, as and to the extent required by law. Consummation of the
Merger is subject to the satisfaction of certain other conditions, including (i)
the receipt of all required regulatory and governmental consents, approvals,
authorization, clearances, exemptions, waivers and similar affirmations
(including the expiration of all applicable waiting periods following the
receipt of such items), provided that such approvals shall not have been
conditioned or restricted in a manner that, in the reasonable judgment of either
the First National Board or the Florida Bank Board, would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement that, had such condition or requirement
been known, such party would not, in its reasonable judgment, have entered into
the Merger Agreement; (ii) the receipt, with certain exceptions, of all consents
required to consummate the Merger and the preventing of any default under any
contract or permit of such party which, if not obtained or made, is reasonably
likely to have, whether individually or in the aggregate, a material adverse
effect on such party; (iii) the absence of any action by a court or governmental
or regulatory authority that prohibits, restricts or makes illegal the
consummation of the transactions contemplated by the Merger Agreement; (iv) that
the Registration Statement of which this Proxy Statement-Prospectus is a part
has been declared effective, no stop order suspending such effectiveness has
been issued, no SEC action suit, proceeding or investigation to suspend
effectiveness has been initiated and is continuing, and that all necessary
approvals under state securities laws, the Securities Act or the Exchange Act
relating to the issuance or trading of the shares of Florida Banks Common Stock
issuable pursuant to the Merger have been received; (v) the receipt of the tax
opinion referred to in "The Merger--Material Federal Income Tax Consequences"
and (vi) Florida Banks has executed a definitive underwriting agreement
providing for the firm commitment underwriting of shares of Florida Banks Common
Stock having an aggregate gross purchase price of at least $30 million, which
agreement is enforceable by Florida Banks on the date the Florida Banks IPO is
closed.
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In addition, unless waived, each party's obligation to effect the
Merger is subject to the accuracy of the other party's representations and
warranties at the Effective Time, the other party's performance of its
obligations under the Merger Agreement and the receipt of certain closing
certificates and legal opinions from the other party. Florida Banks' obligation
to effect the Merger is also subject to (i) the receipt of agreements from First
National's affiliates that such affiliates will not transfer their shares of
First National Common Stock prior to consummation of the Merger or, following
consummation of the Merger, Florida Banks Common Stock except in compliance with
applicable provisions of the Securities Act and (ii) the receipt of an opinion
from Deloitte & Touche, LLP, dated as of the Effective Time, a copy of which
shall be provided to Florida Banks and the contents of which shall be acceptable
to Florida Banks in its sole discretion, to the effect that there has not been
an ownership change, as defined in Code Section 382(g), of First National that
occurred during or after any taxable period in which First National incurred a
net operating loss that carries over to any taxable period ending after December
31, 1996. The obligation of First National to effect the Merger is further
subject to (i) First National's receipt from Mercer Capital of a letter stating
that in the opinion of Mercer Capital, the consideration to be paid in the
Merger to First National Shareholders under the Merger Agreement is fair, from a
financial point of view, to the First National Shareholders and (ii) Florida
Banks having delivered to the Exchange Agent the consideration to be paid to
holders of the First National Common Stock. No assurances can be provided as to
when or if all of the conditions precedent to the Merger can or will be
satisfied or waived by the party permitted to do so.
The Merger Agreement provides that, to the extent permitted by law,
either First National or Florida Banks may waive the conditions imposed with
respect to its or their respective obligations to consummate the Merger, except
for the requirements that the Merger be approved by the First National
Shareholders and that all required regulatory approvals be received.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Under the terms of the Merger Agreement, First National has agreed that
unless it obtains prior written consent from Florida Banks and except as
otherwise contemplated by the Merger Agreement, it will: (i) operate its
business only in the usual, regular and ordinary course, (ii) use its reasonable
best efforts to preserve intact its business organization and assets and to
maintain its rights and franchises, (iii) use its reasonable best efforts to
maintain its current employee relationships and (iv) take no action which would
materially adversely affect any party's ability either (i) to obtain any consent
required for the transactions contemplated by the Merger Agreement without
imposition of a condition or restriction which in the reasonable judgement of
the First National Board or the Florida Banks Board would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement that, had such condition or requirement
been known, such party would not, in its reasonable judgement, have entered into
the Merger Agreement or (ii) to perform its covenants and agreements under the
Merger Agreement.
In addition, First National has covenanted and agreed that, until the
earlier of the Effective Time or termination of the Merger Agreement it will
not, without the prior written consent of the chief executive officer of Florida
Banks, do, or agree or commit to do, any of the following:
(a) amend the First National Articles, the First National
Bylaws, or other governing instruments of First National, except as expressly
contemplated by the Merger Agreement;
(b) incur any additional debt obligation or other obligation
for borrowed money that exceeds $50,000 in the aggregate, except in the ordinary
course of the business of First National consistent with past practices (it
being understood and agreed that the incurrence of indebtedness in the ordinary
course of business shall include, without limitation, creation of deposit
liabilities, purchases of federal funds,
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advances from the Federal Reserve Bank or Federal Home Loan Bank, and entry into
repurchase agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, with certain exceptions, of any lien on any
asset of First National or permit any such lien to exist (other than in
connection with deposits, repurchase agreements, bankers acceptances, "treasury
tax and loan" accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and already
existing liens);
(c) directly or indirectly repurchase, redeem, or otherwise
acquire or exchange (other than exchanges in the ordinary course under employee
benefit plans) any shares or securities convertible into any shares of the
capital stock of First National, or declare or pay any dividend or make any
other distribution in respect of First National's capital stock;
(d) except for the Merger Agreement, or pursuant to the
exercise of stock options outstanding on the date of the Merger Agreement and
pursuant to the terms thereof in existence on the date of the Merger Agreement,
or as disclosed under the Merger Agreement, issue, sell, pledge, encumber,
authorize the issuance of, enter into any contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of First National Common Stock or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock;
(e) adjust, split, combine, reclassify or declare and pay any
dividend or other distribution on any capital stock of First National or issue
or authorize the issuance of any other securities in respect of or in
substitution for shares of First National Common Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber any shares of First National
Common Stock or any asset other than in the ordinary course of business for
reasonable and adequate consideration;
(f) except for purchases of United States Treasury securities
or United States Government agency securities, which in either case have
maturities of five years or less, purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to capital,
asset transfers, or purchase of any assets, in any person, or otherwise acquire
direct or indirect control over any person, other than in connection with (i)
foreclosures in the ordinary course of business, (ii) acquisitions of control by
First National in its fiduciary capacity or (iii) the creation of new
wholly-owned subsidiaries organized to conduct or continue activities otherwise
permitted by the Merger Agreement;
(g) grant any increase in compensation or benefits to the
officers or directors of First National (except that First National may increase
compensation of non-officer employees by up to 5% of such employee's annual
compensation if such increase is consistent with past practice), pay any
severance or termination pay or any bonus other than pursuant to written
policies or written contracts in effect on the date of the Merger Agreement and
as disclosed, enter into or amend any severance agreements with officers of
First National, or voluntarily accelerate the vesting of any stock options or
other stock-based compensation or employee benefits;
(h) enter into or amend any employment contract between First
National and any person (unless such amendment is required by law) that First
National does not have the unconditional right to terminate without liability
(other than liability for services already rendered), at any time on or after
the Effective Time;
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(i) adopt any new employee benefit plan of First National or
make any material change in or to any existing employee benefit plans of First
National other than changes required by law or to maintain a plan's
tax-qualified status;
(j) make any significant change in any tax or accounting
methods or systems of internal accounting controls, except as may be appropriate
to conform to changes in tax laws or regulatory accounting requirements or GAAP;
(k) commence any litigation other than in accordance with past
practice or settle any litigation involving any liability of First National for
material money damages or restrictions upon the operations of First National
without first consulting with Florida Banks;
(l) except in the ordinary course of business, modify, amend
or terminate any material contract, other than renewals without a material
adverse change of terms, or waive, release, compromise or assign any material
rights or claims;
(m) make any investment in excess of $50,000 either by
purchase of stock or securities, contributions to capital, property transfers,
or purchases of any property or assets of any other individual, corporation or
other entity other than a wholly-owned subsidiary of First National; or
(n) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets to any individual, corporation or other
entity other than a direct or indirect wholly-owned subsidiary of First
National, or cancel, release or assign any indebtedness to any such person or
any claims held by any such person, except in the ordinary course of business
consistent with past practice or pursuant to contracts or agreements in force at
the date of the Merger Agreement.
The Merger Agreement also provides that until the Effective Date or
termination of the Merger Agreement, neither First National nor its
representatives will directly or indirectly solicit any tender offer or exchange
offer or any proposal for a merger, acquisition of all of the stock or assets
of, or other business combination involving First National, or any proposal or
offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, First National ("Acquisition Proposal"),
except with respect to the Merger Agreement. Additionally, except to the extent
necessary to comply with the fiduciary duties of the First National Board, as
advised by counsel, neither First National nor its affiliates or representatives
will provide any nonpublic information that it is not legally obligated to
furnish or negotiate with respect to any Acquisition Proposal, although First
National may communicate information about such Acquisition Proposal to the
First National Shareholders if and to the extent that it is required to do so in
order to comply with its legal obligations. Finally, First National agreed (i)
to notify Florida Banks orally and in writing if it receives any inquiry or
proposal relating to any such transaction and (ii) immediately to cease and
cause to be terminated any existing activities, discussions or negotiations with
any persons conducted heretofore with respect to any of the foregoing and direct
and to use its reasonable best efforts to cause its representatives not to
engage in any of the foregoing.
In the Merger Agreement, Florida Banks covenanted and agreed that until
the earlier of the Effective Time or termination of the Merger Agreement it will
(i) continue to conduct its business and the business of its subsidiaries in a
manner reasonably designed to enhance the long-term value of the Florida Banks
Common Stock and Florida Banks' business prospects and (ii) take no action that
would materially adversely affect any party's ability to (a) obtain any consents
or approvals required to effect the transactions contemplated by the Merger
Agreement without imposition of a condition or restriction which in the
reasonable judgment of the Florida Banks Board or the First National Board would
so materially adversely
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impact the economic or business benefits of the transactions contemplated by the
Merger Agreement that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into the Merger Agreement or
(b) perform its covenants and agreements under the Merger Agreement; provided
that if Florida Banks determines it to be desirable in the conduct of its
business, Florida Banks may discontinue or dispose of any of its assets or
business. Florida Banks further covenanted and agreed that it will not, without
the prior written consent of the chairman and chief executive officer of First
National, which consent will not be unreasonably withheld, amend the Florida
Banks Articles or the Florida Banks Bylaws in any manner adverse to the First
National Shareholders. Florida Banks also agreed that it will not issue
additional shares of Florida Banks Common Stock or preferred stock until the
Effective Time
AMENDMENT, WAIVER AND TERMINATION
To the extent permitted by law, the Merger Agreement may be amended by
a subsequent writing signed by each party upon the approval of each of their
respective Boards of Directors, whether before or after the First National
Shareholders have approved the Merger Agreement. However, after the First
National Shareholders have approved the Merger Agreement, the Merger Agreement
may not be amended in any way that would materially reduce or modify the
consideration to be received by the First National Shareholders without the
further approval of the First National Shareholders entitled to vote thereon.
The Merger Agreement provides that on or before the Effective Time,
either party may, in a writing signed by a duly authorized officer: (i) waive
any default in the performance of any term of the Merger Agreement by the other
party, (ii) waive or extend the time for compliance of fulfillment by the other
party of any and all of its obligations under the Merger Agreement and (iii)
waive any or all of the conditions precedent to its obligations under the Merger
Agreement to the extent legally permitted. However, either party's failure at
any time to require performance of any provision of the Merger Agreement will in
no manner affect that party's right at a later time to enforce such provision or
any other provision of the Merger Agreement. No waiver of any condition or
breach of any term of the Merger Agreement will be deemed to be or construed as
a further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of the Merger Agreement.
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (i) by mutual written agreement of the Florida
Banks Board and the First National Board; (ii) by either the Florida Banks Board
or the First National Board: (a) in the event of the inaccuracy of any
representation or warranty of the other party contained in the Merger Agreement
which cannot be or has not been cured within 30 days of written notice of such
inaccuracy and which inaccuracy would provide the terminating party the ability
to refuse to consummate the Merger under the applicable standard set forth in
the Merger Agreement; provided that such terminating party is not then in breach
of any representation or warranty contained in the Merger Agreement or in
material breach of any covenant or other agreement contained in the Merger
Agreement; (b) in the event of a material breach by the other party of any
covenant, agreement or obligation in the Merger Agreement which breach cannot be
or has not been cured within 30 days of written notice of such breach; (c) if
the required approval of the First National Shareholders or any applicable
regulatory authority is not obtained; (d) if the Merger is not consummated by
September 30, 1998; provided that the failure to consummate the Merger by such
date is not caused by the terminating party's breach of the Merger Agreement or
(e) if any of the conditions precedent to the obligations of the terminating
party to consummate this Merger cannot be satisfied or fulfilled by September
30, 1998; provided that the terminating party is not then in breach of any
representation or warranty contained in the Merger Agreement or of any covenant
or other agreement contained in the Merger Agreement.
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In addition, Florida Banks may terminate the Merger Agreement if: (i)
persons owning in the aggregate more than 10% of the issued and outstanding
shares of First National Common Stock perfect their dissenters' rights or (ii)
First National does not receive the opinion of Deloitte & Touche LLP referred to
in "The Merger." In addition, First National may terminate the Merger Agreement
if, prior to the Effective Time: (i) Mercer Capital withdraws its fairness
opinion or (ii) the First National Board receives a bona fide Acquisition
Proposal that the First National Board determines in its good faith judgment and
in the exercise of its fiduciary duties, with respect to legal matters based on
the written opinion of legal counsel and as to financial matters on the written
opinion of an investment banking firm of national reputation, is more favorable
to the First National Shareholders than the Merger and the transactions
contemplated thereby and that the failure to terminate the Merger Agreement and
accept such alternative Acquisition Proposal would be inconsistent with the
proper exercise of such fiduciary duties (each of the foregoing a "Termination
Event"). There can be no assurance that either the Florida Banks Board or the
First National Board would exercise its right to terminate the Merger Agreement
if a Termination Event exists. In making such decision, both the Florida Banks
Board and the First National Board would, consistent with their respective
fiduciary duties, take into account all relevant facts and circumstances that
exist at such time, and would consult with its financial advisors and legal
counsel.
The Merger Agreement will become void and have no effect if terminated
and abandoned, except that the parties will continue to be bound by certain
obligations described below under "The Merger--Expenses." In addition, the
parties will continue to be obligated to provide current information to one
another and will have certain other continuing obligations under the Merger
Agreement. In addition, a termination resulting from the breach of either party
or from the perfecting of dissenters' rights by persons holding more than 10% of
the issued and outstanding First National Common Stock of dissenters' rights,
will not relieve the breaching party from liability for an uncured willful
breach of a representation, warranty, covenant, or agreement giving rise to such
termination; provided, further, that under certain circumstances, First National
or Florida Banks may be entitled to receive certain payments. See "The
Merger--Expenses."
By approving the Merger Agreement at the Special Meeting, the First
National Shareholders will confer on the First National Board the power,
consistent with its fiduciary duties, to elect to consummate the Merger in the
event of a Termination Event without any further action by, or resolicitation
of, the First National Shareholders.
EXPENSES
First National and Florida Banks have each agreed to pay their own
costs and expenses relating to the Merger and the transactions contemplated
thereby, except that Florida Banks and First National have agreed that each will
pay one-half of the costs associated with printing this Proxy
Statement-Prospectus and related materials. However, subject to certain
exceptions, if the Merger Agreement is terminated following the occurrence of
one or more events specified as "Initial Triggering Events," Florida Banks will
be entitled to receive a $1 million cash payment from First National if: (i) any
person other than an existing First National Shareholder acquires beneficial
ownership of at least 25% of the-then outstanding First National Common Stock or
(ii) an Initial Triggering Event constituting a First National Acquisition
Transaction occurs within 12 months following the Merger Agreement's termination
date, except that if the Acquisition Transaction is a purchase of First National
securities, no payment will be due unless the acquired percentage is at least
25%.
"Initial Triggering Event" means any of the following occurring after
the date of the Merger Agreement:
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(i) First National, without receiving Florida Banks' prior written
consent, enters into an agreement to engage in (a) a merger, consolidation, or
similar transaction, (b) a purchase, lease, or other acquisition of all or
substantially all of First National's assets or deposits, or (c) a purchase or
other acquisition of securities representing at least 15% of First National's
voting power (an "Acquisition Transaction") with any person other than Florida
Banks or any of its subsidiaries, or the First National Board recommends that
the First National Shareholders approve or accept any Acquisition Transaction
other than the Merger;
(ii) any person unaffiliated with First National, other than Florida
Banks or any Florida Banks subsidiary acting in a fiduciary capacity, acquires
beneficial ownership or the right to acquire beneficial ownership of at least
15% of the outstanding First National Common Stock, and such person does not
vote in favor of the Merger Agreement at the Special Meeting;
(iii) the Special Meeting is not held or is canceled, or First
National, without receiving Florida Banks' prior written consent, authorizes,
recommends, proposes, or publicly announces its intention or interest in
authorizing, recommending or proposing an agreement to engage in an Acquisition
Transaction with an entity unaffiliated with Florida Banks;
(iv) an entity unaffiliated with Florida Banks makes a bona fide
proposal to First National or its shareholders to engage in an Acquisition
Transaction with an economic value equivalent to or exceeding that of Florida
Banks;
(v) after a third party makes a proposal to First National to engage
in an Acquisition Transaction, First National willfully and materially breaches,
and does not cure, any material covenant or obligation contained in the Merger
Agreement in anticipation of engaging in the Acquisition Transaction, and such
breach would entitle Florida Banks to terminate the Merger Agreement; or
(vi) an entity unaffiliated with Florida Banks files an application
or notice with the Federal Reserve Board or other federal or state bank
regulatory authority for approval to engage in an Acquisition Transaction, and
Florida Banks has not given its prior written consent to such Acquisition
Transaction.
If the Merger Agreement is terminated as a result of either party's failure to
satisfy any of its representations, warranties or covenants under the Merger
Agreement, the non-terminating party will reimburse the terminating party for
its reasonable out-of-pocket expenses relating to the Merger up to $250,000.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Smith, Gambrell & Russell, LLP has delivered to Florida Banks and First
National its opinion that, based upon certain customary assumptions and
representations, under federal law as currently in effect, (1) the merger of
First National into Interim, and the issuance of shares of Florida Banks Common
Stock pursuant to the Merger Agreement will constitute a tax-free
"reorganization" under Sections 368(a)(1)(A) and (a)(2)(D) of the Code; (2) no
gain or loss will be recognized by shareholders of First National upon the
exchange of First National Common Stock for Florida Banks Common Stock pursuant
to the Merger Agreement; (3) the tax basis of the Florida Banks Common Stock
received by shareholders of First National pursuant to the Merger Agreement will
be the same as the tax basis of the shares of First National Common Stock
surrendered in exchange therefor; (4) the holding period of the shares of
Florida Banks Common Stock received by the shareholders of First National will
include the holding period of the shares of First National Common Stock
surrendered in exchange therefor, provided that such First National Common Stock
is held as a capital asset on the date of consummation of the Merger; (5) no
gain or loss will be recognized by First National upon the transfer by First
National of substantially all its assets to Interim solely in exchange for
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Florida Banks Common Stock and the assumption by Interim of the liabilities of
First National pursuant to the Merger Agreement; (6) no gain or loss will be
recognized by Florida Banks or Interim upon the receipt by Interim of
substantially all the assets of First National in exchange for Florida Banks
Common Stock and the assumption by Interim of the liabilities of First National;
(7) the tax basis of the common stock of Interim in the hands of Florida Banks
will be increased by the tax basis of the assets of First National transferred
to Interim and decreased by the sum of the liabilities of First National assumed
by Interim and the liabilities, if any, to which the transferred assets of First
National are subject; (8) the tax basis of the assets of First National
transferred to Interim pursuant to the Merger Agreement will be the same as the
tax basis of those assets in the hands of First National immediately before the
transfer; (9) pursuant to Section 381(a) of the Code, Interim will succeed to
and take into account the tax attributes of First National described
particularly in Section 381(c) of the Code as of the date of the transfer of
assets from First National to Interim, subject to the limitations specified in
Sections 381 through 384 of the Code; (10) pursuant to Section 381(c)(2) of the
Code, Interim will succeed to and take into account the earnings and profits or
deficit in earnings and profits of First National as of the date of the transfer
of assets from First National to Interim. Any deficit in such earnings and
profits may be used only to offset earnings and profits accumulated after the
date of such transfer; (11) a holder of First National Common Stock who
exercises statutory dissenter's rights in connection with the Merger generally
will recognize capital gain or loss (assuming the Common Stock is held as a
capital asset) equal to the difference, if any, between such holder's tax basis
in the First National Common Stock exchanged and the amount of cash received in
exchange therefor; and (12) a holder of First National Common Stock who receives
cash in lieu of a fractional share of Florida Banks Common Stock pursuant to the
terms of the Merger Agreement will recognize capital gain or loss (assuming the
fractional share is held as a capital asset) equal to the difference, if any,
between the amount of cash so received and the holder's tax basis allocable to
such fractional share.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE PROPOSED MERGER UNDER THE CODE. THE FOREGOING DISCUSSION
DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX LAWS OR SPECIAL
CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL SITUATIONS. FIRST
NATIONAL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE AND LOCAL TAX LAWS AND TAX CONSEQUENCES OF SUBSEQUENT SALES OF
FLORIDA BANKS COMMON STOCK.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General
Certain members of First National's management and of the First
National Board have interests in the Merger in addition to any interests they
may have as First National Shareholders generally. As hereinafter described,
these interests include, among others, the indemnification of First National
directors and officers, certain employee benefits, and the payment of a
directors' termination fee to any member of the First National Board who will
not become either an advisory director to Florida Bank, N.A. following
consummation of the Merger or a member of the Florida Banks Board or executive
officer of Florida Banks following the Effective Time.
Indemnification
Under the Merger Agreement, Florida Banks has agreed that it will, and
will cause the Resulting Bank to, indemnify, defend and hold harmless the
current and former directors, officers, employees and agents of First National
against all costs, fees or expenses (including reasonable attorney's fees),
judgments, fines, penalties, losses, claims, damages, liabilities and amounts
paid in settlement of any litigation arising out
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of actions or omissions occurring on or before the Effective Time (including the
transactions contemplated by the Merger Agreement) to the fullest extent
permitted under Florida law and by the First National Articles and First
National Bylaws as in effect on the date of the Merger Agreement, including
provisions relating to advances of expenses incurred in defense of any
litigation. If Florida Banks' approval is required to effectuate any
indemnification, Florida Banks will direct, at the indemnified party's election,
for independent counsel mutually agreed upon between Florida Banks and the
indemnified party to determine such approval.
Directors' Termination Fee
At the Effective Time, Florida Banks will pay $25,000 in cash to each
member of the First National Board who will not, upon consummation of the
Merger, become either a local advisory director of Florida Bank, N.A. or a
director or executive officer of Florida Banks; provided, that to receive such
cash payment, the director must execute an agreement with Florida Banks whereby
the director (i) agrees not to compete with Florida Banks or any of its
affiliates for a period of one year after the Effective Time and (ii) releases
First National and its successors by merger, Florida Banks and their directors
and officers from any claims or causes of action which may have arisen or
occurred at any time before the Effective Time.
Matters Relating to First National Employee Benefit Plans
Under the Merger Agreement, Florida Banks has agreed that following the
Effective Time, it will provide generally to former officers and employees of
First National who continue to serve as officers and directors of Florida Bank,
N.A. employee benefits under employee benefit plans (other than stock option or
other plans involving the potential issuance of Florida Banks Common Stock), on
terms and conditions which when taken as a whole are no less favorable than
those provided by First National or those provided by Florida Banks to their
similarly situated officers and employees as of the date of the Merger
Agreement. For purposes of participation and vesting (but not benefit accrual
under any employee benefit plans of Florida Banks other than the First National
benefit plans) under such employee benefit plans, the service of the employees
of First National prior to the Effective Time will be treated as service with
Florida Banks participating in such employee benefit plans. Florida Banks will
honor according to their terms all employment, severance, consulting, and other
compensation contracts disclosed by First National pursuant to the Merger
Agreement between First National and any current or former director, officer, or
employee thereof, and for all provisions for vested benefits or other vested
amounts earned or accrued through the Effective Time under the First National
benefit plans.
Management Contracts
Florida Banks has agreed to provide written employment contracts to
Messrs. John S. McMullen and T. Edwin Stinson, Jr., which will take effect at
the Effective Time. The employment contracts must be executed within 30 days
following the date of the Merger Agreement; otherwise Messrs. McMullen and
Stinson will retain and be governed by their respective employment agreements
with First National.
DISSENTERS' RIGHTS OF FIRST NATIONAL SHAREHOLDERS
Pursuant to the National Bank Act, each First National Shareholder
entitled to vote on the adoption of the Merger Agreement who objects to the
Merger Agreement will be entitled to the rights and remedies of dissenting
shareholders provided under Section 215a, the text of which is included in
Appendix B to this Proxy Statement-Prospectus and is incorporated herein by
reference, and any such First National Shareholder who follows the procedures
specified in Section 215a will be entitled to receive the cash value of his or
her shares of First National Common Stock. A FIRST NATIONAL SHAREHOLDER MUST
COMPLY STRICTLY WITH THE
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PROCEDURES SET FORTH IN SECTION 215A. FAILURE TO FOLLOW ANY OF THOSE PROCEDURES
MAY RESULT IN A TERMINATION OR WAIVER OF HIS OR HER DISSENTERS' RIGHTS.
To perfect dissenters' rights, a holder of shares of First National
Common Stock must (a) vote against the Merger Agreement or otherwise notify the
Secretary of First National in writing at or prior to the Special Meeting that
he or she dissents from the Merger and (b) within thirty days after the Closing
of the Merger, deliver to Florida Banks a written request for the cash value of
his or her shares of First National Common Stock, accompanied by the surrender
of certificates representing his or her shares of First National Common Stock.
IN NO EVENT WILL ANY SHAREHOLDER BE ENTITLED TO DISSENTERS' RIGHTS IF HE OR SHE
VOTES "FOR" THE ADOPTION OF THE MERGER AGREEMENT. Before the Closing of the
Merger, dissenting First National Shareholders should send any communications
regarding their rights to First National Bank, 100 West Kennedy Boulevard,
Tampa, Florida 33602, Attention: Secretary. At or after the Closing of the
Merger, dissenting shareholders should send any communications regarding their
rights to Florida Banks, Inc., 4110 Southpoint Boulevard, Suite 212, Southpoint
Square II, Jacksonville, Florida 32216-0925, Attention: Secretary. All
communications should be signed by or on behalf of the dissenting First National
Shareholder in the form in which his or her shares are registered on the books
of First National.
The value of the shares of First National Common Stock held by a
dissenting shareholder will be determined, as of the Effective Time, by a
committee of three appraisers, of which one is to be selected by the holders of
a majority of the shares of First National Common Stock whose owners have
exercised their dissenters' rights, one is to be selected by the Florida Banks
Board and one is to be selected by the two appraisers so selected. The valuation
agreed upon by any two of the three appraisers will govern. Any dissenting
shareholder who does not find satisfactory the value fixed by the appraisers
may, within five days after being notified of the appraised value of his or her
shares, appeal to the OCC, and the OCC will thereafter cause a reappraisal to be
made that will be final and binding as to the value of the shares of such
shareholder. If for any reason one or more of the appraisers remains unselected
after 90 days from the Closing of the Merger, or the selected appraisers fail to
determine the value of the shares of First National Common Stock within such
90-day period, the OCC will cause a final and binding appraisal of such shares
to be made upon the written request of any interested party. Florida Banks will
pay the expenses of the OCC in making any appraisal or reappraisal described
above.
Florida Banks will promptly pay dissenting shareholders the value of
their shares of First National Common Stock following their appraisal. The
shares of Florida Banks Common Stock that would have been delivered to the
dissenting First National shareholders had they not requested payment in
accordance with Section 215a must be sold at any advertised public auction, and
Florida Banks has the right to purchase any or all of such shares at such
auction if it is the highest bidder, for the purpose of reselling such shares
within thirty days thereafter. Any excess of the public auction price of shares
of Florida Banks Common Stock over the amount paid to the dissenting First
National Shareholders must be paid to the dissenting shareholders.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF THE RIGHTS AND
OBLIGATIONS OF A DISSENTING SHAREHOLDER AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PROVISIONS OF THE DISSENTERS' RIGHTS STATUTE, SECTION 215A,
WHICH IS REPRODUCED IN FULL AS APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS.
Florida Banks has the right to terminate the Merger at any time before
the Effective Time if holders of at least 10% of the outstanding First National
Common Stock legally assert dissenting shareholders' rights.
See "The Merger--Amendment, Waiver and Termination."
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ACCOUNTING TREATMENT
Because, upon consummation of the Merger, former First National
Shareholders will own more than 50% of the outstanding Florida Banks Common
Stock (not including shares issued in the Florida Banks IPO), the Merger will be
accounted for as if First National had acquired Florida Banks. The Merger will
be accounted for under the purchase method of accounting, the financial
statements of First National will become Florida Banks' historical financial
statements and no goodwill will be recorded on Florida Banks' balance sheet as a
result of the Merger.
BANK REGULATORY MATTERS
The Merger is subject to prior approval by the Federal Reserve Board
and the OCC. In determining whether to approve a transaction such as the Merger,
the Federal Reserve Board and the OCC consider the financial and managerial
resources (including the competence, experience and integrity of the officers,
directors and principal shareholders) and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board and the OCC, among other things, evaluate the adequacy of the
capital levels of the parties to a proposed transaction. On June 17, 1998,
Florida Banks received the necessary Federal Reserve Board approval of the
Merger from the Federal Reserve Bank of Atlanta.
The Bank Holding Company Act ("BHCA") prohibits the Federal Reserve
Board from approving a merger if it would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or if its
effect in any section of the country would be substantially to lessen
competition or to tend to create a monopoly, or if it would in any other manner
result in a restraint of trade, unless the Federal Reserve Board finds that the
anti-competitive effects of a merger are clearly outweighed by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served. In addition, the Community Reinvestment Act of 1977,
as amended, obligates the Federal Reserve Board and the OCC to take into account
the record of performance of the existing institutions in meeting the credit
needs of the entire community, including low- and moderate-income neighborhoods,
served by such institutions.
Applicable federal law provides for the publication of notice and
public comment on applications filed with the Federal Reserve Board and the OCC
and authorizes such agencies to permit interested parties to intervene in the
proceedings. If an interested party is permitted to intervene, such intervention
could delay the regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until between 15 and 30
days following the date of applicable federal regulatory approval, during which
time the United States Department of Justice (the "DOJ") may challenge the
Merger on antitrust grounds. The commencement of an antitrust action would stay
the effectiveness of the regulatory agency's approval unless a court
specifically ordered otherwise. Florida Banks and First National believe that
the Merger does not raise substantial antitrust or other significant regulatory
concerns.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
Florida Banks and First National have filed all applications and
notices and have taken (or will take) other appropriate action with respect to
any requisite approvals or other actions of any governmental authority. Florida
Banks has submitted an application to the Federal Reserve Board seeking approval
of the
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Merger, and on June 17, 1998, Florida Banks received the necessary Federal
Reserve Board approval of the Merger from the Federal Reserve Bank of Atlanta.
The Merger Agreement provides that the obligation of each of Florida
Banks and First National to consummate the Merger is conditioned upon the
receipt of all requisite regulatory approvals. There can be no assurance that
any governmental agency will approve or take any other required action with
respect to the Merger, and, if approvals are received or action is taken, there
can be no assurance as to the date of such approvals or action, that such
approvals or action will not be conditioned upon matters that would cause the
parties to abandon the Merger, or that no action will be brought challenging
such approvals or action, including a challenge by the DOJ or, if such a
challenge is made, the result thereof.
Florida Banks and First National are not aware of any governmental
approvals or actions that may be required for consummation of the Merger other
than as described above. Should any other approval or action be required,
Florida Banks and First National currently contemplate that such approval or
action would be sought.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER
AGREEMENT. SEE "THE MERGER--CONDITIONS PRECEDENT TO THE MERGER." THERE LIKEWISE
CAN BE NO ASSURANCE THAT THE DOJ WILL NOT CHALLENGE THE MERGER, OR, IF SUCH A
CHALLENGE IS MADE, AS TO THE RESULT THEREOF.
See "The Merger--Effective Time of the Merger," "The Merger--Conditions
Precedent to thE Merger" and "The Merger--Amendment, Waiver and Termination."
RESTRICTIONS ON AFFILIATE RESALES
Shares of Florida Banks Common Stock to be issued to First National
Shareholders in the Merger have been registered under the Securities Act and may
be traded freely without restriction by shareholders not deemed to be
"affiliates" of First National or Florida Banks, as that term is defined under
the Securities Act. Any subsequent transfer of such shares, however, by any
person who is an affiliate of First National at the time the Merger is submitted
for vote or consent of the First National Shareholders will, under existing law,
require either (a) the further registration under the Securities Act of the
shares of Florida Banks Common Stock to be transferred, (b) compliance with Rule
145 promulgated under the Securities Act (permitting limited sales under certain
circumstances) or (c) the availability of another exemption from registration.
An "affiliate" of First National, as defined by the rules promulgated pursuant
to the Securities Act, is a person who directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control with
First National. The foregoing restrictions are expected to apply to the
directors, executive officers and the beneficial holders of 10% or more of the
First National Common Stock (and to certain relatives or the spouse of any such
person and any trusts, estates, corporations or other entities in which any such
person has a 10% or greater beneficial or equity interest). Florida Banks will
provide stop transfer instructions to the transfer agent with respect to the
Florida Banks Common Stock to be received by persons subject to the restrictions
described above. First National has agreed that, not later than 30 days prior to
the Effective Time, it will use its best efforts to cause each of those persons
identified by First National as affiliates to deliver to Florida Banks
appropriate agreements that each such individual will not transfer or otherwise
dispose of the shares of First National Common Stock held by such person except
in accordance with such agreement or make any further sales or otherwise dispose
of shares of Florida Banks Common
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Stock received upon consummation of the Merger except in compliance with the
restrictions described in this paragraph.
RECOMMENDATION OF THE FIRST NATIONAL BOARD.
THE FIRST NATIONAL BOARD HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE FIRST NATIONAL SHAREHOLDERS
VOTE TO ADOPT THE MERGER AGREEMENT.
Each member of the First National Board has agreed to vote his shares
of First National Common Stock in favor of the adoption of the Merger Agreement.
See "The Merger -- Interests of Certain Persons in the Merger."
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
MARKET PRICES
There is no established public market for either the Florida Banks or
First National Common Stock. As of the Record Date, there were 2,065,000 shares
of First National Common Stock issued and outstanding held by 83 holders of
record. In view of the extremely limited volume of transfers and the lack of
reliable pricing information (because such information is not required to be
forwarded to First National), management believes that the prices paid for the
First National Common Stock would not provide a reliable or relevant indication
of the value of First National Common Stock.
The Florida Banks Common Stock has been approved for quotation on The
Nasdaq National Market under the symbol "FLBK".
DIVIDEND POLICY
Florida Banks has not declared or distributed any dividends to the
holders of Florida Bank Common Stock since Florida Banks' organization, and it
is not likely that any cash dividends on the Florida Banks Common Stock will be
declared for the foreseeable future. The Florida Banks Board intends that for
the foreseeable future following the Effective Time, it will follow a policy of
retaining any earnings of Florida Banks to provide funds to operate and expand
the business of Florida Banks and Florida Bank, N.A.
The national banking laws and OCC regulations restrict First National's
ability to pay dividends. Pursuant to 12 U.S.C. ss. 56, a national bank may not
pay dividends from its capital. In addition, no dividends may be made in an
amount greater than a national bank's undivided profits, subject to other
applicable provisions of law. Payments of dividends out of undivided profits are
further limited by 12 U.S.C. ss. 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals its common
capital, unless at least one-tenth of the bank's net income of the preceding two
consecutive half year periods (in the case of an annual dividend) have been
transferred to surplus. Pursuant to 12 U.S.C. ss. 60(b), OCC approval is
required if the total of all dividends declared by the bank in any calendar year
exceeds the total of its net income for that year combined with its retained net
income for the preceding two years, less any required transfers to surplus or a
fund for the retirement of any preferred stock.
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INFORMATION ABOUT FLORIDA BANKS
GENERAL
Florida Banks, Inc. was incorporated on October 15, 1997 to create a
statewide community banking system focusing on the largest and fastest growing
markets in Florida. Immediately prior to the closing of the Florida Banks IPO,
Florida Banks will close the Merger, whereby Interim, a wholly-owned subsidiary
of Florida Banks, will merge with and into First National. Interim will be the
surviving party to the Merger and will, immediately following consummation of
the Merger, change its name to Florida Bank, N.A. Florida Banks is acquiring
First National as its entry into the Tampa/Hillsborough County market area.
Florida Banks intends to open a community banking office in the Jacksonville
market area as soon as practicable following consummation of the Florida Banks
IPO. Future business plans include further expansion in the Tampa/Hillsborough
County and Jacksonville market areas and entry into the markets of
Orlando/Orange County, Ft. Lauderdale/Broward County and the Palm Beaches
(collectively, the "Identified Markets"). As opportunities arise, Florida Banks
also intends to expand into other Florida market areas with demographic
characteristics similar to the Identified Markets. Within each of the Identified
Markets, Florida Banks expects to offer a broad range of traditional banking
products and services, focusing primarily on small and medium-sized businesses.
See "Information About Florida Banks--Strategy of Florida Banks--Market
Expansion" and "--Products and Services."
Florida Banks will have a community banking approach that emphasizes
responsive and personalized service to its customers. Management's expansion
strategy includes attracting strong local management teams who have significant
banking experience, community contacts and business development potential in the
Identified Markets. Once local management teams are identified, Florida Banks
intends to establish community banking offices in each of the Identified
Markets. Each management team will operate one or more community banking offices
within its particular market area, will have a high degree of local
decision-making authority and will operate in a manner that provides responsive,
personalized services similar to an independent community bank ("Community
Banking Office"). Florida Banks will maintain centralized credit policies and
procedures as well as centralized back office functions to support the Community
Banking Offices. Management expects that upon Florida Banks' entry into a new
market area, it will undertake a marketing campaign utilizing an officer calling
program and community-based promotions. In addition, management will be
compensated based on loan production goals, and each market area will be
supported by a local board of advisory directors, which will be provided with
financial incentives to assist in the development of banking relationships
throughout the community. See "Information About Florida Banks--Model 'Local
Community Bank.'"
Management of Florida Banks believes that the significant consolidation
in the banking industry in Florida has disrupted customer relationships as the
larger regional financial institutions increasingly focus on larger corporate
customers, standardized loan and deposit products and other services. Generally,
these products and services are offered through less personalized delivery
systems which has created a need for higher quality services to small and
medium-sized businesses. In addition, consolidation of the Florida banking
market has dislocated experienced and talented management personnel due to the
elimination of redundant functions and the need to achieve cost savings. As a
result of these factors, management believes Florida Banks has a unique
opportunity to attract and maintain its targeted banking customers and
experienced management personnel within the Identified Markets.
The Community Banking Offices within each market area will be supported
by centralized back office operations. From Florida Banks' main offices located
in Jacksonville and First National and its operations center in Tampa, Florida
Banks will provide a variety of support services to each of the
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Community Banking Offices, including back office operations, investment
portfolio management, credit administration and review, human resources,
administration, training and strategic planning. Core processing, check clearing
and other similar functions will be outsourced to major vendors. As a result,
these operating strategies will enable Florida Banks to achieve cost
efficiencies and to maintain consistency in policies and procedures and allow
the local management teams to concentrate on developing and enhancing customer
relationships.
Florida Banks expects to establish Community Banking Offices in each
new market area, primarily through the de novo branching of Florida Bank, N.A.
Management will also, however, evaluate opportunities for strategic acquisitions
of financial institutions in markets that are consistent with its business plan.
There can be no assurance that Florida Banks' objectives will be
realized.
INDUSTRY AND DEMOGRAPHIC OVERVIEW
Management of Florida Banks believes that consolidation within the
banking industry in Florida has created a unique opportunity to build a
successful, locally-oriented banking system. According to the FDIC, as of
December 31, 1987, 560 depository institutions were located in Florida. By
December 31, 1997, there were a total of 311 depository institutions in Florida,
representing a decline of approximately 44% over the ten-year period. Management
attributes this decline to the liberalization of interstate banking and
branching laws allowing the entry into, and expansion in, Florida by numerous
large bank holding companies. The result of this acquisition activity has been a
significant reduction in the number of community-oriented financial institutions
focusing on personalized service to small and medium-sized business customers.
Management of Florida Banks believes that Florida Banks' strategy, which is
based on a community bank model, is better suited to provide a high level of
service to smaller commercial or individual retail customers than larger
financial institutions.
Management of Florida Banks believes that the State of Florida in
general and the Identified Markets in particular have vibrant and growing
economies and represent an attractive opportunity to build a statewide community
banking system. According to the Bureau of Economic and Business Research at the
University of Florida, Florida's population of approximately 14.7 million in
1997 made it the fourth most populated state in the country. From 1990 to 1996,
Florida ranked third among the ten most populated states in terms of percentage
population growth. Florida's economy has broadened from a base of tourism,
agriculture and retirement living to become increasingly dependent on industrial
and commercial trade. According to the FDIC, during 1997, nonagricultural
employment in Florida increased by 3.6% which was substantially above the
national rate of 2.7%. In 1997, Florida ranked fourth nationally in terms of
total job growth. Management believes that Florida's major metropolitan areas
have benefited the most from this economic and population expansion. Florida has
experienced substantial growth in the amount of commercial and consumer
deposits. As of June 30, 1997, commercial and consumer deposits in Florida
totaled approximately $200 billion, an increase of $13.9 billion for the period
from June 30, 1994 to June 30, 1997.
HISTORY OF FLORIDA BANKS
The concept for Florida Banks was developed in late 1997 by T. Stephen
Johnson & Associates, Inc., a financial services consulting firm ("TSJ&A").
Florida Banks was organized under the laws of the State of Florida on October
15, 1997 to implement this concept. TSJ&A evaluated potential bank acquisition
candidates in various Florida markets and identified First National as an
independent financial institution capable of providing a platform to implement
Florida Banks' business plan. Florida Banks and First National
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commenced preliminary merger negotiations late in 1997, and the parties signed a
letter of intent in January 1998.
Simultaneously with the search for an acquisition candidate, Florida
Banks sought a chief executive officer who possessed the experience, leadership
skills and management ability to accomplish Florida Banks' objectives. In
January 1998, Florida Banks hired Charles E. Hughes, Jr. to be the President and
Chief Executive Officer of Florida Banks. Prior to joining Florida Banks, Mr.
Hughes served as Chairman of the Board, President and Chief Executive Officer of
SouthTrust Bank of Florida, N.A. which, as of June 1997, had approximately $5.4
billion in total deposits. Florida Banks believes that the combination of Mr.
Hughes' experience in the Florida banking industry, his extensive network of
contacts throughout the state and his management skills will provide the
leadership necessary for Florida Banks to implement its business strategy.
On March 30, 1998, Florida Banks executed the Merger Agreement with
First National, pursuant to which Florida Banks will acquire all of the
outstanding capital stock of First National in exchange for shares of Florida
Banks Common Stock. The aggregate purchase price for First National will be
$13.75 million. The total number of shares of Florida Banks Common Stock to be
issued in the Merger will be based upon the IPO Price of the Florida Banks
Common Stock. The Merger will be accounted for as if First National had acquired
Florida Banks, the financial statements of First National will become the
historical financial statements of Florida Banks and there will be no goodwill
recorded as a result of the Merger. As of December 31, 1997 and for the fiscal
year ended December 31, 1997, First National reported total assets of $60.4
million, total shareholders' equity of $6.3 million and net income of $376,000.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "The Merger."
STRATEGY OF FLORIDA BANKS
General
Florida Banks' business strategy is to create a statewide community
banking system in Florida. The major elements of this strategy are to:
- EXPAND FIRST NATIONAL'S OPERATIONS IN THE TAMPA
MARKET AND, AS SOON AS PRACTICABLE FOLLOWING THE
FLORIDA BANKS IPO, COMMENCE OPERATIONS IN THE
JACKSONVILLE MARKET;
- ESTABLISH COMMUNITY BANKING OFFICES IN EACH OF THE
THREE REMAINING IDENTIFIED MARKETS AS SOON AS LOCAL
MANAGEMENT TEAMS ARE IDENTIFIED;
- ESTABLISH COMMUNITY BANKING OFFICES WITH LOCALLY
RESPONSIVE MANAGEMENT TEAMS EMPHASIZING A HIGH LEVEL
OF PERSONALIZED CUSTOMER SERVICE;
- TARGET SMALL AND MEDIUM-SIZED BUSINESS CUSTOMERS THAT
REQUIRE THE ATTENTION AND SERVICE WHICH A
COMMUNITY-ORIENTED BANK IS WELL SUITED TO PROVIDE;
- PROVIDE A BROAD ARRAY OF TRADITIONAL BANKING PRODUCTS
AND SERVICES;
- MAINTAIN CENTRALIZED SUPPORT FUNCTIONS, INCLUDING
BACK OFFICE OPERATIONS, CREDIT POLICIES AND
PROCEDURES, INVESTMENT PORTFOLIO MANAGEMENT,
ADMINISTRATION, HUMAN RESOURCES AND TRAINING, TO
MAXIMIZE OPERATING EFFICIENCIES AND FACILITATE
RESPONSIVENESS TO CUSTOMERS; AND
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- OUTSOURCE CORE PROCESSING AND BACK ROOM OPERATIONS TO
INCREASE EFFICIENCIES.
Model "Local Community Bank"
In order to achieve its expansion strategy, Florida Banks initially
intends to establish a Community Banking Office within each Identified Market
through the branching of Florida Bank, N.A. Florida Banks may, however,
accomplish its expansion strategy by acquiring existing banks within an
Identified Market if an opportunity for such an acquisition becomes available.
Although each Community Banking Office will legally be a branch of Florida Bank,
N.A., Florida Banks' business strategy envisions that Community Banking
Office(s) located within each market will operate as if it were an independent
community bank.
Prior to expanding into a new market area, management of Florida Banks
first will identify an individual who will serve as the president of that
particular market area, as well as those individuals who will serve on the local
advisory board of directors. Florida Banks believes that a management team that
is familiar with the needs of its community can provide higher quality
personalized service to its customers. The local management team will have a
significant amount of decision-making authority and will be accessible to its
customers. As a result of the consolidation trend in Florida, management of
Florida Banks believes there are significant opportunities to attract
experienced bank managers who would like to join an institution promoting a
community banking concept.
Within each market area, the Community Banking Office will have a local
advisory board of directors which will be comprised of prominent members of the
community, including business leaders and professionals, and it is anticipated
that certain members of the local advisory boards may serve as members of the
Florida Banks Board and the Board of Directors of Florida Bank, N.A. (the
"Florida Bank, N.A. Board"). These directors will act as ambassadors of Florida
Bank, N.A. within the community and will be expected to promote the business
development of each Community Banking Office.
Florida Banks will encourage both the members of its local boards of
directors as well as its lending officers to be active in the civic, charitable
and social organizations located in the local communities. It is anticipated
that members of the local management team will hold leadership positions in a
number of community organizations and continue to volunteer for other positions
in the future.
Management expects that upon Florida Banks' entry into a new market
area, it will undertake a marketing campaign utilizing an officer calling
program and community-based promotions and media advertising. A primary
component of management compensation will be based on loan production goals.
Such campaigns will emphasize each Community Banking Office's local
responsiveness, local management team and special focus on personalized service.
The initial Community Banking Office established in an Identified
Market will have the following banking personnel: a President, a Senior Lender,
an Associate Lending Officer, a Credit Analyst, a Branch/Operations Manager and
an appropriate number of financial service managers and tellers. Additional
Community Banking Offices opened within an Identified Market will be staffed
with appropriate personnel. The number of financial service managers and tellers
necessary will be dependent upon the volume of business. Each Community Banking
Office will also be staffed with enough administrative assistants to assist the
officers effectively in their duties and to enable them to market products and
services actively outside of the office.
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It is further expected that the lending officers will be primarily
responsible for the sales and marketing efforts of the Community Banking
Offices. Management will emphasize relationship banking whereby each customer
will be assigned to a specific officer, with other local officers serving as
backup or in supporting roles. Through its experience in the Florida banking
industry, management believes that the most frequent customer complaints pertain
to a lack of personalized service and turnover in lending personnel, which
limits the customer's ability to develop a relationship with his or her lending
officer. Florida Banks intends to hire an appropriate number of lending officers
necessary to facilitate the development of strong customer relationships.
Management intends to offer salaries to the lending officers that are
competitive with other financial institutions in each market area. The salaries
of the lending officers will be comprised of base compensation plus an incentive
payment structure that will be based upon the achievement of certain loan
production goals. Those loan production goals will be reevaluated on a quarterly
basis and paid as a percentage of base salary. Management of Florida Banks
believes that such a compensation structure will provide greater motivation for
participating officers.
It is anticipated that the Community Banking Offices will be located in
commercial areas in each market where the local management team determines there
is the greatest potential to reach the maximum number of small and medium-sized
businesses. It is expected that these Community Banking Offices will develop in
the areas surrounding office complexes and other commercial areas, but not
necessarily in a market's downtown area. Such determinations will depend upon
the customer demographics of a particular market area and the accessibility of a
particular location to its customers. Management of Florida Banks expects to
lease facilities of approximately 3,000 to 4,000 square feet at market rates for
each Community Banking Office. Leasing facilities will enable Florida Banks to
avoid investing significant amounts of capital in property and facilities.
Market Expansion
Florida Banks intends to expand into the largest and fastest growing
communities in Florida. Once Florida Banks has assembled a local management team
and local advisory board of directors for a particular market area, Florida
Banks intends to establish one or more Community Banking Offices in that market.
Upon the consummation of the Merger, Florida Banks will have an established
Community Banking Office in the Tampa market area. In addition, Florida Banks
has assembled a management team in Jacksonville and, as soon as practicable
following the completion of the Florida Banks IPO, will open a Community Banking
Office in the Jacksonville market area. On June 8, 1998, First National applied
to the OCC for approval to establish a branch location in Jacksonville. The
other markets into which Florida Banks presently intends to expand are Orlando,
Ft. Lauderdale and Palm Beach. Management has identified these markets as
providing the most favorable opportunities for growth and presently intends to
establish Community Banking Offices within these markets as soon as practicable.
Management is also considering expansion into other selected Florida
metropolitan areas.
Certain demographic and deposit information with respect to each of the
Identified Markets is discussed below. The demographic information has been
provided by Demographics On-Call, a demographic data source provider, and
deposit information has been provided by the FDIC.
Tampa Market. The Tampa market area includes the city of Tampa and
Hillsborough County (the "Tampa Market"). Hillsborough County's population,
which includes the city of Tampa, increased from approximately 834,000 in 1990
to approximately 905,000 in 1997, representing an increase of approximately 8.5%
over that period. The population is projected to increase further to
approximately 954,000 over the next
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five years. In 1997, the median age in Tampa was 35.4 years, and the median
household income was $35,993. In 1997, the average unemployment rate for
Hillsborough County was 3.3%, as compared to the national unemployment rate of
4.9% for the same period. As of June 30, 1997, there were 30 depository
institutions (including First National) represented in the Tampa Market with
aggregate deposits of approximately $7.4 billion. Deposits in the Tampa Market
increased approximately $1.3 billion from June 30, 1994 through June 30, 1997,
at an annual growth rate of 6.8% for that period.
Jacksonville Market. The Jacksonville market area includes the cities
of Jacksonville, Orange Park, St. Augustine and surrounding counties, including
Clay, Duval and St. Johns Counties (the "Jacksonville Market"). The Jacksonville
Market's population increased from approximately 863,000 in 1990 to
approximately 969,000 in 1997, representing an increase of approximately 12.3%
over that period. The population is expected to increase to approximately 1.1
million over the next five years. In 1997, the median age in Jacksonville was
34.5 years, and the median household income was $36,413. In 1997, the average
unemployment rates for Clay, Duval and St. Johns Counties were 3.0%, 3.7% and
3.0%, respectively, as compared to the national unemployment rate of 4.9% for
the same period. As of June 30, 1997, there were 19 depository institutions
represented in the Jacksonville Market with aggregate deposits of approximately
$7.6 billion. Deposits in the Jacksonville Market increased approximately $793
million from June 30, 1994 through June 30, 1997, at an average annual growth
rate of 3.8% for that period.
Ft. Lauderdale Market. The Ft. Lauderdale market area includes the
cities of Ft. Lauderdale, Hollywood and Pompano Beach, as well as Broward County
(the "Ft. Lauderdale Market"). The Ft. Lauderdale Market's population increased
from approximately 1.3 million in 1990 to approximately 1.5 million in 1997,
representing an increase of approximately 16.3% over that period. The population
is expected to increase further to approximately 1.6 million over the next five
years. In 1997, the median age in Ft. Lauderdale was 39.9 years, and the median
household income was $34,960. In 1997, the average unemployment rate for Broward
County was 4.9%, which was the same as the national unemployment rate for the
same period. As of June 30, 1997, there were 45 depository institutions
represented in the Ft. Lauderdale Market with aggregate deposits of
approximately $22.0 billion. Deposits in the Ft. Lauderdale Market increased
approximately $5.2 billion from June 30, 1994 through June 30, 1997, at an
average annual growth rate of 9.7% for that period.
Orlando Market. The Orlando market area includes the cities of Orlando,
Winter Park and Maitland, as well as Orange County (the "Orlando Market"). The
Orlando Market's population increased from approximately 677,000 in 1990 to
approximately 767,000 in 1997, representing an increase of approximately 13.3%
over that period. The population is expected to increase to approximately
830,000 over the next five years. In 1997, the median age in Orlando was 33.7
years, and the median household income was $37,089. In 1997, the average
unemployment rate for Orange County was 3.3%, as compared to the national
unemployment rate of 4.9% for the same period. As of June 30, 1997, there were
24 depository institutions represented in the Orlando Market with aggregate
deposits of approximately $7.2 billion. Deposits in the Orlando Market increased
approximately $752 million from June 30, 1994 through June 30, 1997, at an
average annual growth rate of 3.9% for that period.
Palm Beach Market. The Palm Beach market area includes the cities of
Palm Beach, West Palm Beach, Jupiter and Stuart, as well as Palm Beach and
Martin Counties (the "Palm Beach Market"). The Palm Beach Market's population
increased from approximately 964,000 in 1990 to approximately 1.1 million in
1997, representing an increase of approximately 16.3% over that period. The
population is expected to increase to approximately 1.2 million over the next
five years. In 1997, the median age in Palm Beach was 42.0 years, and the median
household income was $41,964. In 1997, the average unemployment rates for Palm
Beach and Martin Counties were 6.3% and 6.9%, respectively, as compared to the
national
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unemployment rate of 4.9% for the same period. As of June 30, 1997, there were
52 depository institutions represented in the Palm Beach Market with aggregate
deposits of approximately $20.0 billion. Deposits in the Palm Beach Market
increased approximately $3.6 billion from June 30, 1994 through June 30, 1997,
at an average annual growth rate of 6.9% for that period.
Customers
Management believes that the recent bank consolidation within Florida
provides a community-oriented bank significant opportunities to build a
successful, locally-oriented franchise. Management of Florida Banks further
believes that many of the larger financial institutions do not emphasize a high
level of personalized service to the smaller commercial or individual retail
customers. Florida Banks intends to focus its marketing efforts on attracting
small and medium-sized businesses which include: professionals, such as
physicians and attorneys, service companies, manufacturing companies and
commercial real estate developers. Because Florida Banks intends to focus on
small and medium-sized businesses, management believes that the majority of its
loan portfolio will be in the commercial area with an emphasis placed on
commercial and industrial loans secured by real estate, accounts receivable,
inventory, property, plant and equipment. However, in an effort to maintain a
high level of credit quality, Florida Banks expects that the commercial real
estate loans will be made to borrowers who occupy the real estate securing the
loans or where a creditworthy tenant is involved.
Although Florida Banks expects to concentrate its lending to commercial
businesses, management also anticipates that it will attract a significant
amount of consumer business. Management expects that many of its retail
customers will be the principals of the small and medium-sized businesses for
whom a Community Banking Office will provide banking services. Management
intends to emphasize "relationship banking" in order that each customer will
identify and establish a comfort level with the bank officers within a Community
Banking Office. Management intends to develop its retail business with
individuals who appreciate a higher level of personal service, contact with
their lending officer and responsive decision-making. It is further expected
that most of Florida Banks' business will be developed through its lending
officers and local advisory boards of directors and by pursuing an aggressive
strategy of making calls on customers throughout the market area.
Products and Services
Florida Banks intends to offer and First National currently offers a
broad array of traditional banking products and services to its customers. The
proceeds from the Florida Banks IPO will enable Florida Banks to infuse
additional capital into Florida Bank, N.A. which will enable Florida Bank, N.A.
to open Community Banking Offices in new markets and to expand its existing
lines of products and services. First National currently provides products and
services that are substantially similar to those set forth below. For additional
information with respect to First National's current operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Loans. Florida Banks intends to offer a wide range of short to
long-term commercial and consumer loans. The allocation of the loans within each
category may change from time to time and will be dependent upon general
economic conditions. Florida Banks does not have any predetermined division of
First National's loan portfolio.
Commercial. Florida Banks expects that its commercial lending
will consist primarily of commercial and industrial loans for the
financing of accounts receivable, inventory, property, plant and
equipment. Florida Banks also expects to offer Small Business
Administration guaranteed loans
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("SBA loans") and factoring arrangements to certain customers. In
making these loans, Florida Banks intends to manage its credit risk by
actively monitoring such measures as advance rate, cash flow,
collateral value and other appropriate credit factors.
Commercial Real Estate. Florida Banks anticipates that it will
also offer commercial real estate loans to developers of both
commercial and residential properties. In making these loans, Florida
Banks intends to manage its credit risk by actively monitoring such
measures as advance rate, cash flow, collateral value and other
appropriate credit factors. See "Information About Florida
Banks--Operations of the Holding Company--Credit Administration."
Residential Mortgage. Florida Banks expects that its real
estate loans will consist of residential first and second mortgage
loans, residential construction loans and home equity lines of credit
and term loans secured by first and second mortgages on the residences
of borrowers for home improvements, education and other personal
expenditures. Management expects that Florida Banks will make mortgage
loans with a variety of terms, including fixed and floating to variable
rates with a variety of maturities. These loans will be made consistent
with Florida Banks' appraisal policy and real estate lending policy
which will detail maximum loan-to-value ratios and maturities.
Management expects that these loan-to-value ratios will be sufficient
to compensate for fluctuations in the real estate market to minimize
the risk of loss. Mortgage loans that do not conform to Florida Banks'
asset/liability mix policies will be sold in the secondary markets.
Consumer Loans. Florida Banks expects that its consumer loans
will consist primarily of installment loans to individuals for
personal, family and household purposes. In evaluating these loans,
Florida Banks will require its lending officers to review the
borrower's level and stability of income, past credit history and the
impact of these factors on the ability of the borrower to repay the
loan in a timely manner. In addition, Florida Banks will require that
its banking officers maintain an appropriate margin between the loan
amount and collateral value. Florida Banks expects that many of its
consumer loans will be made to the principals of the small and
medium-sized businesses for whom the Community Banking Offices provide
banking services.
Credit Card and Other Loans. Florida Banks also expects to
issue credit cards to certain customers. In determining to whom it will
issue credit cards, Florida Banks intends to evaluate the borrower's
level and stability of income, past credit history and other factors.
Finally, Florida Banks expects to make additional loans which may not
be classified in one of the above categories. In making such loans,
Florida Banks will attempt to ensure that the borrower meets Florida
Banks' credit quality standards.
For more detailed information with respect to those loans currently
being offered by First National, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--Loan
Portfolio" and "--Allowance for Loan Losses and Net Charge-Offs."
Deposits. Management intends to offer a broad range of interest-bearing
and noninterest-bearing deposit accounts, including commercial and retail
checking accounts, money market accounts, individual retirement accounts,
regular interest-bearing savings accounts and certificates of deposit with a
range of maturity date options. Management anticipates that the primary sources
of deposits will be small and medium-sized businesses and individuals within an
Identified Market. In each Identified Market, senior management will have the
authority to set rates within specified parameters in order to remain
competitive with other financial institutions located in the Identified Market.
All deposits will be insured by the FDIC up to the maximum amount permitted by
law. In addition, Florida Banks expects to implement a service charge
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fee schedule, similar to the one currently in place at First National, which
will be competitive with other financial institutions in a Community Banking
Office's market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check charges
and other similar fees.
Specialized Consumer Services. Management intends to offer specialized
products and services to its customers, such as lock boxes, travelers checks and
safe deposit services.
Courier Services. Florida Banks expects to offer courier services to
its customers. Courier services, which Florida Banks may either provide directly
or through a third party, permit Florida Banks to provide the convenience and
personalized service its customers require by scheduling pick-ups of deposits.
Florida Banks intends to offer courier services to its business customers. First
National has received regulatory approval for, and is currently offering courier
services in, the Tampa Market and expects to apply for approval in other market
areas.
Telephone and PC Banking. Florida Banks believes that there is a strong
need within its market niche for telephone banking and on-line banking with
personal computers ("PC Banking"). Both services allow customers to access
detailed account information, execute transactions and pay bills electronically.
Management believes that these services are particularly attractive for its
customers who live part-time outside of Florida as it will enable them to
conduct their banking business and monitor their bank accounts from remote
locations. Management of Florida Banks believes that telephone and PC Banking
will assist their Community Banking Offices in retaining customers and will also
encourage its customers to maintain their total banking relationship with the
Community Banking Offices. Both of these services will be provided through a
third-party provider.
Automatic Teller Machines ("ATMs"). Initially, management does not
expect to establish an ATM network, as it believes its resources can be more
effectively deployed elsewhere. As an alternative, management intends to make
other financial institutions' ATMs available to its customers and to offer
customers a certain number of free ATM transactions per month.
Other Products and Services. Florida Banks intends to evaluate other
services such as trust services, brokerage and investment services, insurance
and other permissible activities. Management expects to introduce these services
as they become economically viable.
Operations of the Holding Company
Florida Banks will remain in the development stage until the
consummation of the Merger and the Florida Banks IPO. Florida Banks' corporate
offices will be relocated to the Jacksonville Community Banking Office, when
opened. Florida Banks presently has four employees, including Mr. Hughes,
Richard B. Kensler, the Chief Credit Officer, Donald D. Roberts, President of
the Jacksonville Market, and an administrative assistant, all of whom work on a
full-time basis for Florida Banks.
Florida Banks will provide a variety of support services for each of
the Community Banking Offices. These services will include back office
operations, investment portfolio management, credit administration and review,
human resources, training and strategic planning. By the end of 1998, Florida
Banks expects to hire a Human Resources Officer as well as a Chief Lending
Officer. Until that time, Mr. Hughes will serve as Florida Banks' Chief Lending
Officer, and a human resources officer at First National will provide human
resources support for Florida Banks.
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Florida Banks intends to use First National's facilities for its data
processing, operational and back office support activities. The Community
Banking Offices will utilize the operational support provided by First National
to perform account processing, loan accounting, loan support, network
administration and other functions. First National has developed extensive
procedures for many aspects of its operations, including operating procedures
manuals and audit and compliance procedures. Specific operating procedures for
the Community Banking Offices have been developed from the procedures that are
currently utilized by First National. Management believes that First National's
existing operations and support management will be capable of providing
continuing operational support for all of the Community Banking Offices.
Outsourcing. Management of Florida Banks believes that by outsourcing
certain functions of its back room operations, it can realize greater
efficiencies and economies of scale. In addition, various products and services,
especially technology-related services, can be offered through third-party
vendors at a substantially lower cost than the costs of developing these
products internally.
First National is currently utilizing M&I Data Services, Inc. ("M&I")
to provide its core data processing and certain customer products, and Florida
Banks expects to continue this contract upon consummation of the Merger. In
addition to account level processing for loans and deposits, First National also
utilizes M&I for computer network support, proof of deposit processing, on-line
support, telephone and PC banking services, cash management, automated clearing
house services and consulting services. See "Information About Florida
Banks--Data Processing."
Credit Administration. Florida Banks will oversee all credit operations
while still granting local authority to each Community Banking Office. The Chief
Credit Officer of Florida Banks is Richard B. Kensler who, prior to joining
Florida Banks, had served as a senior credit officer with Signet Banking
Corporation since 1987. Mr. Kensler has experience in the Florida market as he
served as a Relationship Manager and Special Assets Manager for Sun Banks of
Florida, Inc. in Orlando from 1972 to 1980. Florida Banks' Chief Credit Officer
will be primarily responsible for maintaining a quality loan portfolio and
developing a strong credit culture throughout the entire organization. The Chief
Credit Officer will be responsible for developing and updating the credit policy
and procedures for the organization. In addition, he will work closely with each
lending officer at the Community Banking Offices to ensure that the business
being solicited is of the quality and structure that fits Florida Banks' desired
risk profile. Credit quality will be controlled through uniform compliance to
credit policy. Florida Banks' risk-decision process will be actively managed in
a disciplined fashion to maintain an acceptable risk profile characterized by
soundness, diversity, quality, prudence, balance and accountability.
Florida Banks' credit approval process will consist of specific
authorities granted to the lending officers. Loans exceeding a particular
lending officer's level of authority will be reviewed and considered for
approval by the next level of authority. The Chief Credit Officer has ultimate
credit decision-making authority, subject to review by the Chief Executive
Officer and the Florida Banks Board. Risk management will require active
involvement with Florida Banks' customers and active management of Florida
Banks' portfolio. The Chief Credit Officer will review Florida Banks' credit
policy with the local management teams at least annually but more frequently if
necessary. The results of these reviews will then be presented to the Florida
Banks Board. The purpose of these reviews will be to attempt to ensure that the
credit policy remains compatible with the short and long-term business
strategies of Florida Banks. The Chief Credit Officer will also generally
require all individuals charged with risk management to reaffirm their
familiarity with the credit policy annually.
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MANAGEMENT OF FLORIDA BANKS
Executive Officers and Directors
The following table sets forth information concerning Florida Banks'
executive officers, directors and significant employees upon completion of the
Florida Banks IPO and consummation of the Merger.
<TABLE>
<CAPTION>
NAME POSITION(1)
- ---- --------
<S> <C>
M.G. Sanchez..................................... Chairman of the Board
Charles E. Hughes, Jr............................ President, Chief Executive Officer and Director
T. Edwin Stinson, Jr............................. Chief Financial Officer(2)
Nancy E. LaFoy................................... Secretary, Treasurer and Director(2)
Richard B. Kensler............................... Chief Credit Officer
John S. McMullen................................. President of the Tampa Market and Director(3)
Donald D. Roberts................................ President of the Jacksonville Market
T. Stephen Johnson............................... Vice Chairman of the Board
Clay M. Biddinger................................ Director
P. Bruce Culpepper............................... Director
J. Malcolm Jones, Jr............................. Director
W. Andrew Krusen, Jr............................. Director(4)
Wilford C. Lyon, Jr.............................. Director
David McIntosh................................... Director
</TABLE>
- ----------------------
(1) The Florida Banks Board is divided into three classes, designated Class
I, Class II and Class III. See "--Board of Directors."
(2) Upon completion of the Florida Banks IPO and the Merger, Mr. Stinson
will be named Chief Financial Officer, Secretary and Treasurer of
Florida Banks. Accordingly, Ms. LaFoy will resign as Secretary and
Treasurer of Florida Banks, but will remain a member of the Florida
Banks Board.
(3) Upon completion of the Florida Banks IPO and the Merger, Mr. McMullen
will be named President of the Tampa Market and will become a
Director of Florida Banks.
(4) Upon completion of the Florida Banks IPO and the Merger, Mr. Krusen
will become Director of Florida Banks.
M. G. Sanchez, age 63, has served as Chairman of the Board and a Class
II Director of Florida Banks since February 1998. Prior to his service with
Florida Banks, Mr. Sanchez worked independently as a bank management consultant,
periodically performing contract work with TSJ&A. From 1986 to 1997, Mr. Sanchez
has served as President and Chief Executive Officer of The FBF Management Group,
a provider of management consulting services to banks in Florida. Prior to his
service with The FBF Management Group, from 1979 to 1986, Mr. Sanchez served as
the President and Chief Executive Officer of First Bankers Corporation of
Florida, a bank holding company with nine subsidiary banks in Florida that was
acquired by First Union Corporation in 1986. Mr. Sanchez has also served as a
Member of the Board of Directors for the Miami branch of the Federal Reserve
Bank of Atlanta and a Member of the Governors Advisory Committee on Interstate
Banking. Mr. Sanchez is also a past National President of Robert Morris
Associates, the association of bank loan and credit officers. Mr. Sanchez serves
on the Advisory Board at the College of Business at the University of Florida
and is a former President of Gator Boosters, Inc. at the University of
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Florida. Upon completion of the Florida Banks IPO and the Merger, Mr. Sanchez
will serve as Chairman of the Board of the Directors of Florida Bank, N.A.
Charles E. Hughes, Jr., age 54, has served as President, Chief Executive
Officer and a Class III Director of Florida Banks since January 1998. Prior to
his appointment as President and Chief Executive Officer and election as
Director, Mr. Hughes served as Chairman of the Board, President and Chief
Executive Officer of SouthTrust Bank of Florida, N.A. ("SouthTrust"). At
SouthTrust, Mr. Hughes was responsible for negotiating bank acquisitions in
Florida and overseeing the entire Florida operations for SouthTrust. Prior to
joining SouthTrust, Mr. Hughes served as Executive Vice President and Chief
Financial Officer of Baptist Health System, Inc., a hospital management
corporation from 1990 to 1992. Prior to Baptist Health System, Inc., Mr. Hughes
served as Executive Vice President of Florida National Banks of Florida, Inc.
and President of Florida National Bank in Jacksonville from 1983 until Florida
National Bank merged with First Union National Bank in 1990. Mr. Hughes is a
past Chairman and a present member of the Board of Trustees of the Jacksonville
Chamber of Commerce. Upon consummation of the Merger, Mr. Hughes will serve as
President and Chief Executive Officer of Florida Bank, N.A.
T. Edwin Stinson, Jr., age 45, has served as Executive Vice President,
Chief Operating Officer and as a director of First National since 1993. Prior to
his service with First National, Mr. Stinson served as the President of Florida
State Bank and Emerald Coast State Bank in Northwest Florida. Mr. Stinson has
been involved in the banking industry since 1978. Upon completion of the Florida
Banks IPO and the Merger, Mr. Stinson will serve as the Secretary, Treasurer and
Chief Financial Officer of Florida Banks and Secretary and Chief Financial
Officer of Florida Bank, N.A.
Nancy E. LaFoy, age 43, has served as a Class I Director of Florida Banks
since its inception and as Secretary and Treasurer of Florida Banks since
January 1998. Ms. LaFoy has served as Senior Vice President of TSJ&A since 1987.
Prior to her service with TSJ&A, Ms. LaFoy served as Assistant Vice President
with Wachovia Corporation in Atlanta, Georgia, formerly First National Bank of
Atlanta, from 1984 to 1987. Ms. LaFoy has been involved in the banking industry
since 1977. Upon the completion of the Florida Banks IPO and the Merger, Ms.
LaFoy will resign from her position as Secretary and Treasurer of Florida Banks
but will remain a director of Florida Banks.
Richard B. Kensler, age 48, has served as the Chief Credit Officer of
Florida Banks since April 1998. Prior to his service with Florida Banks, Mr.
Kensler had served as a senior credit officer for Signet Banking Corporation
since 1987. Mr. Kensler's banking career began in the Florida market when he
served as an Assistant Vice President and Special Assets Manager for Sun Banks
of Florida, Inc. in Orlando from 1972 to 1980.
John S. McMullen, age 54, has served as President and Chief Executive
Officer of First National since 1992. Prior to First National Bank of Tampa, Mr.
McMullen served as Senior Vice President of Corporate Banking in Tampa from 1990
to 1992 and Area Executive Vice President for Pinellas County of First Florida
Bank, N.A. from 1985 to 1990. Mr. McMullen also held various senior officer
positions with First Florida Bank in Tampa since 1970. Mr. McMullen serves as a
director of Merchants Association of Florida, Inc. and Tampa Downtown
Partnership. Upon the completion of the Florida Banks IPO and the Merger, Mr.
McMullen will be appointed as a Director of Florida Banks and Florida Bank, N.A.
and will be named President of the Tampa Market.
Donald D. Roberts, age 49, has served as President of the Jacksonville
Market since April 1998. Prior to his service with Florida Banks, Mr. Roberts
served as President and Chief Executive Officer of Barnett Bank, N.A., Lake
County, Florida since 1993. Prior to his service in Lake County, he served as
President and
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Chief Executive Officer of Barnett Bank of Atlanta from 1990 through 1994.
During his 13 year tenure with Barnett Banks, he served in several positions,
including Executive Vice President in charge of the Corporate Banking Group.
T. Stephen Johnson, age 48, has served as a Class I Director of Florida
Banks since its inception in October 1997, and as its Vice Chairman since
February 1998. Mr. Johnson has served as the Chairman of the Board of T. Stephen
Johnson & Associates, Inc. ("TSJ&A"), a financial services consulting firm,
since its inception in 1987. TSJ&A specializes in mergers, acquisitions and
regulatory consulting for financial institutions. Mr. Johnson currently serves
as chairman of the board of directors of NetB@nk, Inc. a publicly traded
company. In addition, he is the principal owner of Bank Assets, Inc., a provider
of benefit programs for directors and officers of banks.
Clay M. Biddinger, age 42, has served as a Class II Director of Florida
Banks since April 1998. Since 1991, Mr. Biddinger has served as Chairman of the
Board and sole shareholder of CMB Holdings, Inc. Mr. Biddinger served as
president, chief executive officer and director of Sun Financial Group, Inc.,
Tampa, Florida ("Sun") from its founding in 1981 through June 1998. In October
1995, Sun was sold to GATX Corporation, a publicly traded corporation. In
addition, since 1995 Mr. Biddinger has served as a Director of Centron DPL
Company, a wholly-owned subsidiary of GATX Corporation. Mr. Biddinger is a
member of the Executive Committee of Dominion Financial Group International,
LDC, a merchant banking company which provides investment capital to various
emerging business enterprises. Mr. Biddinger is the past Founding Chairman and a
present member of the Council of Growing Companies. Mr. Biddinger also serves on
the boards of directors of various charitable organizations.
P. Bruce Culpepper, age 56, has served as a Class III Director of
Florida Banks since April 1998. Mr. Culpepper has been an attorney with the
Florida-based law firm of Akerman, Senterfitt & Eidson, P.A. since 1997. Prior
to 1997, Mr. Culpepper was a partner with the law firm of Pennington, Culpepper,
P.A. from 1992 to 1997.
J. Malcolm Jones, Jr., age 45, has served as a Class I Director of
Florida Banks since April 1998. Since 1997, Mr. Jones has been Senior Vice
President of St. Joe Corporation, a publicly traded paper and forestry concern,
and from 1995 to 1997, Mr. Jones served as St. Joe Corporation's Vice President
and Chief Financial Officer. Mr. Jones formerly served as President, Chief
Executive Officer and Vice Chairman of the Board of Florida Bank, a Florida
savings bank from 1990 to 1994. Mr. Jones also serves on the board of directors
of Holmes Lumber Company.
W. Andrew Krusen, Jr., age 50, has served as Chairman of the Board of
First National Bank of Tampa since 1991. Since 1988, Mr. Krusen has served as
Chairman of the Board of Dominion Energy and Minerals Corporation, an oil and
gas concern, and is Chairman of the Executive Committee of Dominion Financial
Group International, LDC, a merchant banking company which provides investment
capital to various emerging business enterprises. He also serves as a director
of General Group Holdings, Inc., a family controlled business involved in real
estate development, construction, leasing and manufacturing. Mr. Krusen is also
a director of publicly traded Northstar Energy Inc., Memry Corporation and
Raymond James Trust Company. Mr. Krusen will become a director of Florida Banks
upon the completion of the Florida Banks IPO and the Merger.
Wilford C. Lyon, Jr., age 63, has served as a Class II Director of
Florida Banks since April 1998. Prior to his service with Florida Banks, Mr.
Lyon served as Chairman of the Board and Chief Executive Officer of the
Independent Insurance Group, Inc., a publicly traded company. Mr. Lyon retired
from that position on February 29, 1996 when the company merged with the
American General Corporation, a publicly traded
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company. Mr. Lyon has also served on the Board of Florida National Banks of
Florida, Inc. from 1983 to 1990 when it merged with First Union National Bank of
Florida; and thereafter he served on the Board of First Union National Bank of
Florida until 1991. Mr. Lyon is active in community affairs, having served as
Chairman of the Jacksonville Chamber of Commerce and Past-District Governor of
Rotary International.
David McIntosh, age 51, has served as a Class III Director of Florida
Banks since April 1998. Prior to his service with Florida Banks, Mr. McIntosh
served as the Chief Executive Officer of Gunster, Yoakley, Valdes-Fauli &
Stewart, P.A., a 150-attorney law firm based in West Palm Beach, since 1984.
Effective March 31, 1998, Mr. McIntosh retired from his position as Chief
Executive Officer but will remain as a consultant to the firm through December
1998 to assist in the transition and search for a successor. Over the past two
years, Mr. McIntosh has served as Chairman of the Governor's Task Force on
Telecommunications, Chairman of the Florida Intangible Tax Task Force, Chairman
of Florida TaxWatch and Chairman of the Advisory Board of the College of
Business at Florida Atlantic University. Since 1980, Mr. McIntosh has served as
a member of the board of directors of the University of Florida Foundation and
is also a past President of the Foundation.
Florida Banks Board
The number of directors of Florida Banks is currently fixed at nine. The
Florida Banks Articles and the Florida Banks Bylaws provide for the Florida
Banks Board to consist of not less than two, nor more than twenty-five persons,
with the precise number to be determined from time to time by the Florida Banks
Board. The directors are divided into three classes, designated Class I, Class
II and Class III. Each class will consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Florida Banks
Board. The term of Florida Banks' initial Class I Directors expires at Florida
Banks' annual meeting of shareholders in 1999; the term of Florida Banks'
initial Class II Directors expires at Florida Banks' annual meeting of
shareholders in 2000; and the term of Florida Banks' initial Class III Directors
expires at Florida Banks' annual meeting of shareholders in 2001. At each annual
meeting of shareholders, successors to the class of directors whose term expires
at the annual meeting will be elected for a three-year term. If the number of
directors is changed, an increase or decrease will be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no event will a decrease in the number of directors shorten
the term of any incumbent director. Any director elected to fill a vacancy will
be elected for a term of office to expire at the next annual meeting of
shareholders. If a director is removed from office, the resulting vacancy on the
Florida Banks Board will be filled by the vote of at least seventy-five percent
(75%) of the outstanding shares of Florida Banks Common Stock. Any other vacancy
on the Florida Banks Board may be filled by a majority vote of the remaining
directors then in office or by action of the shareholders. Any director may be
removed, with or without cause, at any regular or special meeting of
shareholders called for that purpose.
The effect of the classified Florida Banks Board is to make it more
difficult for a person, entity or group to effect a change in control of Florida
Banks through the acquisition of a large block of Florida Banks' voting stock.
The executive officers of Florida Banks serve at the pleasure of the Florida
Banks Board.
The Florida Banks Board has an Executive Committee, an Audit Committee
and a Compensation Committee. In accordance with the Florida Banks Bylaws, the
Executive Committee, which is currently comprised of Charles E. Hughes, Jr., T.
Stephen Johnson, J. Malcolm Jones, Jr., Wilford C. Lyon, Jr. and M.G. Sanchez,
exercises the authority of the Florida Banks Board between regular meetings of
the Florida Banks Board. The Audit Committee, which is currently comprised of P.
Bruce Culpepper, Wilford C. Lyon, Jr. and David McIntosh, reviews and makes
recommendations to the Florida Banks Board on Florida Banks' audit procedures
and independent auditors' report to management and recommends to the Florida
Banks
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Board the appointment of the independent auditors for Florida Banks. The
Compensation Committee, currently comprised of Clay M. Biddinger, J. Malcolm
Jones, Jr. and David McIntosh, reviews and makes recommendations to the Florida
Banks Board with respect to the compensation of officers of Florida Banks and
will assist the Board in the administration of Florida Banks' 1998 Stock Option
Plan.
Executive Compensation
For the fiscal year ended December 31, 1997, Florida Banks was in a
development stage and no one served as the Chief Executive Officer of Florida
Banks during that period. Charles E. Hughes, Jr. entered into an employment
agreement with Florida Banks in January 1998, the terms of which are discussed
below. Accordingly, no compensation was paid during the fiscal year ended
December 31, 1997.
Employment Agreements
Florida Banks and Charles E. Hughes, Jr. have entered into an
employment agreement (the "Employment Agreement") which provides that Mr. Hughes
will serve as the President and Chief Executive Officer of Florida Banks and as
President and Chief Executive Officer of Florida Bank, N.A. upon completion of
the Merger and the Florida Banks IPO. Mr. Hughes also serves as a member of the
Florida Banks Board and will serve on the board of directors of Florida Bank,
N.A. after the closing of the Florida Banks IPO. The Employment Agreement has a
three-year term and provides for a minimum annual base salary of $220,000 until
the closing of the Florida Banks IPO and an annual base salary of $250,000
subsequent to the completion of the Merger and the Florida Banks IPO. In
addition to the compensation to be paid under the terms of the Employment
Agreement, the Board will issue an option to Mr. Hughes to purchase 80,000
shares of Florida Banks Common Stock at the IPO Price. This option will be
exercisable for a period of ten years.
After the closing of the Florida Banks IPO, in the event of a "change
in control" of Florida Banks (as defined in the Employment Agreement), Mr.
Hughes will be entitled to give written notice to Florida Banks of termination
of the Employment Agreement and to receive a cash payment equal to approximately
300% times the compensation received by Mr. Hughes in the one-year period
immediately preceding the change in control.
In the event that the Florida Banks Board determines in its sole
discretion that Florida Banks is unable to close the Florida Banks IPO, then the
Florida Banks Board may terminate the Employment Agreement at any time during
its term without notice upon the condition that Mr. Hughes will be entitled, as
liquidated damages, to be paid the sum of $100,000. The Employment Agreement may
be terminated by the Florida Banks Board without notice and without further
obligation than for monies already paid, if Mr. Hughes is terminated for Cause
(as that term is defined in the Employment Agreement). Upon thirty days' written
notice to Mr. Hughes, First National may terminate the Employment Agreement
without Cause upon the condition that Mr. Hughes will be entitled to the same
compensation as he would have been entitled to receive in the event of a change
of control of Florida Banks. Likewise, Mr. Hughes may upon thirty days' written
notice to Florida Banks terminate the Employment Agreement without Cause. In the
event of termination by Mr. Hughes, Florida Banks will have no further
obligation than for monies paid and Florida Banks will be entitled to
enforcement of the non-compete and non-solicitation provisions. After the
closing of the Florida Banks IPO, in the event of Mr. Hughes' death, Florida
Banks will pay to Mr. Hughes' designated beneficiary an amount equal to Mr.
Hughes' base salary through the end of the month in which Mr. Hughes' death
occurred. The Employment Agreement also provides a non-compete provision which
provides that in the event of termination of employment without cause under the
Employment Agreement by Mr. Hughes pursuant to the giving of notice by Mr.
Hughes, Mr. Hughes has agreed that for a period of
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twelve months after such termination date, Mr. Hughes shall not, without the
prior written consent of Florida Banks, within Duval County, Florida either
directly or indirectly, serve as an executive officer of any bank, bank holding
company or other financial institution.
Florida Banks anticipates entering into employment agreements with John
S. McMullen and T. Edwin Stinson, Jr. The agreements provide for three year
terms commencing upon the closing of the Florida Banks IPO. Mr. McMullen's
employment agreement provides for an annual base salary of $135,000 and the
grant of options to purchase 60,000 shares of Florida Banks Common Stock at the
first Florida Banks Board meeting subsequent to the closing of the Florida Banks
IPO. In addition, Mr. McMullen's employment agreement provides that his title
following the Merger and the Florida Banks IPO will be President of the Tampa
Market. Mr. Stinson's employment agreement provides for an annual base salary of
$117,000 and the grant of options to purchase 39,999 shares of Florida Banks
Common Stock at the first Florida Banks Board meeting subsequent to the closing
of the Florida Banks IPO. Upon the consummation of the Florida Banks IPO, Mr.
Stinson's title will be Chief Financial Officer of Florida Banks. The options to
be granted under both Mr. McMullen's and Mr. Stinson's employment agreements
will be exercisable at the IPO Price. In the event of a "change in control" (as
defined in their respective agreements) of Florida Banks, both agreements
provide that Mr. Stinson and Mr. McMullen may elect to give written notice to
Florida Banks of termination of their respective agreements and to receive a
cash payment equal to approximately 300% times the compensation received by them
in the one year period immediately preceding the change in control. Each of Mr.
McMullen's and Mr. Stinson's employment agreements contain a non-compete
provision that provides that in the event of termination of employment without
cause, both Mr. McMullen and Mr. Stinson have agreed that for a period of twelve
months after such termination date, Mr. McMullen and Mr. Stinson will not,
without the prior written consent of Florida Banks, within Hillsborough and
Pinellas Counties, Florida either, directly or indirectly, serve as an executive
officer of any bank, bank holding company or other financial institution.
Florida Banks also anticipates entering into employment agreements with
Donald D. Roberts and Richard B. Kensler. Mr. Roberts' employment agreement
provides that he will serve as the President of the Jacksonville Market for a
three year term. Mr. Roberts' employment agreement further provides for an
annual base salary of $130,000 and the grant of options to purchase 20,000
shares of Florida Banks Common Stock at the first Florida Banks Board meeting
subsequent to the completion of the Florida Banks IPO. Mr. Kensler's employment
agreement provides that he will serve as the Chief Credit Officer of Florida
Banks for a three-year term. Mr. Kensler's employment agreement further provides
for an annual base salary of $110,000 and the grant of options to purchase
20,000 shares of Florida Banks Common Stock at the first Florida Banks Board
meeting subsequent to the completion of the Florida Banks IPO. Both Mr. Roberts'
and Mr. Kensler's employment agreements contain "change in control,"
termination, and non-compete provisions similar to those discussed above in the
Employment Agreement.
Stock Option Plan
In March 1998, the Florida Banks Board adopted the Florida Banks, Inc.
1998 Stock Option Plan (the "1998 Plan") to promote Florida Banks' growth and
financial success. Options may be granted under the 1998 Plan to Florida Banks'
directors, officers and employees, as well as certain consultants and advisors.
The 1998 Plan contemplates the grant of non-qualified stock options and
incentive stock options as defined in Code Section 422. The 1998 Plan is not
qualified under Section 401(a) of the Code and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended. The 1998
Plan provides for option grants to purchase up to an aggregate of 900,000 shares
of Florida Banks Common Stock, subject to adjustment under certain circumstances
(the "Option Shares"). The aggregate fair market value (determined at the time
the option is granted) of the shares of Florida Banks Common Stock with respect
to
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which incentive stock options are exercisable for the first time by an optionee
during a calendar year may not exceed $100,000. This limitation does not apply
to non-qualified stock options. The 1998 Plan will expire upon the earlier to
occur of: (i) the date on which all Option Shares have been issued upon exercise
of options under the 1998 Plan; or (ii) the tenth anniversary of the 1998 Plan's
effective date. The 1998 Plan will be administered by the Florida Banks Board or
by a Stock Option Committee appointed by the Florida Banks Board and consisting
of least two non-employee Florida Banks Board members. The exercise price of
options granted under the 1998 Plan will be determined by the Florida Banks
Board, but will in no event be less than 100% of the Market Price (as defined in
the 1998 Plan) of one share of Florida Banks Common Stock on the option grant
date (110% in the case of a Ten Percent Owner, as defined in the 1998 Plan);
provided, however, that non-qualified stock options may be granted at an
exercise price of no less than 75% of the Market Price of the Florida Banks
Common Stock on the date of grant. Vested options under the 1998 Plan may be
exercised in whole or in part, but in no event later than ten (10) years from
the grant date (five years in the case of an incentive stock option granted to a
Ten Percent Owner). If the optionee of an incentive stock option during his or
her lifetime ceases to be an officer, director, or employee of Florida Banks or
any subsidiary of Florida Banks for any reason other than his or her death or
total disability, any option or unexercised portion thereof which is exercisable
on the date the optionee ceases employment will expire three months following
the date the optionee ceases to be an officer, director or employee of Florida
Banks or of a subsidiary of Florida Banks, but in no event after the term
provided in the optionee's option agreement. If an optionee dies or becomes
totally disabled while he or she is an officer, director or employee of Florida
Banks or of a subsidiary of Florida Banks, the option may be exercised by a
legatee or legatees of the optionee under his or her last will or by his or her
personal representative or representatives at any time within one year following
his or her death or total disability, but in no event after the term provided in
his or her option agreement. The foregoing limitations with respect to
termination of employment or death do not apply to optionees of non-qualified
stock options. Options granted under the 1998 Plan will only be assignable or
transferable by the optionee by will or the laws of descent and distribution.
During the optionee's lifetime, options are only exercisable by him or her. The
Florida Banks Board may at any time terminate, modify or amend the 1998 Plan in
any respect, except that without shareholder approval the Florida Banks Board
may not (i) increase the number of Option Shares, (ii) extend the period during
which options may be granted or exercised, (iii) change the class of 1998 Plan
participants, or (iv) otherwise materially modify the requirements as to
eligibility for participation in the 1998 Plan. In no event will the
termination, modification or amendment of the 1998 Plan, without the written
consent of an optionee, affect his or her rights under an option or right
previously granted to him or her. The 1998 Plan was approved by the Florida
Banks shareholders on June 4, 1998.
Compensation of Directors
Directors of Florida Banks and Florida Bank, N.A. will not receive any
compensation based on their attendance at board meetings until Florida Bank,
N.A. is profitable for three consecutive quarters. Upon consummation of the
Florida Banks IPO, directors of Florida Banks will be entitled to receive stock
option awards under the 1998 Plan. In addition, members of the Florida Banks
Board will be reimbursed for out-of-pocket expenses incurred in connection with
attendance at Board meetings. The members of the local advisory boards of
directors will receive compensation in a format to be determined by the Florida
Bank, N.A. Board. Such compensation may be incentive-based and include cash and
options to purchase Florida Banks Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FLORIDA BANKS
The following table sets forth information with respect to the
beneficial ownership of shares of the Florida Banks Common Stock as of July 2,
1998, and as adjusted to reflect the sale of the shares offered in the
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<PAGE> 67
Florida Banks IPO and in connection with the Merger, with respect to (i) each
director of Florida Banks; (ii) each person, including any "group" as that term
is used in Section 13(d)(3) of the Exchange Act, who is known by Florida Banks
to own beneficially more than 5% of the outstanding shares of the Florida Banks
Common Stock; and (iii) all directors and executive officers of Florida Banks as
a group. Unless otherwise indicated, each shareholder has sole voting and
investment power with respect to the indicated shares.
<TABLE>
<CAPTION>
Beneficial Ownership
Beneficial Ownership After the Merger
Prior to the Florida Banks IPO and the Florida Banks IPO
------------------------------ -------------------------
Common Common
Name of Beneficial Owner Stock (1) Percent Stock Percent(2)
------------------------ ----------- ------- ------- ----------
<S> <C> <C> <C> <C>
Clay M. Biddinger............................. -- * -- *
P. Bruce Culpepper............................ -- * -- *
Charles E. Hughes, Jr........................ 80,000 21.2% 160,000(3) 2.8%
T. Stephen Johnson............................ 93,750(4) 24.8 177,250(5) 3.1
J. Malcolm Jones, Jr.......................... -- * -- *
W. Andrew Krusen, Jr.......................... -- * 127,076(6) 2.2
Richard B. Kensler............................ -- * -- *
Nancy E. LaFoy................................ 10,000 2.6 20,000(7) *
Wilford C. Lyon, Jr........................... -- * -- *
David McIntosh................................ -- * -- *
John S. McMullen.............................. -- * 224,773(8) 4.0
Donald D. Roberts -- * -- *
M.G. Sanchez.................................. 70,000 18.5 140,000(9) 2.5
T. Edwin Stinson, Jr.......................... -- * 94,506(10) 1.7
Robin C. Kelton............................... 22,500 6.0 45,000(11) *
Bank Julius Baer & Co., Ltd................... 24,000 6.4 48,000(12) *
All executive officers and directors as a group
(14 persons).................................. 253,750 67.2% 943,605(13) 16.0%
</TABLE>
- --------------------------
*Less than 1%.
(1) Pursuant to the rules of the Commission, the determinations of "beneficial
ownership" of shares are based upon Rule 13d-3 under the Exchange Act,
which provides that shares will be deemed to be "beneficially owned" where
a person has, either solely or in conjunction with others, the power to
vote or to direct the voting of shares and/or the power to dispose, or to
direct the disposition of, shares or where a person has the right to
acquire any such power within 60 days after the date such "beneficial
ownership" is determined. Shares that a beneficial owner has the right to
acquire within 60 days pursuant to the exercise of stock options or
warrants are deemed to be outstanding for the purpose of computing the
percentage ownership of such owner but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) The percentages are based upon the aggregate number of shares of Florida
Banks Common Stock issued and outstanding as of July 2, 1998, as adjusted
to reflect 4,000,000 shares issuable pursuant to the Florida Banks IPO
(assuming no exercise of the underwriters' overallotment option) and an
estimated 1,250,000 shares issuable pursuant to the Merger (assuming an
$11.00 initial public offering price of the Common Stock in the Florida
Banks IPO, the mid-point of the estimated range) and 2,065,000 shares of
First National's Common Stock outstanding immediately prior to consummation
of the Merger.
(3) Includes 80,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
Florida Banks IPO.
(4) Includes 13,500 shares which are owned by Mr. Johnson's wife, 10,250 shares
held by Mr. Johnson's wife as a custodian for their children, and 250
shares held by Mr. Johnson as a custodian for his nephew.
(5) Includes 70,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
Florida Banks IPO and 13,500 shares issuable upon the exercise of
immediately exercisable options to be granted to Mr. Johnson's wife
simultaneous with the closing of the Florida Banks IPO.
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<PAGE> 68
(6) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of
the Florida Banks IPO and 87,076 shares issuable upon conversion and
exchange of shares of First National Common Stock pursuant to the
Merger.
(7) Includes 10,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of
the Florida Banks IPO.
(8) Comprised of shares issuable upon conversion and exchange of shares of
First National Common Stock pursuant to the Merger. Does not include
60,000 shares issuable upon the exercise of options to be granted at
the first Florida Banks Board meeting subsequent to the closing of the
Florida Banks IPO, which option will not be exercisable within 60 days
of the date of this Proxy Statement-Prospectus.
(9) Includes 70,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of
the Florida Banks IPO.
(10) Comprised of shares issuable upon conversion and exchange of shares of
First National Common Stock pursuant to the Merger. Does not include
39,999 shares issuable upon the exercise of options to be granted at
the first Board of Directors meeting subsequent to the closing of the
Florida Banks IPO which will not be exercisable within 60 days of the
date of this Proxy Statement-Prospectus.
(11) Includes 22,500 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of
the Florida Banks IPO.
(12) Includes immediately exercisable warrants to purchase 24,000 shares at
the IPO price.
(13) Includes 283,500 shares upon the exercise of immediately exercisable
options to be granted simultaneously with the closing of the Florida
Banks IPO and 406,355 shares upon conversion and exchange of shares of
First National Common Stock pursuant to the Merger.
FACILITIES
Florida Banks' offices are located at 4110 Southpoint Boulevard, Suite
212, Southpoint Square II, Jacksonville, Florida 32216. Florida Banks' offices
will be relocated to the Jacksonville Community Banking Office, when opened.
Initially, it is expected that the bulk of Florida Banks' operations will be
conducted from First National's offices in Tampa, utilizing First National's
existing personnel.
EMPLOYEES
Florida Banks presently employs four persons on a full-time basis.
Florida Banks will hire additional persons as needed to support its growth.
LEGAL PROCEEDINGS
From time to time Florida Banks may be involved in litigation relating
to claims arising out of its operations in the normal course of business. As of
the date of this Proxy Statement-Prospectus, Florida Banks is not engaged in any
legal proceedings that are expected, individually or in the aggregate, to have a
material effect on Florida Banks.
MONETARY POLICIES
The results of operations of Florida Banks will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Florida Banks.
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<PAGE> 69
CERTAIN TRANSACTIONS
TSJ&A has provided consulting services during the organization and
formation of Florida Banks. T. Stephen Johnson, Vice-Chairman of Florida Banks,
is the President of TSJ&A and Nancy E. LaFoy, Secretary and Treasurer of Florida
Banks, is the Senior Vice President of TSJ&A. Specific responsibilities
undertaken by TSJ&A include assisting management of Florida Banks in the
formation of Florida Banks' business plan with the concurrence of management,
conducting a feasibility analysis, drafting proposed administrative and
operational procedures, and preparing the necessary regulatory filings for
approval of the formation of Florida Banks and its acquisition of First
National. As compensation for its services, TSJ&A has been paid a monthly fee of
$15,000 for the six-month period commencing in January 1998 and ending in June
1998. In addition, TSJ&A will receive a finder's fee in connection with the
acquisition of First National of $137,500 (one percent of the aggregate purchase
price), which finder's fee shall be paid from the proceeds of the Florida Banks
IPO. Furthermore, Florida Banks temporarily operated out of premises leased by
TSJ&A and made available to Florida Banks. These premises are located at 9755
Dogwood Road, Suite 310, Roswell, Georgia 30075. Florida Banks paid no
consideration to TSJ&A for the use of such offices.
Mr. Robin C. Kelton, who beneficially owns greater than five percent of
the outstanding shares of Florida Banks Common Stock (prior to the issuance of
the shares in connection with the Florida Banks IPO), serves as the Chairman of
the Board of Directors of Kelton International Limited, an Underwriter in the
Florida Banks IPO. Kelton International Limited received a fee of $45,450 for
its services as placement agent in connection with the issuance of units
consisting of shares of Common Stock, Preferred Stock and warrants to purchase
shares of Common Stock (the "Units") to certain foreign investors on February 3,
1998. The Units were issued in a private placement in reliance upon the
exemption from the registration provisions of the Securities Act provided under
Rule 506 promulgated thereunder. In addition, on February 11, 1998, Mr. Kelton
purchased 22,500 shares of Florida Banks Common Stock at a purchase price of
$.01 per share. It is anticipated that upon the consummation of the Florida
Banks IPO, Mr. Kelton will receive immediately exercisable options to purchase
22,500 shares of Florida Banks Common Stock with an exercise price equal to the
IPO Price.
First National has extended loans from time to time to certain of its
directors, their associates and members of the immediate families of the
directors and executive officers of First National. These loans have been made
in the ordinary course of business on substantially the same terms, including
interest rates, collateral and repayment terms, as those prevailing at the time
for comparable transactions with persons not affiliated with First National, and
did not involve more than the normal risk of collectibility or present other
unfavorable features. Once First National becomes a wholly-owned subsidiary of
Florida Banks, First National may extend similar loans from time to time to
certain of Florida Banks directors and executive officers, their associates and
members of the immediate families of the directors and executive officers of
Florida Banks.
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INFORMATION ABOUT FIRST NATIONAL
GENERAL
First National commenced operations in July 1988 under the name
Enterprise National Bank of Tampa, as a full service commercial bank in Tampa,
Florida. In 1993, First National changed its name to First National Bank of
Tampa. First National leases its facilities in the First National Plaza, located
in downtown Tampa.
First National offers a variety of loan products, including commercial
loans, real estate loans, home equity loans, consumer/installment loans, SBA
loans and credit cards. First National also offers a broad range of
interest-bearing and noninterest-bearing deposit accounts, including commercial
and retail checking accounts, money market accounts, individual retirement
accounts, regular interest-bearing savings accounts and certificates of deposit.
In addition, First National provides such consumer services as U.S. Savings
Bonds, travelers checks, cashiers checks, safe deposit boxes, bank-by-mail
services, direct deposit, courier service, telephone banking and PC Banking. See
"Information About Florida Banks--Strategy of Florida Banks--Products and
Services."
HISTORY OF FIRST NATIONAL
First National was incorporated in 1988 under the name Enterprise
National Bank of Tampa. The operating strategies and tactics employed by the
former management of Enterprise National Bank of Tampa were largely
unsuccessful. Loan losses, poor credit quality, low net interest margins and
high overhead expenses resulted in substantial losses during First National's
early years. In 1991, the OCC informed the First National Board and management
of First National that First National's condition had deteriorated
significantly. The OCC observed that First National's loan portfolio evidenced
deterioration in quality, with increasing levels of delinquent and
non-performing loans. Moreover, in the opinion of the OCC, First National's
lending practices evidenced poor underwriting and ineffective loan
administration. In addition, the OCC reported that First National's credit
administration and loan review functions as well as the methodology utilized in
evaluating the adequacy of the allowance for loan losses required improvement.
As a consequence of the foregoing, in December 1991, First National was required
to enter into a Formal Agreement with the OCC dated December 18, 1991, pursuant
to which First National agreed to take certain remedial actions to improve its
condition and operating performance and to address certain identified
deficiencies (the "Formal Agreement"). The Formal Agreement with the OCC was
terminated on July 18, 1994, due to First National's substantially improved
condition.
The provisions of the Formal Agreement prescribed the corrective
actions and remedial measures deemed necessary by the OCC to correct
deficiencies and regulatory violations in First National and return it to a safe
and sound condition. Among the provisions of the Formal Agreement were
requirements to formalize the compliance process, implement a strategic plan,
formulate certain policies and procedures and maintain certain capital levels.
In 1992, the First National Board, as a result of First National's
financial difficulties, effected a substantial reorganization of the key
management positions by hiring John S. McMullen as President and Chief Executive
Officer and T. Edwin Stinson, Jr. as acting Chief Financial Officer. Since the
reorganization, First National's management team has remained relatively
unchanged.
First National suffered significant loan problems in the years 1988
through 1992. Net charge-offs due to nonperforming loans were approximately $2.6
million. Lending policies and procedures were revised in 1992 as
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part of the reorganization and the addition of the new management team. First
National's lending activities were refocused on the small business sector while
avoiding speculative real estate and other higher risk credits. First National's
current portfolio primarily consists of commercial and commercial real estate
loans including SBA loans. Currently, problem loans represent a negligible part
of First National's total loans.
In 1993, as required by the Formal Agreement, First National raised
$1.6 million in equity capital through an offering of its common stock (the
"1993 Offering"). The 1993 Offering was completed in November 1993.
Notwithstanding this infusion of additional capital, First National's growth
since the 1993 Offering has been limited by its capital, and Bank management has
primarily focused on increasing its capital through the retention of earnings
rather than expansion. On July 18, 1994, after successfully recapitalizing First
National in November 1993, restructuring the First National Board and management
and significantly improving First National's performance and asset quality of
its loan portfolio, the First National Board was notified by the OCC that the
Formal Agreement was terminated.
ASSET/LIABILITY MANAGEMENT
First National's objective is to manage assets and liabilities to
provide a satisfactory, consistent level of consistent operating profitability
within the framework of established cash, loan, investment, borrowing and
capital policies. The Chief Operating Officer of First National is primarily
responsible for monitoring policies and procedures that are designed to maintain
an acceptable composition of the asset/liability mix, while adhering to prudent
banking practices. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits. Management intends to continue
to invest the largest portion of Florida Bank, N.A. earning assets in
commercial, industrial and commercial real estate loans.
First National's asset/liability mix is monitored on a daily basis,
with monthly reports presented to the First National Board.. The objective of
this policy is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on First
National's earnings. Management of Florida Banks intends to maintain an
asset/liability mix policy similar to First National's current policy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Interest Rate Sensitivity and Liquidity
Management."
COMPETITION
Competition among financial institutions in Florida and the Identified
Markets is intense. Florida Banks and Florida Bank, N.A. will compete with other
bank holding companies, state and national commercial banks, savings and loan
associations, consumer finance companies, credit unions, securities brokerages,
insurance companies, mortgage banking companies, money market mutual funds,
asset-based non-bank lenders and other financial institutions. Many of these
competitors have substantially greater resources and lending limits, more
diversified and larger branch networks and are able to offer a wider range of
products and services than Florida Banks and First National. Various legislative
actions in recent years have led to increased competition among financial
institutions. As a result of such actions, most barriers to entry to the Florida
market by out-of-state financial institutions have been eliminated. Recent
legislative and regulatory changes and technological advances have enabled
customers to conduct banking activities without regard to geographic barriers
through computer and telephone-based banking and similar services. In addition,
with the enactment of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 and other laws and regulations affecting interstate bank
expansion, financial institutions located outside of the State of Florida may
now more easily enter the markets currently and proposed to be served by Florida
Banks and Florida Bank, N.A. There can be no assurance that the United States
Congress or the Florida Legislature or the applicable bank regulatory agencies
will not enact legislation or promulgate rules that may further
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<PAGE> 72
increase competitive pressures on Florida Banks. Florida Banks' failure to
compete effectively for deposit, loan and other banking customers in its market
areas could have a material adverse effect on Florida Banks' business, future
prospects, financial condition or results of operations. See "Information About
Florida Banks--Strategy of Florida Banks--Market Expansion."
DATA PROCESSING
First National currently has an agreement with M&I to provide its core
processing and certain customer products, and Florida Banks expects to continue
this contract upon consummation of the Merger. Florida Banks believes that M&I
will be able to provide state-of-the-art data processing and customer
service-related processing at a competitive price to support Florida Banks'
future growth. Florida Banks believes the M&I contract to be adequate for its
business expansion plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FIRST NATIONAL
The following table sets forth, as of July 2, 1998 (a) the name and
address of the persons known by First National to be beneficial owners of more
than 5% of the shares of First National Common Stock and the name of each of
First National's directors; (b) the number and percent of the shares of First
National Common Stock owned by each such person and by all of the directors and
executive officers of First National as a group and (c) the estimated number of
shares of Florida Banks Common Stock each such person or group is expected to
receive as a result of the Merger (assuming that such persons do not exercise
their dissenters' rights), calculated by multiplying the number of shares of
First National Common Stock beneficially owned by such person or group by the
Exchange Ratio.
<TABLE>
<CAPTION>
Beneficial Ownership of
Beneficial Ownership of Florida Banks Common Stock
First National Common Stock After the Merger
--------------------------- --------------------------
Name of Beneficial Owner Shares(1) Percent Shares Percent(2)
------------------------ --------- ------- ------ ----------
<S> <C> <C> <C> <C>
W. Andrew Krusen, Jr.......................... 143,850 7.0% 127,076(3) 2.2%
John S. McMullen.............................. 371,325 18.0 224,773(4) 4.0
T. Edwin Stinson, Jr.......................... 156,125 7.6 94,506(4) 1.7
William T. Baynard, Jr........................ 98,000 4.7 59,322(4) 1.1
Robert V. Christiansen........................ 29,500 1.4 17,857(4) *
Beate F. Frank................................ 575 * 348(4) *
Ronald J. Peterson............................ 8,500 * 5,145(4) *
John K. Shepard............................... 98,000 4.7 59,322(4) 1.1
All Directors and Executive Officers as a
group(8 persons)............................ 905,875 43.9% 588,349(5) 10.4%
</TABLE>
- --------------------------
*Less than 1%.
(1) Pursuant to the rules of the Commission, the determinations of
"beneficial ownership" of shares are based upon Rule 13d-3 under the
Exchange Act, which provides that shares will be deemed to be
"beneficially owned" where a person has, either solely or in
conjunction with others, the power to vote or to direct the voting of
shares and/or the power to dispose, or to direct the disposition of,
shares or where a person has the right to acquire any such power within
60 days after the date such "beneficial ownership" is determined.
Shares that a beneficial owner has the right to acquire within 60 days
pursuant to the exercise of stock options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of
such owner but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.
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(2) The percentages are based upon the aggregate number of shares of
Florida Banks Common Stock issued and outstanding as of July 2, 1998,
as adjusted to reflected an estimated 4,000,000 shares issuable
pursuant to the Florida Banks IPO and the estimated 1,250,000 shares
of Florida Banks Common Stock issuable pursuant to the Merger (assuming
an $11.00 IPO price, the mid-point of the estimated range) and the
exchange of 2,065,000 shares of the First National Common Stock
outstanding immediately prior to the consummation of the Merger.
(3) Includes 40,000 shares of Florida Banks Common Stock issuable upon the
exercise of immediately exercisable options to be granted
simultaneously with the closing of the Florida Banks IPO and 87,076
shares of Florida Banks Common Stock issuable upon conversion and
exchange of shares of First National Common Stock pursuant to the
Merger.
(4) Comprised of shares of Florida Banks Common Stock issuable upon
conversion and exchange of shares of First National Common Stock
pursuant to the Merger.
(5) Comprised of 40,000 shares of Florida Banks Common Stock issuable upon
the exercise of immediately exercisable options to be granted
simultaneously with the closing of the Florida Banks IPO and 548,349
shares of Florida Banks Common Stock issuable upon conversion and
exchange of shares of First National Common Stock pursuant to the
Merger.
FACILITIES
First National's offices are located at 100 West Kennedy Boulevard, Tampa,
Florida 33602. First National occupies approximately 8,400 square feet in the
building. Should First National require additional space for expansion, First
National also has options for additional space at a pre-determined lease rate.
EMPLOYEES
First National presently employs 26 persons on a full-time basis and three
persons on a part-time basis, including ten officers. First National will hire
additional persons as needed, including additional tellers and financial service
representatives.
LEGAL PROCEEDINGS
From time to time, First National may be involved in litigation relating to
claims arising out of operations in the normal course of business. As of the
date of this Proxy Statement-Prospectus, First National is not engaged in any
legal proceedings that are expected, individually or in the aggregate, to have a
material effect on First National.
MONETARY POLICIES
The results of operations of First National are, and the results of
operations of Florida Bank, N.A. will be, affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments of
monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member bank deposits
and limitations on interest rates which member banks may pay on time and savings
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of First National or Florida Bank, N.A., respectively.
CERTAIN TRANSACTIONS
As of March 31, 1998, Mr. W. Andrew Krusen, Jr., who serves as Chairman of
the Board of First National, and his related interests are currently indebted to
First National in the aggregate amount of $5,000. This indebtedness includes
credit card loans and other loans made in the ordinary course of business with
available unfunded commitments of $101,000.
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If the Merger is effected, Florida Bank, N.A. may extend loans from time to
time to certain of Florida Banks' directors, their associates and members of the
immediate families of the directors and executive officers of Florida Banks.
These loans will be made in the ordinary course of business on substantially the
same terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with persons not affiliated
with Florida Banks or Florida Bank, N.A. and will not involve more than the
normal risk of collectibility or present other unfavorable features.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FLORIDA BANKS
Florida Banks was incorporated on October 15, 1997 to acquire or
establish a bank in Florida. Prior to the consummation of the Merger, Florida
Banks will have no operating activities. The Merger will be consummated
immediately before the closing of the Florida Banks IPO. Upon consummation of
the Merger, former holders of First National Common Stock will own greater than
50% of the outstanding Florida Banks Common Stock, excluding the issuance of the
shares in connection with the Florida Banks IPO. Accordingly, the Merger will be
accounted for as if First National had acquired Florida Banks, the financial
statements of First National will become the historical financial statements of
Florida Banks and no goodwill will be recorded as a result of the Merger.
Florida Banks has funded its start-up and organization costs through the
sale of units, consisting of Florida Banks Common Stock, Preferred Stock and
warrants to purchase shares of Florida Banks Common Stock. As Florida Banks had
no operations during 1997 and had no equity and de minimis assets and
liabilities at December 31, 1997, the Management's Discussion and Analysis of
Financial Condition and Results of Operations of Florida Banks as of December
31, 1997 and for the period then ended, is not relevant and therefore is not
included herein.
FIRST NATIONAL
Management believes that acquiring First National will enable Florida
Banks to implement its strategy in the Tampa market area and provide a platform
for further expansion into other Identified Markets. The purpose of the
following discussion is to focus on significant changes in the results of
operations and the financial condition of First National during the three years
ended December 31, 1997, 1996 and 1995. This discussion and analysis is intended
to supplement information contained in the accompanying consolidated financial
statements and the selected financial data and other financial information
presented elsewhere in this Proxy Statement-Prospectus.
SUMMARY
First National's net income for 1997 decreased $8,000 or 2.0% to
$376,000 from $384,000 in 1996. Net income for 1996 increased $28,000 or 7.7%
from the 1995 net income of $356,000. Basic earnings per share was $.21 for both
1997 and 1996 and diluted earnings per share, which reflects the dilutive effect
of outstanding options, was $.19 per share for 1997, compared to $.20 for 1996.
These earnings per share amounts are based upon First National's historical
weighted average number of shares outstanding and do not reflect any pro forma
adjustments relating to the Florida Banks IPO or the exchange of shares upon
consummation of the Merger.
The decrease in net income from 1996 to 1997 was primarily attributable
to a decrease in noninterest income and increases in noninterest expense and the
provision for income taxes, all of which were partially offset by an increase in
net interest income. Net interest income increased to $2.0 million in 1997 from
$1.7 million in 1996, an increase of 15.1%. Noninterest income decreased 2.5% to
$504,000 in 1997 from $517,000 in 1996. Noninterest expense increased to $1.8
million in 1997 from $1.6 million in 1996, an increase of 15.2%. The provision
for income taxes increased to $232,000 in 1997 from $217,000 in 1996, an
increase of 7.0%.
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As a result of poor operating performance from First National's
inception in 1988 through 1994, First National generated approximately $8.5
million in net operating loss carryforwards. As of December 31, 1997, First
National had $7.0 million in net operating loss carryforwards remaining to be
utilized and net deferred tax assets of $2.4 million. At December 31, 1997,
First National assessed its earnings history and trends over the past three
years, its estimate of future earnings, and the expiration dates of the loss
carryforwards and determined that it was more likely than not that the deferred
tax assets will be realized. Accordingly, no valuation allowance was required at
December 31, 1997 resulting in net deferred tax assets of $2.4 million and a
corresponding increase to additional paid-in capital. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Provision for Income Taxes."
Total assets at December 31, 1997 were $60.4 million, an increase of
$4.9 million, or 8.8%, over the prior year. Total loans increased 6.6% to $33.8
million at December 31, 1997, from $31.7 million at December 31, 1996. Total
deposits remained relatively constant at $45.5 million. Shareholders' equity
increased to $6.3 million in 1997 from $3.3 million at December 31, 1996. This
increase was attributable to retained net income, the decrease in the deferred
tax asset valuation allowance and an increase in unrealized gains in available
for sale investment securities.
The earnings performance of First National is reflected in the
calculations of net income as a percentage of average total assets ("Return on
Average Assets") and net income as a percentage of average shareholders' equity
("Return on Average Equity"). During 1997, the Return on Average Assets and
Return on Average Equity were .70% and 10.62%, respectively, compared to .85%
and 13.18%, respectively, during 1996. First National's ratio of total equity to
total assets increased to 10.45% at December 31, 1997 from 5.89% at December 31,
1996, primarily as a result of the elimination of the deferred tax asset
valuation allowance.
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RESULTS OF OPERATIONS
Net Interest Income
The following table sets forth, for the periods indicated, certain
information related to First National's average balance sheet, its yields on
average earning assets and its average rates on interest-bearing liabilities.
Such yields and rates are derived by dividing income or expense by the average
balance of the corresponding assets or liabilities. Average balances have been
derived from the daily balances throughout the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ----- ------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of deferred loan fees(1) ....... $ 34,264 $ 3,353 9.79% $ 29,519 $2,890 9.79%
Investment securities(2) .................. 9,971 583 5.85 7,740 460 5.95
Federal funds sold ........................ 7,398 366 4.94 5,778 264 4.56
-------- ------- -------- ------
Total earning assets ................... 51,633 4,302 8.33 43,037 3,614 8.40
Cash and due from banks ...................... 2,092 1,684
Premises and equipment, net .................. 500 516
Other assets ................................. 342 309
Allowance for loan losses .................... (478) (391)
-------- --------
Total assets ........................... $ 54,089 $ 45,155
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits .......... $ 2,894 $ 73 2.52% $ 2,943 $ 74 2.52%
Savings deposits .......................... 5,707 273 4.77 3,941 184 4.66
Money market deposits ..................... 1,511 38 2.51 1,360 34 2.50
Certificates of deposit of $100,000 or more 10,530 585 5.55 8,128 436 5.36
Other time deposits ....................... 18,974 1,107 5.84 17,831 1,017 5.70
Repurchase agreements ..................... 3,957 178 4.50 2,589 108 4.19
Other borrowed funds ...................... 949 42 4.44 420 19 4.49
-------- ------- ------ -------- ------ ------
Total interest-bearing liabilities ..... 44,522 2,296 5.16 37,212 1,872 5.03
-------- ------- ------ -------- ------
Noninterest-bearing demand deposits .......... $ 5,729 $ 4,805
Other liabilities ............................ 298 226
Shareholders' equity ......................... 3,540 2,912
-------- --------
Total liabilities and
shareholders' equity ................... $ 54,089 $ 45,155
======== ========
Net interest income........................... $ 2,006 $1,742
======= ======
Net interest spread .......................... 3.17% 3.37%
Net interest margin........................... 3.89% 4.05%
</TABLE>
- --------------------
(1) During 1997 and 1996, all loans were accruing interest. Loan amounts
are net of deferred loan fees which were $94,000 in 1997 and $62,000 in
1996.
(2) The yield on investment securities is computed based upon the average
balance of investment securities at amortized cost and does not reflect
the unrealized gains or losses on such investments.
68
<PAGE> 78
Net interest income is the principal component of a financial
institution's income stream and represents the difference or spread between
interest and certain fee income generated from earning assets and the interest
expense paid on deposits and other borrowed funds. Fluctuations in interest
rates, as well as volume and mix changes in earning assets and interest-bearing
liabilities, can materially impact net interest income. First National had no
investments in tax-exempt securities during 1997, 1996 and 1995. Accordingly, no
adjustment is necessary to facilitate comparisons on a taxable equivalent basis.
Net interest income increased 15.1% to $2.0 million in 1997 from $1.7
million in 1996. This increase in net interest income can be attributed to the
growth in average earning assets, partially offset by the growth in time
deposits and short-term borrowings and by lower margins. The trend in net
interest income is commonly evaluated using net interest margin and net interest
spread. The net interest margin, or net yield on average earning assets, is
computed by dividing fully taxable equivalent net interest income by average
earning assets. The net interest margin decreased 16 basis points to 3.89% in
1997 on average earning assets of $51.6 million from 4.05% in 1996 on average
earning assets of $43.0 million. This change is primarily due to a seven basis
point decrease in the average yield on earning assets to 8.33% in 1997 from
8.40% in 1996 and a 13 basis point increase in the average rate paid on
interest-bearing liabilities to 5.16% in 1997 from 5.03% in 1996. The decreased
yield on earning assets was primarily the result of lower market rates on
investment securities. The increase in the cost of interest-bearing liabilities
is attributable to an increase in rates on time deposits, savings deposits and
repurchase agreements.
Net interest income increased $279,000, or 19.1%, to $1.7 million in 1996
from $1.5 million in 1995. This increase in net interest income is attributable
to the growth in average earning assets, partially offset by the growth in
interest-bearing liabilities and by lower margins. Net interest margin decreased
eight basis points to 4.05% in 1996 on average earning assets of $43.0 million
from 4.13% in 1995 on average earning assets of $35.5 million. Management
attributes this decrease in the net interest margin to higher rates on
interest-bearing liabilities, which were partially offset by higher yields on
earning assets, resulting from higher market rates.
The net interest spread decreased 20 basis points to 3.17% in 1997 from
the 1996 net interest spread of 3.37%, as the cost of interest-bearing
liabilities increased 13 basis points and the yield on average earning assets
decreased seven basis points. The net interest spread measures the absolute
difference between the yield on average earning assets and the rate paid on
average interest-bearing sources of funds. The net interest spread eliminates
the impact of noninterest-bearing funds and gives a direct perspective on the
effect of market interest rate movements. This measurement allows management to
evaluate the variance in market rates and adjust rates or terms as needed to
maximize spreads.
69
<PAGE> 79
The net interest spread decreased 13 basis points to 3.37% in 1996 from a
net interest spread of 3.50% in 1995. The decrease resulted from an increase in
the yield on average earning assets of 12 basis points offset by a 25 basis
point increase in the cost of average interest-bearing liabilities.
During recent years, the net interest margins and net interest spreads
have been under pressure, due in part to intense competition for funds with
non-bank institutions and changing regulatory supervision for some financial
intermediaries. The pressure was not unique to First National and was
experienced by the banking industry nationwide.
To counter potential declines in the net interest margin and the interest
rate risk inherent in the balance sheet, First National adjusts the rates and
terms of its interest-bearing liabilities in response to general market rate
changes and the competitive environment. First National monitors Federal funds
sold levels throughout the year, investing any funds not necessary to maintain
appropriate liquidity in higher yielding investments such as short-term U.S.
government and agency securities. First National will continue to manage its
balance sheet and its interest rate risk based on changing market interest rate
conditions.
Rate/Volume Analysis of Net Interest Income
The table below presents the changes in interest income and interest
expense attributable to volume and rate changes between 1996 and 1997. The
effect of a change in average balance has been determined by applying the
average rate in 1996 to the change in average balance from 1996 to 1997. The
effect of change in rate has been determined by applying the average balance in
1996 to the change in the average rate from 1996 to 1997. The net change
attributable to the combined impact of the volume and rate has been allocated to
both components in proportion to the relationship of the absolute dollar amounts
of the change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
COMPARED WITH
DECEMBER 31, 1996
--------------------------------------------
INCREASE (DECREASE) DUE TO:
--------------------------
VOLUME YIELD/RATE TOTAL
------ ---------- -----
<S> <C> <C> <C>
Interest Earned On:
Taxable securities....................... $ 123,712 $ (443) $ 123,269
Federal funds sold....................... 78,715 23,391 102,106
Net loans................................ 462,537 - 462,537
----------- --------- ----------
Total earning assets.................. 664,964 22,948 687,912
----------- --------- ----------
Interest Paid On:
Money market deposits................... 2,327 391 2,718
Savings deposits........................ 84,389 4,445 88,834
Time deposits........................... 202,423 37,047 239,470
Repurchase agreements................... 61,268 8,575 69,843
Other borrowed funds.................... 23,434 (213) 23,221
----------- --------- ----------
Total interest-bearing liabilities.... 373,841 50,245 424,086
----------- --------- ----------
Net interest income................... $ 291,123 $ (27,297) $ 263,826
=========== ========= ----------
</TABLE>
70
<PAGE> 80
Provision for Loan Losses
The provision for loan losses is the expense of providing an allowance
or reserve for anticipated future losses on loans. The amount of the provision
for each period is dependent upon many factors, including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
management's assessment of loan portfolio quality, the value of loan collateral
and general business and economic conditions.
The provision for loan losses charged to operations in both 1997 and
1996 was $60,000. Management's analysis of the allowance for loan losses during
1997 and 1996 indicated no material changes in the quality of the loan
portfolio, economic outlook or other factors generally considered by management.
Accordingly, the provision for loan losses for 1997 and 1996 were generally due
to increases in the amount of loans outstanding.
The provision for loan losses charged to operations was $60,000 in 1996
compared to a benefit (a reduction in the allowance for loan losses) of $138,000
in 1995. The benefit in 1995 was a result of the improvement in First National's
loan charge-off experience, the level of problem loans, the current and
anticipated economic conditions and other factors generally considered by
management in determining the adequacy of the allowance for loan losses. For
additional information regarding provision for loan losses, charge-offs and
allowance for loan losses, see "--Financial Condition--Asset Quality."
Noninterest Income
Noninterest income consists of revenues generated from a broad range of
financial services, products and activities, including fee-based services,
service fees on deposit accounts and other activities. In addition, gains
realized from the sale of the guaranteed portion of SBA loans, other real estate
owned and available for sale investments are included in noninterest income.
Noninterest income decreased 2.5% to $504,000 in 1997 from $517,000 in
1996. This change resulted from a small decrease in the amount of service fees
on deposits and lower gains on the sale of the guaranteed portion of SBA loans.
Service fees on deposits decreased 2.0% to $325,000 in 1997 from $331,000 in
1996 due to a decrease in insufficient funds and returned check fees resulting
from the closure of certain commercial deposit accounts in 1997 that
consistently carried insufficient funds on deposit. Gains on sales of the
guaranteed portion of SBA loans decreased 31.1% to $95,000 in 1997 from $138,000
in 1996 due to a reduction in the principal amount of such loans sold. During
1997, First National sold $1.1 million principal balance of SBA loans of which
$1.0 million were originated in 1997, compared to $1.7 million of loans sold in
1996 of which $1.0 million were originated in 1996. Other income, which includes
various recurring noninterest income items such as travelers checks fees and
safe deposit box fees, increased 53.2% to $76,000 in 1997 from $50,000 in 1996.
Noninterest income increased 37.7% to $517,000 in 1996 from $375,000 in
1995. This increase resulted primarily from higher service fees on deposits and
higher gains on the sales of the guaranteed portion of SBA loans, partially
offset by lower gains on sale of available for sale investments and other real
estate owned. Deposit volume growth increased fees on deposits 34.8% to $331,000
in 1996 from $246,000 in 1995. Gains on sales of the guaranteed portion of SBA
loans increased 229.6% to $138,000 in 1996 from $42,000 in 1995 due to an
increase in the principal amount of loans sold. In 1996, First National sold
$1.7 million principal balance of loans of which $1.0 million were originated in
1996, compared to $529,000 of loans sold in 1995 of which $186,000 were
originated in 1995. In 1996, there was a small loss on sale of available for
sale investments, but in 1995, gain on sale of available for sale investments
and other real estate owned totaled $23,000. Other income decreased 21.9% to
$50,000 in 1996 from $64,000 in 1995.
71
<PAGE> 81
The following table presents an analysis of the noninterest income for
the periods indicated with respect to each major category of noninterest income:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1997 1996 1995 1997-1996 1996-1995
---- ---- ---- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service fees ............................. $325 $ 331 $246 (2.0)% 34.8%
Gain on sale of loans .................... 95 138 42 (31.1) 229.6
Gains/(loss) on sale of available for sale
investment securities, net ............ 8 (2) 13 N/A N/A
Gain on sale of other real estate owned .. ---- -- 10 N/A N/A
Other .................................... 76 50 64 53.2 (21.9)
---- ----- ---- ----- -----
Total ................................ $504 $ 517 $375 (2.5)% 37.7%
==== ===== ==== ===== =====
</TABLE>
Noninterest Expense
Noninterest expense increased 15.2% to $1.8 million in 1997 from $1.6
million in 1996. Management attributes this increase to an increase in personnel
expense, occupancy expense, data processing expense and other operating
expenses. Salaries and benefits increased 14.5% to $999,000 in 1997 from
$872,000 in 1996. This increase is attributable to an increase of $41,000 due to
an increase in First National's administrative lending staff, additional
incentive awards of $23,000 under an expanded officer incentive program,
increases of $17,000 in the cost of employee's group insurance and normal salary
increases. Occupancy and equipment expense increased 12.9% to $256,000 in 1997
from $227,000 in 1996 primarily as a result of the addition of 967 square feet
of leased space for First National's SBA department at an annualized cost of
$11,000. Data processing expense increased 22.9% to $93,000 in 1997 from $75,000
in 1996. This increase in data processing expense is primarily attributable to
the growth in loan and deposit transactions and the addition of new services.
Other operating expenses increased 16.6% to $494,000 in 1997 from $423,000 in
1996. The increase in other operational expenses is attributable primarily to an
increase of $26,000 in FDIC insurance premiums associated with deposit growth,
an increase of $18,000 in directors' fees and increases in SBA expenses of
$28,000 related to the liquidation and collection of problem loans.
Noninterest expense remained constant at $1.6 million in 1996 and 1995.
Increases in personnel costs and data processing expense were offset by
decreases in occupancy and equipment expense and other operating expenses.
Salaries and benefits expense increased 11.2% to $872,000 in 1996 from $784,000
in 1995. This increase resulted from the normal salary increases and an increase
in First National's lending staff. Occupancy and equipment expense decreased
23.2% to $227,000 in 1996 from $296,000 in 1995 due to cost savings which were
realized upon First National's relocation of its permanent banking facilities on
July 1, 1995. Data processing expense increased 21.4% to $75,000 in 1996 from
$62,000 in 1995. Other operating expenses decreased 11.5% to $424,000 in 1996
from $479,000 in 1995. The decrease in operating expenses is attributed
primarily to a reduction of $38,000 in FDIC insurance premiums and a loss of
$55,000 during 1995 relating to the write off of leasehold improvements and
disposition of furniture and equipment
72
<PAGE> 82
associated with First National's relocation, which were partially offset by an
increase of $19,000 in data processing expense and an increase of $23,000 in
directors' fees.
The following table presents an analysis of the noninterest expense for
the periods indicated with respect to each major category of noninterest
expense:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1997 1996 1995 1997-1996 1996-1995
---- ---- ---- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and benefits....................... $ 999 $ 873 $ 784 14.5% 11.2%
Occupancy and equipment..................... 256 227 296 12.9 (23.2)
Data processing............................. 93 75 62 22.9 21.4
Other....................................... 494 423 479 16.6 (11.5)
--- --- --- ----- ------
Total................................... $1,842 $1,598 $1,621 15.2% (1.4)%
====== ====== ======
</TABLE>
Provision for Income Taxes
The provision for income taxes increased to $232,000 for 1997 from
$217,000 for 1996, reflecting an effective tax rate of 38.2% for 1997, compared
to an effective tax rate of 36.1% for 1996. The increase in the effective tax
rate is due to the effect of a higher level of nondeductible expenses in 1997
over 1996. First National paid no income taxes during 1997 and 1996 due to the
availability of net operating loss carryforwards. The provision for income taxes
for 1997 and 1996 represents deferred income taxes.
Certain income and expense items are recognized in different periods
for financial reporting purposes and for income tax return purposes. Deferred
income tax assets and liabilities reflect the differences between the values of
certain assets and liabilities for financial reporting purposes and for income
tax purposes, computed at the current tax rates. Deferred income tax expense is
computed as the change in First National's deferred tax assets, net of deferred
tax liabilities and the valuation allowance. First National's deferred income
tax assets consist principally of net operating loss carryforwards. A deferred
tax valuation allowance is established if it is more likely than not that all or
a portion of the deferred tax assets will not be realized.
First National reported losses from operations each year from First
National's inception in 1988 through 1994. These losses primarily resulted from
loan losses and high overhead costs. Management of First National was replaced
during 1992 and additional capital of $1.6 million was raised through a private
placement of common stock during 1993. Largely as a result of these changes,
First National became profitable in 1995. In order to reflect this fresh start,
First National elected to restructure its capital accounts through a
quasi-reorganization. A quasi-reorganization is an accounting procedure that
allows a company to restructure its capital accounts to remove an accumulated
deficit without undergoing a legal reorganization. Accordingly, First National
charged against additional paid-in capital its accumulated deficit of $8.1
million at December 31, 1995. As a result of the quasi-reorganization, the
future benefit from the utilization of the net operating loss carryforwards
generated prior to the date of the quasi-reorganization was required to be
accounted for as an increase to additional paid-in capital. Such benefits are
not considered to have resulted from First National's results of operations
subsequent to the quasi-reorganization.
73
<PAGE> 83
As of December 31, 1997, First National had $7.0 million in net
operating loss carryforwards available to reduce future taxable earnings, which
resulted in net deferred tax assets of $2.4 million. These net operating loss
carryforwards will expire in varying amounts in the years 2004 through 2009
unless fully utilized by First National (or, if the Merger is consummated,
Florida Bank, N.A.).
Prior to 1997, because of the uncertain nature of First National's
earnings, First National recorded a valuation allowance equal to the full amount
of the deferred tax assets. At December 31, 1997, First National assessed its
earnings history and trends over the past three years, its estimate of future
earnings and the expiration dates of the net operating loss carryforwards and
determined that it was more likely than not that the benefit of the deferred tax
assets will be realized. Accordingly, no valuation allowance was required at
December 31, 1997, and the elimination of the valuation allowance of $2.4
million has been reflected as an increase to additional paid-in capital.
The following table presents the components of net deferred tax assets:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets................................ $2,525 $ 2,729 $ 2,951
Deferred tax liabilities........................... 105 85 108
Valuation allowance................................ -- 2,644 2,843
------- ----- -------
Net deferred tax assets............................ $2,420 $ -- $ --
====== ======= =======
</TABLE>
No provision for income taxes was recorded in 1995 due to the benefit
of the utilization of net operating loss carryforwards prior to First National's
quasi-reorganization.
The utilization of the net operating loss carryforwards reduces the
amount of the related deferred tax asset by the amount of such utilization at
the current enacted tax rates. Other deferred tax items resulting in temporary
differences in the recognition of income and expenses such as the allowance for
loan losses, loan fees, accumulated depreciation and cash to accrual adjustments
will fluctuate from year-to-year.
As a result of the elimination of the deferred tax valuation allowance,
First National recognized the full benefit of the deferred tax assets at
December 31, 1997. Accordingly, First National (or, in the event the Merger is
consummated, Florida Bank, N.A.) will record a provision for income taxes in
future periods that includes a current and deferred income tax component. The
deferred income tax provision will reflect the benefit of the utilization of the
net operating loss carryforwards.
Subsequent to the completion of the Merger, Florida Bank, N.A.
operating results will be included in Florida Banks' consolidated income tax
returns. As a result of the Merger, Florida Banks will have the use of First
National's net operating loss carryforwards. However, the portion of First
National's net operating loss carryforwards which will be usable each year by
Florida Banks will be limited under provisions of Section 382 of the Internal
Revenue Code relating to the change in control. The annual limitation is based
upon the purchase price of First National multiplied by the applicable Long-Term
Tax-Exempt Rate (as defined in the Internal Revenue Code) at the date of
acquisition. Based upon the applicable Long-Term Tax-Exempt Rate for March 1998
acquisitions, this annual limitation would be approximately $700,000. Management
believes it is more likely than not that following the Merger, Florida Bank,
N.A. will produce sufficient taxable income to allow Florida Banks to fully
utilize First National's net operating loss carryforwards prior to their
expiration.
74
<PAGE> 84
Net Income
Net income decreased 2.0% to $376,000 in 1997 from $384,000 in 1996.
Net income decreased primarily as a result of a decrease in noninterest income
and increases in noninterest expense and the provision for income taxes, all of
which were partially offset by an increase in net interest income. Basic
earnings per share was $.21 for both 1997 and 1996.
Return on Average Assets decreased 15 basis points to .70% in 1997 from
.85% in 1996. The decrease in the Return on Average Assets resulted primarily
from an increase in average assets and a decrease in net interest margin.
Average assets increased 19.8%, or $8.9 million to $54.1 million in 1997 from
$45.2 million in 1996. The net interest margin decreased 16 basis points to
3.89% in 1997 from 4.05% in 1996. The growth in average assets from 1996 to 1997
included $3.9 million in investment securities and Federal funds sold and was
partially funded by a $1.9 million growth in repurchase agreements and other
borrowed funds during the same period. The net interest spread between these
assets and liabilities is substantially less than the spread between loans and
deposits.
Return on Average Equity decreased 256 basis points to 10.62% in 1997
from 13.18% in 1996. The decrease in the Return on Average Equity resulted
primarily from a decrease in net income and an increase in average shareholders
equity. Average shareholders' equity increased $600,000, or 21.6% to $3.5
million in 1997 from $2.9 million in 1996.
Net income increased 7.7% to $384,000 in 1996 from $356,000 in 1995.
The increase in net income for the year ended December 31, 1996, was
attributable to an increase in net interest income, an increase in noninterest
income and a decrease in noninterest expense, which were partially offset by an
increase in the provision for income taxes. Basic earnings per share was $.21
for 1996 and $.20 for 1995.
Return on Average Assets decreased ten basis points to .85% in 1996
from .95% in 1995. The decrease in the Return on Average Assets resulted
primarily from an increase in average assets and an increase in the provision
for income taxes. Average assets increased $7.7 million, or 20.4% to $45.2
million in 1996 from $37.5 million in 1995. The provision for income taxes was
$217,000 in 1996. First National did not record a provision for income taxes in
1995. See "--Results of Operations--Provision for Income Taxes."
Return on Average Equity decreased 167 basis points to 13.18% in 1996
from 14.85% in 1995. The decrease in Return on Average Equity resulted from an
increase in net income which was offset by an increase in average shareholders'
equity. Average equity increased $500,000, or 21.4% to $2.9 million in 1996 from
$2.4 million in 1995.
FINANCIAL CONDITION
Earning Assets
Average earning assets increased 20.0% to $51.6 million in 1997 from
$43.0 million in 1996. During 1997, loans, net of deferred loan fees,
represented 66.4%, investment securities comprised 19.3% and Federal funds sold
comprised 14.3% of average earning assets. In 1996, loans, net of deferred loan
fees, comprised 68.6%, investment securities comprised 18.0% and Federal funds
sold comprised 13.4% of average earning assets. The variance in the mix of
earning assets is primarily attributable to an increase in investment
75
<PAGE> 85
securities needed to pledge against the increase in repurchase agreements. First
National manages its securities portfolio to minimize interest rate fluctuation
risk and to provide liquidity.
In 1997, growth in earning assets was funded primarily through an
increase in time deposits, savings deposits, repurchase agreements, other
borrowed funds and an increase in retained earnings.
Loan Portfolio
First National's total loans outstanding increased 6.6% to $33.8
million as of December 31, 1997 from $31.7 million as of December 31, 1996. Loan
growth for 1997 was funded primarily through growth in average deposits. The
growth in the loan portfolio primarily was a result of an increase in commercial
and commercial real estate loans of $2.9 million, or 11.6%, from December 31,
1996 to 1997. Average total loans in 1997 were $34.4 million, $559,000 greater
than the year end balance of $33.8 million due to the maturity and payoff of
certain construction loans prior to year end. First National engages in a full
complement of lending activities, including commercial, real estate
construction, real estate mortgage, home equity, installment loans, SBA
guaranteed loans and credit card loans.
The following table presents various categories of loans contained in
First National's loan portfolio for the periods indicated, the total amount of
all loans for such periods and the percentage of total loans represented by each
category for such periods:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
1997 1996
------------------------------ -------------------------
% OF
BALANCE % OF TOTAL BALANCE TOTAL
------- ---------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TYPE OF LOAN
- ------------
Commercial real estate............................................. $15,281 45.2% $ 13,078 41.2%
Commercial ........................................................ 13,158 38.9 12,413 39.2
Residential mortgage............................................... 3,269 9.7 3,953 12.5
Consumer........................................................... 1,222 3.6 1,423 4.5
Credit cards and other............................................. 869 2.6 838 2.6
------- ----- -------- ----
Total loans............................................... 33,799 100% 31,705 100%
===== ====
Net deferred loan fees............................................. (79) (78)
------- --------
Loans, net of deferred loan fees........................ 33,720 31,627
Allowance for loan losses.......................................... (481) (432)
------- --------
Net loans................................................. $33,239 $ 31,195
======= ========
</TABLE>
Commercial Real Estate. Commercial real estate loans consist of loans
secured by owner-occupied commercial properties, income producing properties and
construction and land development. First National's underwriting guidelines
generally require a minimum of 20% equity on all commercial real estate
transactions. Loan-to-value ratios are normally supported by a current appraisal
performed by an appraiser which has been pre-approved and engaged by First
National. These appraisals are typically updated at the time of the renewal of
the credit, if the terms of the loan are amended, or if First National believes
that there has been a substantial negative change in the value or condition of
the collateral. Property insurance, both standard hazard and flood, if
applicable, is required on all transactions where First National is relying on
the value of the collateral to support the loan. In the large majority of
credits, First National requires that the
76
<PAGE> 86
principals or owners of the borrowing entity guarantee the credit including the
personal guarantees of the corporate officers or partners. It is First
National's policy to maintain current financial information, including
verification of income on all borrowers and guarantors. At December 31, 1997,
commercial real estate loans represented 45.2% of outstanding loan balances,
compared to 41.2% at December 31, 1996. The increase in this category of loans
is due to increased emphasis on these real estate collateralized loans which
generally have a higher yield than residential real estate loans.
Commercial. This category of loans includes loans made to individual,
partnership or corporate borrowers, and obtained for a variety of business
purposes. Generally these loans are secured by accounts receivable, marketable
securities, deposit accounts, equipment and other fixed assets. Loan-to-value
ratios range from 50% for loans secured by inventory to 100% for loans secured
by deposit accounts of First National. Each category of commercial loans has
been assigned a level of acceptable loan-to-value ratios and specific
requirements for determination of value and monitoring of collateral levels and
values. Property insurance, both standard hazard and flood, if applicable, is
required on all transactions where First National is relying on the value of the
collateral to support the loan. First National generally requires that the
principals or owners of the borrowing entity guarantee the credit including the
personal guarantees of the corporate officers or partners. The only exception to
this requirement would be credits secured by readily marketable securities or
deposit accounts. First National's policy requires that current financial
information, including verification of income, be maintained on all borrowers
and guarantors with the only exception of loans secured by First National
deposit accounts. At December 31, 1997, commercial loans represented 38.9% of
outstanding loan balances, compared to 39.2% at December 31, 1996.
Residential Mortgage. First National's residential mortgage loans
consist of loans secured by first and second mortgage loans and loans for the
construction of residential properties. Loan-to-value ratios generally do not
exceed 80% of the appraised value of the collateral and are determined by an
appraisal performed by an appraiser approved and engaged by First National.
First National does not engage in home equity lending where the total debt
securing the property exceeds the current appraised value of the collateral less
an acceptable margin. Property insurance, both standard hazard and flood, if
applicable, is required on all transactions where First National is relying on
the value of the collateral to support the loan. First National generally
requires that all owners of the property guarantee the debt and provide current
financial and income information at the time of application. At December 31,
1997, residential mortgage loans represented 9.7% of outstanding loan balances,
compared to 12.5% at December 31, 1996. This decrease is due to the maturity and
repayment of low-income housing construction loans originated during 1996 under
government agency supported programs.
Consumer. First National's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
education and other personal expenditures. First National offers a full range of
consumer loan products, however, management has not actively solicited consumer
loans due to the below market pricing currently offered by non-bank competitors.
First National's consumer loan portfolio primarily consists of loans made to
consumers affiliated with a commercial depositor or borrower. First National
requires standard property insurance on collateral securing consumer loans as
well as financial information on the borrowers and guarantors. At December 31,
1997, consumer loans represented 3.6% of outstanding loan balances, compared to
4.5% at December 31, 1996. The decrease in consumer loans is attributable to
increased competition for those loans principally by non-bank institutions.
Credit Card and Other Loans. This category of loans consist of
borrowings by customers using credit cards, overdrafts and overdraft protection
lines. First National offers Visa Gold and Visa Secured Credit Cards. First
National's credit card portfolio primarily consists of extensions of credit to
existing bank customers or persons well known to First National's management.
First National does not solicit credit card
77
<PAGE> 87
accounts outside of its market area not does it utilize mass marketing for its
credit card products. Overdraft Protection Lines are offered to both consumer
and commercial accounts as a convenience to First National's customers. First
National underwrites its credit card and overdraft credit lines using generally
the same standards as other types of credits. At December 31, 1997 and 1996,
credit card and other loans represented 2.6% of outstanding loan balances.
First National's only area of credit concentration is commercial and
commercial real estate loans. First National has not invested in loans to
finance highly-leveraged transactions, such as leveraged buy-out transactions,
as defined by the Federal Reserve Board and other regulatory agencies. In
addition, First National had no foreign loans or loans to lesser developed
countries as of December 31, 1997. For a more thorough discussion of the types
of loans offered by First National, see "Information About First National."
While risk of loss in First National's loan portfolio is primarily tied
to the credit quality of the borrowers, risk of loss may also increase due to
factors beyond First National's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also impact
the relative risk in First National's real estate portfolio. Of First National's
target areas of lending activities, commercial loans are generally considered to
have greater risk than real estate loans or consumer loans.
From time to time, management of First National has originated certain
loans which, because they exceeded First National's legal lending limit, were
sold to other banks. As a result of the Florida Banks IPO, First National
expects to have an increased lending limit. Accordingly, First National may, at
its discretion, repurchase certain loan participation, thereby increasing
earning assets. Loan participation agreements allow First National to repurchase
loans at the outstanding principal balance plus accrued interest, if any, at
First National's discretion.
First National also purchases participation from other banks. When
First National purchases these participation, such loans are subjected to First
National's underwriting standards as if the loan was originated by First
National. Accordingly, management of First National does not believe that loan
participation purchased from other banks pose any greater risk of loss than
loans that First National originates.
The repayment of loans in the loan portfolio as they mature is a source
of liquidity for First National. The following table sets forth the maturity of
First National's loan portfolio within specified intervals as of December 31,
1997:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
YEAR OR LESS 5 YEARS 5 YEARS TOTAL
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TYPE OF LOAN
------------
Commercial real estate........................... $ 3,405 $5,319 $6,557 $15,281
Commercial....................................... 7,942 4,968 248 13,158
Residential mortgage............................. 1,099 1,292 878 3,269
Consumer......................................... 471 751 -- 1,222
Credit card and other............................ 252 -- 617 869
------- ------ ------- --------
Total..................................... $13,169 $ 12,330 $ 8,300 $ 33,799
======= ======== ======== ========
</TABLE>
78
<PAGE> 88
The following table presents the maturity distribution as of December
31, 1997 for loans with predetermined fixed interest rates and floating interest
rates by various maturity periods:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
YEAR OR LESS 5 YEARS 5 YEARS TOTAL
---------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST CATEGORY
-----------------
Predetermined fixed interest rate............... $ 7,181 $ 5,440 $6,147 $18,768
Floating interest rate.......................... 5,988 6,890 2,153 15,031
------- ------- ------ -------
Total.................................... $13,169 $12,330 $8,300 $33,799
======= ======= ====== =======
</TABLE>
Asset Quality
During 1997 and 1996, all loans were accruing interest. At December 31,
1997, ten loans totaling $774,000 were contractually past due by 90 days or more
as to principal and interest payments. Of this amount, $624,000 are SBA loans,
of which $526,000 are guaranteed by the SBA, subject to certain conditions. No
loans were past due 90 days or more as of December 31, 1996. As of December 31,
1997, five loans totaling $265,000 (two of which, totaling $219,000, are also
included in the amount of loans past due 90 days or more) were classified as
"troubled debt restructurings" as that term is defined in Statement of Financial
Accounting Standards No. 15. As of December 31, 1996, two loans totaling $42,000
were classified as "troubled debt restructurings." See "--Nonperforming Assets."
First National started an SBA lending program in August 1994. Under
this program, First National originates commercial and commercial real estate
loans to borrowers that qualify for various SBA guaranteed loan products. The
guaranteed portion of such loans generally ranges from 75% to 85% of the
principal balance, the majority of which First National sells in the secondary
market. The majority of First National's SBA loans provide a servicing fee of
1.00% of the outstanding principal balance. Certain SBA loans provide servicing
fees of up to 2.32% of the outstanding principal balance. First National records
the premium received upon the sale of the guaranteed portion of SBA loans as
gain on sale of loans. First National does not defer a portion of the gain on
sale of such loans as a yield adjustment on the portion retained, nor does it
record a retained interest, as such amounts are not considered significant. The
principal balance of SBA loans in First National's loan portfolio at December
31, 1997 totaled $2.9 million, including the SBA guaranteed portion of $1.6
million, compared to an outstanding balance of $2.1 million at December 31,
1996, including the SBA guaranteed portion of $1.2 million. At December 31,
1997, the principal balance of the guaranteed portion of SBA loans cumulatively
sold in the secondary market since the commencement of the SBA program totaled
$2.7 million.
First National generally repurchases the SBA guaranteed portion of
loans in default to fulfill the requirements of the SBA guarantee or in certain
cases, when it is determined to be in First National's best interest, to
facilitate the liquidation of the loans. The guaranteed portion of the SBA loans
are repurchased at the current principal balance plus accrued interest through
the date of repurchase. Upon liquidation, in most cases First National is
entitled to recover up to 120 days of accrued interest from the SBA on the
guaranteed portion of the loan paid. In certain cases, First National has the
option of charging-off the non-SBA guaranteed portion of the loan retained by
First National and requesting payment of the SBA guaranteed portion. In such
cases, First National will have determined that insufficient collateral exists,
or the cost of liquidating the business exceeds the anticipated proceeds to
First National. In all liquidations, First National seeks the advice of the SBA
and submits a liquidation plan for approval prior to the commencement of
79
<PAGE> 89
liquidation proceedings. The payment of any guarantee by the SBA is dependent
upon First National following the prescribed SBA procedures and maintaining
complete documentation on the loan and any liquidation services. The total
principal balance of the guaranteed portion of SBA loans repurchased during 1997
was $319,000. No loans were repurchased during 1996.
As of December 31, 1997, there were no loans other than those disclosed
above that were classified for regulatory purposes as doubtful, substandard or
special mention which (i) represented or resulted from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represented material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. There are no loans other than those disclosed above where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with loan
repayment terms.
Allowance for Loan Losses and Net Charge-Offs
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
In its evaluation of the allowance and its adequacy, management considers loan
growth, changes in the composition of the loan portfolio, the loan charge-off
experience, the amount of past due and nonperforming loans, current and
anticipated economic conditions, underlying collateral values securing loans and
other factors. While it is First National's policy to charge-off in the current
period the loans in which a loss is considered probable, there are additional
risks of future losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. Because these risks include the state of
the economy, management's judgment as to the adequacy of the allowance is
necessarily approximate and imprecise.
An analysis of First National's loss experience is furnished in the
following table for the periods indicated, as well as a detail of the allowance
for loan losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period......................... $ 432 $340
Charge-offs:
Commercial real estate............................. (24) --
Commercial......................................... (19) (4)
Residential mortgage............................... -- --
Consumer........................................... -- (3)
Credit card and other.............................. -- --
-- --
Total charge-offs............................ (43) (7)
--- ---
Recoveries:
Commercial real estate ............................. 32 39
Commercial ......................................... -- --
Residential mortgage................................ -- --
Consumer ........................................... -- --
Credit card and other............................... -- --
-- --
Total recoveries.............................. 32 39
--- ---
Net (charge-offs)/recoveries........................... (11) 32
Provision for loan losses.............................. 60 60
-- --
Balance at end of period............................... $481 $432
=== ===
Net (charge-offs)/recoveries as a percentage
of average loans............................. (.03)% .11%
Allowance for loan losses as a percentage
of total loans............................... 1.42% 1.36%
</TABLE>
80
<PAGE> 90
Net charge-offs were $11,000 or .03% of average loans outstanding in
1997 as compared to net recoveries of $32,000 or .11% of average loans
outstanding in 1996. The allowance for loan losses increased 11.4% to $481,000
or 1.42% of loans outstanding at December 31, 1997 from $432,000 or 1.36% at
December 31, 1996. The allowance for loan losses as a multiple of net loans
charged off was 44.7x for the year ended December 31, 1997.
Net recoveries increased to $32,000 in 1996, representing .11% of
average loans outstanding, from $16,000 in 1995 or .07% of average loans
outstanding. The allowance for loan losses increased to $432,000, or 1.36% of
loans outstanding at December 31, 1996, from $340,000, or 1.28% of loans
outstanding at December 31, 1995.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
to ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio in the aggregate. This review
encompasses the judgment of management, utilizing internal loan rating
standards, guidelines provided by the banking regulatory authorities governing
First National, their loan portfolio reviews as part of the bank examination
process and semi-annual independent external loan reviews performed by a
consultant.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") was issued in May 1993. SFAS
114 requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the fair value of the collateral if the loan is collateral dependent. First
National adopted SFAS 114 on January 1, 1995. At December 31, 1997, First
National held impaired loans as defined by SFAS 114 of $372,000 ($300,000 of
such balance is guaranteed by the SBA) for which specific allocations of $72,000
have been established within the allowance for loan losses which have been
measured based upon the fair value of the collateral. Such reserve is allocated
between commercial and commercial real estate. No loans were impaired as of
December 31, 1996. A portion of these impaired loans have also been classified
by First National as loans past due over 90 days ($342,000) and as troubled debt
restructurings ($249,000). Interest income on such impaired loans during 1997
was not significant.
As shown in the table below, management determined that as of December
31, 1997, 22.8% of the allowance for loan losses was related to commercial real
estate loans, 37.0% was related to commercial loans, 7.3% was related to
residential mortgage loans, 1.8% was related to consumer loans, 4.7% to credit
card and other loans and 26.4% was unallocated. There was no significant
fluctuation in the allocation of the allowance for loan losses between 1996 and
1997.
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<PAGE> 91
For the periods indicated, the allowance was allocated as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1997 1996
---- ----
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial real estate.............................. $ 110 22.8% $ 85 19.7%
Commercial.......................................... 178 37.0 157 36.4
Residential mortgage................................ 35 7.3 44 10.2
Consumer ........................................... 9 1.8 15 3.4
Credit card and other loans......................... 23 4.7 11 2.6
Unallocated......................................... 126 26.4 120 27.7
----- ----- ----- -----
Total....................................... $ 481 100.0% $ 432 100.0%
===== ===== ===== =====
</TABLE>
In considering the adequacy of First National's allowance for loan
losses, management has focused on the fact that as of December 31, 1997, 38.9%
of outstanding loans are in the category of commercial loans and 45.2% are in
commercial real estate loans. Commercial loans are generally considered by
management to have greater risk than other categories of loans in First
National's loan portfolio. Generally, such loans are secured by accounts
receivable, marketable securities, deposit accounts, equipment and other fixed
assets which reduces the risk of loss inherently present in commercial loans.
Commercial real estate loans inherently have a higher risk due to depreciation
of the facilities, limited purposes of the facilities and the effect of general
economic conditions. First National attempts to limit this risk by generally
lending no more than 75% of the appraised value of the property held as
collateral.
Residential mortgage loans constituted 9.7% of outstanding loans at
December 31, 1997. The majority of the loans in this category represent
residential real estate mortgages where the amount of the original loan
generally does not exceed 80% of the appraised value of the collateral. These
loans are considered by management to be well secured with a low risk of loss.
At December 31, 1997, the majority of First National's consumer loans
were secured by collateral primarily consisting of automobiles, boats and other
personal property. Management believes that these loans involve less risk than
commercial loans.
An independent firm conducts a credit review of First National's loan
portfolio on a semi-annual basis. The purpose of this review is to assess the
risk in the loan portfolio and to determine the adequacy of the allowance for
loan losses. The review includes analyses of historical performance, the level
of nonconforming and rated loans, loan volume and activity, review of loan files
and consideration of economic conditions and other pertinent information. Upon
completion, the report is approved by the Board and management of First
National. In addition to the above credit review, First National's primary
regulator, the OCC, also conducts a periodic examination of the loan portfolio.
Upon completion, the OCC presents its report of examination to the First
National Board and management of First National. Information provided from the
above two independent sources, together with information provided by the
management of First National and other information known to members of the First
National Board, are utilized by the First National Board to monitor the loan
portfolio and the allowance for loan losses. Specifically, the First National
Board attempts to identify risks inherent in the loan portfolio (e.g., problem
loans, potential problem
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<PAGE> 92
loans and loans to be charged off), assess the overall quality and
collectibility of the loan portfolio and determine amounts of the allowance for
loan losses and the provision for loan losses to be reported based on the
results of their review.
Nonperforming Assets
At December 31, 1997 and 1996, no loans were accounted for on a
nonaccrual basis. At December 31, 1997, ten loans totaling $774,000 were
accruing interest and were contractually past due 90 days or more as to
principal and interest payments, compared to no such loans at December 31, 1996.
Of this amount, $624,000 are SBA loans, of which $526,000 are guaranteed by the
SBA, subject to certain conditions.
At December 31, 1997, five loans totaling $265,000 (two of which,
totaling $219,000, are also included in the amount of loans past due 90 days or
more) were defined as "troubled debt restructurings," compared to two loans
totaling $42,000 at the prior year end. During 1997, First National restructured
three commercial loans to one borrower that was experiencing financial
difficulties. These loans were temporarily placed on an interest-only basis
where First National was not collecting principal payments. At December 31,
1997, these three loans had an outstanding principal balance of $249,000,
including the SBA guaranteed portion totaling $186,000. These loans have been
classified as impaired loans at December 31, 1997 and First National has
provided a specific reserve of $63,000 representing First National's estimated
exposure on these loans. The borrower has been unable to make the payments under
the loans as restructured and the business is in the process of being
liquidated.
First National has policies, procedures and underwriting guidelines
intended to assist in maintaining the overall quality of its loan portfolio.
First National monitors its delinquency levels for any adverse trends.
Non-performing assets consist of loans on non-accrual status, real estate and
other assets acquired in partial or full satisfaction of loan obligations and
loans that are past due 90 days or more.
First National's policy generally is to place a loan on nonaccrual
status when it is contractually past due 90 days or more as to payment of
principal or interest. A loan may be placed on nonaccrual status at an earlier
date when concerns exist as to the ultimate collections of principal or
interest. At the time a loan is placed on nonaccrual status, interest previously
accrued but not collected is reversed and charged against current earnings.
Recognition of any interest after a loan has been placed on nonaccrual is
accounted for on a cash basis. Loans that are contractually past due 90 days or
more which are well secured or guaranteed by financially responsible third
parties and are in the process of collection generally are not placed on
nonaccrual status.
Investment Portfolio
Total investment securities increased 25.9% to $10.8 million in 1997
from $8.6 million in 1996. At December 31, 1997, investment securities available
for sale totaled $10.5 million, with an unrealized gain of $4,000, net of tax
effect. At December 31, 1996, investment securities available for sale totaled
$8.3 million, with an unrealized loss of $10,000. At December 31, 1997,
investment securities available for sale had net unrealized gains of $6,000,
comprised of gross unrealized losses of $25,000 and gross unrealized gains of
$31,000. At December 31, 1996, investment securities available for sale had net
unrealized losses of $10,000, comprised of gross unrealized losses of $31,000
and gross unrealized gains of $21,000. Average investment securities as a
percentage of average earning assets increased to 19.3% in 1997 from 18.0% in
1996.
First National invests primarily in direct obligations of the United
States, obligations guaranteed as to principal and interest by the United States
and obligations of agencies of the United States. In addition, First
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<PAGE> 93
National enters into Federal funds transactions with its principal correspondent
banks and acts as a net seller of such funds. The sale of Federal funds amounts
to a short-term loan from First National to another bank.
Proceeds from sales and maturities of available for sale investment
securities increased 248.7% to $13.5 million in 1997 from $3.9 million in 1996,
with a resulting net gain on sales of $8,000 in 1997. Such proceeds are
generally used to reinvest in additional available for sale investments.
Other investments include Independent Bankers Bank stock, Federal
Reserve Bank stock and Federal Home Loan Bank stock that are required for First
National to be a member of and to conduct business with such institutions.
Dividends on such investments is determined by the institutions and is payable
semi-annually or quarterly. Other investments increased 15.6% to $313,000 at
December 31, 1997 from $271,000 at December 31, 1996. Other investments are
carried at cost as such investments do not have readily determinable fair
values.
During 1997 and 1996, First National did not invest in collateralized
mortgage obligations ("CMOs"). In addition, at December 31, 1997, the investment
portfolio did not include any U.S. government agency investments which are
defined as derivatives or structured notes.
The following table presents, for the periods indicated, the carrying
amount of First National's investment securities, including mortgage-backed
securities.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1997 1996
----------------------------- ----------------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
------- ---------- ------- ----------
INVESTMENT CATEGORY (DOLLARS IN THOUSANDS)
- -------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and other U.S. agency obligations... $ 3,997 37.1% $2,480 29.0%
Mortgage-backed securities........................ 6,455 60.0 5,800 67.8
------- ----- ------ -----
10,452 97.1 8,280 96.8
Other investments.................................... 313 2.9 271 3.2
------- ----- ------ -----
Total................................ $10,765 100% $8,551 100%
======= ===== ====== =====
</TABLE>
First National utilizes its available for sale investment securities,
along with cash and Federal funds sold, to meet its liquidity needs. Average
investment securities as a percentage of average earning assets increased to
19.3% in 1997 from 18.0% in 1996.
As of December 31, 1997, $6.5 million or 60.0% of the investment
securities portfolio consisted of mortgage-backed securities compared to $5.8
million or 67.8% of the investment securities portfolio as of December 31, 1996.
During 1998, $1.2 million of all mortgage-backed securities will mature. The
maturities of mortgage-backed securities, of which 49.0% were adjustable, may be
shortened by prepayments which tend to increase in a declining interest rate
environment.
As a result of the adoption of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), First National has segregated its investment
securities portfolio into securities held to maturity and those available for
sale. Investments held to maturity are those for which management has both the
ability and intent to hold to maturity and are carried at amortized cost. At
December 31, 1997 and 1996, no investments were classified as held to maturity.
Investments available for sale are securities identified by management as
securities which may be sold prior
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<PAGE> 94
to maturity in response to various factors including liquidity needs, capital
compliance, changes in interest rates or portfolio risk management. The
available for sale investment securities provides interest income and serves as
a source of liquidity for First National. These securities are carried at fair
market value, with unrealized gains and losses, net of taxes, reported as a
separate component of shareholders' equity.
Investment securities with a carrying value of approximately $9.3
million and $6.5 million at December 31, 1997 and 1996, respectively, were
pledged to secure deposits of public funds, repurchase agreements and certain
other deposits as provided by law.
The maturities and weighted average yields of the investment securities
portfolio at December 31, 1997 are presented in the following table using
primarily the stated maturities, excluding the effects of prepayments.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT YIELD(1)
------ --------
AVAILABLE FOR SALE: (DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury and other U.S. agency obligations:
0 - 1 year................................. $ 2,503 5.60%
Over 1 through 5 years..................... 1,494 5.75
Over 5 years .............................. --
--------
Total...................................... 3,997
--------
Mortgage-backed securities:
0 - 1 year................................. 1,247 5.81
Over 1 through 5 years..................... 879 6.56
Over 5 through 10 years.................... 524 7.69
Over 10 years.............................. 3,805 6.49
-------- ----
Total...................................... 6,455
--------
Total available for sale............... $ 10,452 6.16%
======== ====
</TABLE>
- --------------------
(1) Florida Banks has not invested in any tax-exempt obligations.
As of December 31, 1997, except for the U.S. Government and its
agencies, there was not any issuer within the investment portfolio who
represented 10% or more of the shareholders' equity.
Deposits and Short-Term Borrowings
First National's average deposits increased 16.2%, or $6.3 million, to
$45.3 million during 1997 from $39.0 million during 1996. This growth is
attributed to a 19.2% increase in noninterest-bearing demand deposits, an 11.1%
increase in money market deposits, a 44.8% increase in savings deposits, a 29.6%
increase in certificates of deposits of $100,000 or more and a 6.4% increase in
other time deposits.
Average noninterest-bearing demand deposits increased 19.2% to $5.7
million in 1997 from $4.8 million in 1996. As a percentage of average total
deposits, these deposits increased to 12.6% in 1997 from 12.3% in 1996.
Noninterest-bearing demand deposits decreased 20.7% to $6.4 million at December
31, 1997, from $8.1 million at December 31, 1996. This decrease is attributable
to large business deposits received in December 1996 which were not retained by
First National during 1997. The increase in average deposit balances more
appropriately reflects the trend of increasing deposits.
85
<PAGE> 95
Average interest-bearing demand deposits remained relatively constant
from 1996 to 1997. The increase in average savings deposits is primarily
attributable to an increase of $1.7 million in First National's Prime
Investments Account which is a specialized savings account that pays interest at
60.0% of the prime rate as quoted in The Wall Street Journal on accounts with a
balance of greater than $25,000. The increase in money market accounts is
attributable primarily to increases in commercial deposit balances. Certificates
of deposit of $100,000 or more increased 29.6% to $10.5 million for 1997,
compared to $8.1 million for 1996. This increase is primarily due to additional
certificates of deposit obtained from a single commercial customer which are
used as collateral for loans and letters of credit issued by First National. The
6.4% increase in other time deposits is due to a slight increase in rates. The
increase in these deposits was used to fund First National's loan growth.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
------------------------- -----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
DEPOSIT CATEGORY (DOLLARS IN THOUSANDS)
- ----------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $ 5,729 -- $ 4,805 --
Interest-bearing demand 2,894 2.52% 2,943 2.52%
Money market 1,511 2.51 1,360 2.50
Savings 5,707 4.77 3,941 4.66
Certificates of deposit of
$100,000 or more 10,530 5.55 8,128 5.36
Other time 18,974 5.84 17,831 5.70
------- ----- ------- -----
Total $45,345 4.58% $39,008 4.47%
======= =======
</TABLE>
Interest-bearing deposits, including certificates of deposit, will
continue to be a major source of funding for First National. However, there is
no specific emphasis placed on time deposits of $100,000 and over. During 1997,
aggregate average balances of time deposits of $100,000 and over comprised 23.2%
of total deposits compared to 20.8% for the prior year. The average rate on
certificates of deposit of $100,000 or more increased to 5.55% in 1997, compared
to 5.36% in 1996. The rates on certificates of deposit of $100,000 or more are
generally lower than the rates on other time deposits as such certificates are
generally shorter in term.
86
<PAGE> 96
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1996
-------------------- --------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------ -------
<S> <C> <C> <C> <C>
3 months or less........................ $ 3,520 5.18% $2,451 4.65%
3-6 months.............................. 1,253 5.64 1,023 5.19
6-12 months............................. 3,199 5.41 1,563 5.77
Over 12 months.......................... 2,242 4.89 4,630 5.93
------- ---- ------ ----
Total $10,214 5.25% $9,667 5.50%
======= ======
</TABLE>
Average short-term borrowings increased 63.0% to $4.9 million in 1997
from $3.0 million in 1996. Short-term borrowings consist of treasury tax and
loan deposits and repurchase agreements with certain commercial customers.
Average treasury tax and loan deposits increased 125.7% to $949,000 in 1997 from
$420,000 in 1996. Average repurchase agreements increased 52.9% to $4.0 million
in 1997 from $2.6 million in 1996. The treasury tax and loan deposits provide an
additional liquidity resource to First National as such funds are invested in
Federal funds sold. The repurchase agreements represent an accommodation to
commercial customers that seek to maximize their return on liquid assets. First
National invests these funds in Federal funds sold and earns a contractual
margin of 75 to 100 basis points on such invested funds.
Repurchase agreements increased 9.7% to $5.9 million at December 31,
1997 from $5.4 million at December 31, 1996. Management believes that the
increase in average balances more appropriately reflects the trend of increasing
repurchase agreements.
The following table presents the components of short-term borrowings and
the average rates on such borrowings for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT AVERAGE
OUTSTANDING AT AVERAGE AVERAGE ENDING RATE AT
YEAR ENDED DECEMBER 31, ANY MONTH END BALANCE RATE BALANCE YEAR END
- ----------------------- ------------- ------- ---- ------- --------
(DOLLARS IN THOUSANDS)
1997
- ----
<S> <C> <C> <C> <C> <C>
Treasury tax and loan deposits.................. $2,414 $ 949 4.44% $2,406 5.19%
Repurchase agreements........................... 6,257 3,958 4.50 5,912 4.66
------ ------
Total....................................... $4,907 $8,318
====== ======
1996
- ----
Treasury tax and loan deposits.................. $1,019 $ 420 4.49% $1,019 5.09%
Repurchase agreements........................... 5,389 2,589 4.19 5,389 4.21
------ ------
Total....................................... $3,009 $6,408
====== ======
</TABLE>
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Capital Resources
Shareholders' equity increased 93.1% to $6.3 million in 1997 from $3.3
million in 1996. Adjustment to First National's deferred tax asset valuation
allowance, retention of earnings and unrealized appreciation on available for
sale investment securities accounted for $2.7 million, $376,000 and $13,000
respectively, of the $3.0 million increase in shareholders' equity during 1997.
The majority of the increase in shareholders' equity relates to a reduction in
the valuation allowance on deferred tax assets of $2.7 million during 1997 which
was recorded as an increase to additional paid-in capital.
Average shareholders' equity as a percentage of total average assets is
one measure used to determine capital strength. The ratio of average
shareholders' equity to average assets increased to 6.54% in 1997 from 6.45% in
1996 and 6.40% in 1995.
REGULATORY CAPITAL CALCULATION
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tier 1 risk based:
Actual................................. $ 4,138 13.00% $ 3,279 11.01%
Minimum required....................... 1,273 4.00 1,191 4.00
------- ------ ------- --------
Excess above minimum................... $ 2,865 9.00% $ 2,088 7.01%
======= ====== ======= ========
Total risk based:
Actual................................ $ 4,546 14.29% $ 3,651 12.26%
Minimum required...................... 2,546 8.00 2,382 8.00
------- ------ ------- --------
Excess above minimum.................. $ 2,000 6.29% $ 1,269 4.26%
======= ====== ======= ========
Leverage:
Actual................................. $ 4,138 7.42% $ 3,279 6.42%
Minimum required....................... 2,231 4.00 2,044 4.00
------- ------ ------- --------
Excess above minimum................... $ 1,907 3.42% $ 1,235 2.42%
======= ====== ======= ========
Total risked based assets.................. $31,819 $29,778
Total average assets....................... $55,769 $51,109
</TABLE>
The various federal bank regulators, including the Federal Reserve and
the FDIC, have risk-based capital requirements for assessing bank capital
adequacy. These standards define capital and establish minimum capital standards
in relation to assets and off-balance sheet exposures, as adjusted for credit
risks. Capital is classified into two tiers. For banks, Tier 1 or "core" capital
consists of common shareholders' equity, qualifying noncumulative perpetual
preferred stock and minority interests in the common equity accounts of
consolidated subsidiaries, reduced by goodwill, other intangible assets and
certain investments in other corporations ("Tier 1 Capital"). Tier 2 Capital
consists of Tier 1 Capital, as well as a limited amount of the allowance for
possible loan losses, certain hybrid capital instruments (such as mandatory
convertible debt), subordinated and perpetual debt and non-qualifying perpetual
preferred stock ("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased in, with a minimum total capital ratio of 8.00% and
Tier 1 Capital equal to at least 50% of total capital. The Federal Reserve also
has a minimum leverage ratio of Tier 1 Capital to total assets of 3.00%. The
3.00% Tier 1 Capital to total assets ratio constitutes the leverage standard for
bank holding companies and BIF-insured
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state-chartered non-member banks and will be used in conjunction with the
risk-based ratio in determining the overall capital adequacy of banking
organizations. The FDIC has similar capital requirements for BIF-insured
state-chartered non-member banks.
The Federal Reserve and the FDIC have emphasized that the foregoing
standards are supervisory minimums and that an institution would be permitted to
maintain such minimum levels of capital only if it were rated a composite "one"
under the regulatory rating systems for bank holding companies and banks. All
other bank holding companies are required to maintain a leverage ratio of 3.00%
plus at least 1.00% to 2.00% of additional capital. These rules further provide
that banking organizations experiencing internal growth or making acquisitions
will be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital less all intangibles, to total average assets less
all intangibles.
First National's Tier 1 (to risk-weighted assets) capital ratio
increased to 13.00% in 1997 from 11.01% in 1996. First National's total risk
based capital ratio increased to 14.29% in 1997 from 12.26% in 1996. These
ratios exceed the minimum capital adequacy guidelines imposed by regulatory
authorities on banks and bank-holding companies, which are 4.00% for Tier 1
capital and 8.00% for total risk based capital. The ratios also exceed the
minimum guidelines imposed by the same regulatory authorities to be considered
"well-capitalized," which are 6.00% of Tier 1 capital and 10.00% for total risk
based capital.
First National does not have any commitments which it believes would
reduce its capital to levels inconsistent with the regulatory definition of a
"well capitalized" financial institution. See "Information about First
National."
No new shares of common stock were issued by First National during the
year ended December 31, 1997.
Interest Rate Sensitivity and Liquidity Management
Liquidity is the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining First
National's ability to meet the day-to-day cash flow requirements of its
customers, whether they are depositors wishing to withdraw funds or borrowers
requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for First National to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that First National can profitably deploy
its assets. Both assets and liabilities are considered sources of liquidity
funding and both are, therefore, monitored on a daily basis.
Interest rate sensitivity is a function of the repricing characteristics
of First National's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest-bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity during the life of the instruments. Interest rate
sensitivity management focuses on repricing relationships of assets and
liabilities during periods of changes in market interest rates. Interest rate
sensitivity is managed with a view to maintaining a mix of assets and
liabilities that respond to changes in interest rates within an acceptable time
frame, thereby managing the effect of interest rate movements on net interest
income.
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<PAGE> 99
Interest rate sensitivity is measured as the difference between the volume of
assets and liabilities that are subject to repricing at various time horizons.
The differences are interest sensitivity gaps: less than one month, one to three
months, four to twelve months, one to five years, over five years and on a
cumulative basis. The following table shows interest sensitivity gaps for these
different intervals as of December 31, 1997.
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<PAGE> 100
<TABLE>
<CAPTION>
DECEMBER 31, 1997
ONE ONE- FOUR-
MONTH THREE TWELVE ONE-FIVE OVER FIVE NONINTEREST
OR LESS MONTHS MONTHS YEARS YEARS SENSITIVE TOTAL
------- ------- ------- --------- ---------- ----------- -----
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets: ASSETS
Available for sale investment
securities -- $ 959 $ 2,790 $ 2,373 $ 4,330 -- $10,452
Other investments -- -- -- -- 313 -- 313
Federal funds sold $10,245 -- -- -- -- -- 10,245
Loans 17,223 520 4,390 5,440 6,226 -- 33,799
------- ------- -------- -------- -------- ------
Total earning assets $27,468 $ 1,479 $ 7,180 $ 7,813 $ 10,869 -- $54,809
======= ======= ======== ======== ======== =======
Interest-bearing liabilities: LIABILITIES
Interest-bearing demand deposits $ 3,073 -- -- -- -- -- $ 3,073
Savings deposits 5,327 -- -- -- -- $ 548 5,875
Money market deposits -- -- -- -- 1,348 1,348
Certificates of deposit of
$100,000 or more 2,649 $ 1,388 $ 3,935 $ 2,036 $206 -- 10,214
Other time deposits 997 2,805 5,322 8,175 1,208 -- 18,507
Repurchase agreements 5,912 -- -- -- -- -- 5,912
Other borrowed funds 2,406 -- -- -- -- -- 2,406
------- ------- -------- -------- -------- -------- -------
Total interest-bearing
liabilities $20,364 $ 4,193 $ 9,257 $ 10,211 $ 1,414 $ 1,896 $47,335
======= ======= ======== ======== ======== ======== =======
Noninterest-bearing demand deposits -- -- -- -- -- $ 6,442 $ 6,442
Other noninterest liabilities -- -- -- -- -- 1,032 1,032
------- ------- -------- -------- -------- -------- -------
Noninterest-bearing sources
of funds-net $ -- $ -- $ $ -- $ -- $ 7,474 $ 7,474
------- ------- -------- -------- -------- -------- -------
Interest sensitivity gap:
Amount $ 7,104 $(2,714) $ (2,077) $ (2,398) $ 9,455 $ (9,370) $ --
======= ======= ======== ======== ======== ======== =======
Cumulative amount $ 7,104 $ 4,390 $ 2,313 $ ($85) $ 9,370 $ -- $ --
Percent of total earning
assets 12.98% (4.96%) (3.80%) (4.38%) 17.25% (17.10%)
Cumulative percent of total
earning assets 12.98% 8.02% 4.23% (.15%) 17.10%
Ratio of rate sensitive assets to
rate sensitive liabilities 1.35x .35x .78x .77x 7.69x
Cumulative ratio of rate 1.35x 1.18x 1.07x 1.00x 1.21x
sensitive assets to rate
sensitive liabilities
</TABLE>
In the current interest rate environment, the liquidity and maturity
structure of First National's assets and liabilities are important to the
maintenance of acceptable performance levels. A decreasing rate environment
negatively impacts earnings as First National's rate-sensitive assets generally
reprice faster than its rate-sensitive liabilities. Conversely, in an increasing
rate environment, earnings are positively impacted.
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<PAGE> 101
This asset/liability mismatch in pricing is referred to as gap ratio and is
measured as rate sensitive assets divided by rate sensitive liabilities for a
defined time period. A gap ratio of 1.00 means that assets and liabilities are
perfectly matched as to repricing. Management has specified gap ratio guidelines
for a one year time horizon of between .80 and 1.20. At December 31, 1997, First
National had gap ratios of approximately 1.18 for the next three month time
period and 1.07 for the one year period ending December 31, 1998. Thus, over the
next twelve months, rate-sensitive assets will reprice slightly faster than
rate-sensitive liabilities.
The allocations used for the interest rate sensitivity report above were
based on the maturity schedules for the loans and deposits and the duration
schedules for the investment securities. All interest-bearing demand deposits
were allocated to the one month or less category with the exception of personal
savings deposit accounts which were allocated to the noninterest sensitive
category. Changes in the mix of earning assets or supporting liabilities can
either increase or decrease the net interest margin without affecting interest
rate sensitivity. In addition, the net interest spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remain the same, thus impacting net interest
income. This is referred to as basis risk and, generally, relates to the
possibility that the repricing characteristics of short-term assets tied to
First National's prime lending rate are different from those of short-term
funding sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis report. Prepayments may have significant effects
on First National's net interest margin. Because of these factors and in a
static test, interest sensitivity gap reports may not provide a complete
assessment of First National's exposure to changes in interest rates. Management
utilizes computerized interest rate simulation analysis to determine First
National's interest rate sensitivity. The table above indicates First National
is in a asset sensitive gap position for the first year, then moves into a
matched position through the five year period. Overall, due to the factors
cited, current simulations results indicates a relatively low sensitivity to
parallel shifts in interest rates. A liability sensitive bank will generally
benefit from a falling interest rate environment as the cost of interest-bearing
liabilities falls faster than the yields on interest-bearing assets, thus
creating a widening of the net interest margin. Conversely, an asset sensitive
bank will benefit from a rising interest rate environment as the yields on
earning assets rise faster than the costs of interest-bearing liabilities.
Management also evaluates economic conditions, the pattern of market interest
rates and competition to determine the appropriate mix and repricing
characteristics of assets and liabilities required to produce a targeted net
interest margin.
In addition to the gap analysis, management uses rate shock simulation
to measure the rate sensitivity of its balance sheet. Rate shock simulation is a
modeling technique used to estimate the impact of changes in rates on First
National's net interest margin. First National measures its interest rate risk
by estimating the changes in net interest income resulting from instantaneous
and sustained parallel shifts in interest rates of plus or minus 200 basis
points over a period of twelve months. First National's most recent rate shock
simulation analysis which was performed as of December 31, 1997, indicates that
a 200 basis points increase in rates would cause an increase in net interest
income of $22,000 over the next twelve month period. Conversely, a 200 basis
point decrease in rates would cause a decrease in net interest income of $22,000
over a twelve month period.
This simulation is based on management's assumption as to the effect of
interest rate changes on assets and liabilities and assumes a parallel shift of
the yield curve. It also includes certain assumptions about the future pricing
of loans and deposits in response to changes in interest rates. Further, it
assumes that delinquency rates would not change as a result of changes in
interest rates although there can be no assurance that this will be the case.
While this simulation is a useful measure of First National's sensitivity to
changing rates, it is not a forecast of the future results and is based on many
assumptions, that if changed, could cause
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<PAGE> 102
a different outcome. In addition, a change in U.S. Treasury rates in the
designated amounts accompanied by a change in the shape of the Treasury yield
curve would cause significantly different changes to net interest income than
indicated above.
Generally, First National's commercial and commercial real estate loans
are indexed to the prime rate. A portion of First National's investments in
mortgage-backed securities are indexed to U.S. Treasury rates. Accordingly, any
changes in these indices will have a direct impact on First National's interest
income. The majority of First National's savings deposits are indexed to the
prime rate. Certificates of deposit are generally priced based upon current
market conditions which include changes in the overall interest rate environment
and pricing of such deposits by competitors. Other interest-bearing deposits are
not priced against any particular index, but rather, reflect changes in the
overall interest rate environment. Repurchase agreements are indexed to the
average daily Federal funds sold rate and other borrowed funds are indexed to
U.S. Treasury rates. First National adjusts the rates and terms of its loans and
interest-bearing liabilities in response to changes in the interest rate
environment.
First National does not currently engage in trading activities or use
derivative instruments to manage interest rate risk.
At December 31, 1997, available for sale investment securities with a
carrying value of approximately $6.1 million are scheduled to mature within the
next five years. Of this amount, $3.7 million is scheduled to mature within one
year. First National's main source of liquidity is Federal funds sold. Average
Federal funds sold were $7.4 million in 1997, or 14.3% of average earning
assets, compared to $5.8 million in 1996 or 13.4% of average earning assets.
Federal funds sold totaled $10.2 million at December 31, 1997, or 18.7% of
earning assets, compared to $12.4 million at December 31, 1996, or 23.6% of
earning assets.
At December 31, 1997, loans with a carrying value of approximately $27.6
million are scheduled to mature within the next five years. Of this amount,
$22.1 million is scheduled to mature within one year.
At December 31, 1997, time deposits with a carrying value of
approximately $27.3 million are scheduled to mature within the next five years.
Of this amount, $17.1 million is scheduled to mature within one year.
First National's average loan-to-deposit ratio remained constant at
75.8% during 1997 and 1996. First National's total loan-to-deposit ratio
increased 470 basis points to 74.3% at December 31, 1997 from 69.6% at December
31, 1996, due to the receipt of large business deposits in December 1996, which
significantly increased First National's total deposits at December 31, 1996.
Management attempts to manage First National's loan-to-deposit ratio on an
average basis, as opposed to on a daily basis.
First National has short-term funding available through various federal
funds lines of credit with other financial institutions and its membership in
the Federal Home Loan Bank of Atlanta ("FHLBA"). Further, the FHLBA membership
provides the availability of participation in loan programs with varying
maturities and terms. At December 31, 1997, First National had no short-term
borrowings from the FHLBA or any other financial institution.
There are no known trends, demands, commitments, events or uncertainties
that will result in or that are reasonably likely to result in liquidity
increasing or decreasing in any material way.
It is not anticipated that Florida Banks will find it necessary to raise
additional funds to meet expenditures required to operate the business of
Florida Banks and First National over the next twelve
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<PAGE> 103
months. All anticipated material expenditures for such period have been
identified and provided for out of the proceeds of the Florida Banks IPO.
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Florida Banks
Florida Banks incurred operating expenses consisting of salaries and
benefits, occupancy and equipment costs and certain other operating, financing
costs and organizational costs, together totaling approximately $4,443,000
during the three months ended March 31, 1998, which include a nonrecurring,
noncash charge of $4,317,000 relating to the sale of Florida Banks Common Stock
and Warrants included in the Units sold to accredited foreign investors and the
sale of Florida Banks Common Stock to 14 officers, directors and consultants. On
February 3, 1998, Florida Banks sold 101 Units to accredited investors. Each
Unit was comprised of (i) 600 shares of Series A Preferred Stock, (ii) 800
shares of Florida Banks Common Stock, and (iii) Warrants to purchase 800 shares
of Florida Banks Common Stock at the initial public offering price. Net proceeds
to Florida Banks from this private placement totaled approximately $600,000. The
Series A Preferred Stock has been valued at its redemption value of $606,000 as
Florida Banks contemplates redeeming the Series A Preferred stock using a
portion of the proceeds from the initial public offering. The Series A Preferred
Stock is non-voting, and at the option of Florida Banks, the Series A Preferred
Stock may be redeemed at any time in whole or in part at a cash redemption price
of $10.00 per share. Florida Banks recorded a nonrecurring noncash charge of
$1,053,000 relating to the issuance of the Florida Banks Common Stock and
Warrants, with a corresponding increase to shareholders' equity. Financing costs
relating to the Common Stock have been measured as the difference between the
fair value of the Florida Banks Common Stock, based on an assumed initial public
offering price of $11.00 per share (the mid-point of the estimated range), and
the allocated proceeds of $.01 per share. The Warrants have been valued at an
aggregate price of $165,000, or $2.04 per share, as determined by an independent
appraisal.
On February 11, 1998, Florida Banks sold 297,000 shares of its Common
Stock to certain founding officers and directors of Florida Banks and other
individuals instrumental in the organization of Florida Banks (the "Founder
Shares") at a price of $.01 per share. The difference between the proceeds from
the sale and the fair market value of the Florida Banks Common Stock, based on
an assumed initial public offering price of $11.00 per share (the mid-point of
the estimated range), has been recorded as compensation expense of $3,264,000
with a corresponding increase to additional paid-in capital. The expense and
corresponding increases to additional paid-in capital relating to the sale of
such Florida Banks Common Stock will be adjusted to the actual initial public
offering price. During the quarter ended March 31, 1998, Florida Banks adopted
the provisions of SOP 98-5 "Reporting on the Costs of Start-Up Activities",
which resulted in the write-off of $26,000 of organizational costs capitalized
as of December 31, 1997.
First National
Results of Operations. First National's net income for the first quarter
of 1998 decreased $59,000, or 53.4% to $52,000 from $111,000 for the
corresponding period in 1997. Basic and diluted earnings per share were $.03 for
the first quarter of 1998 compared to $.06 for the first quarter of 1997. The
decrease in net income from the first quarter of 1997 compared to the first
quarter of 1998 was primarily attributable to a decrease in net interest income
of $9,000, a decrease in noninterest income of $16,000 and an increase in
noninterest expense of $71,000, which were partially offset by a decrease in the
provision for income taxes of $37,000.
Net interest income decreased $9,000, or 2.0% for the first quarter of
1998 compared to the first quarter of 1997. Interest income increase $29,000, or
2.8% while interest expense increased $39,000, or 7.0% This decrease in net
interest income resulted from increased competition for funds with non-bank
institutions.
Noninterest income decreased $16,000, or 9.6% for the first quarter of
1998 compared to the first quarter of 1997. Increases in services fees and other
noninterest income were offset by a decrease in the gain on sale of loans for
the first quarter of 1998 compared to the corresponding period of 1997. The
decrease in the gain on sale of loans is due to the timing of the sale of such
loans which can fluctuate rather significantly on a quarterly basis.
The provision for loan losses charged to operations in both the first
quarters of 1998 and 1997 totaled $15,000.
Noninterest expense increased $71,000, or 15.5% to $526,000 for the
first quarter of 1998, from $455,000 for the first quarter of 1997. The increase
in noninterest expenses resulted primarily from increases in salaries and
benefits and occupancy and equipment costs. The increase in salaries and
benefits of $61,000, or 25.6% to $300,000 for the first quarter of 1998, from
$239,000 for the first quarter of 1997, results from normal salary increases and
the addition of lending staff. The increase in occupancy and equipment expense
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<PAGE> 104
of $16,000, or 25.8% resulted from the additional leased space for First
National's SBA department and from additional depreciation and maintenance
expense resulting from the purchase of additional computer equipment.
The effective tax rate for both the first quarter of 1998 and 1997 is
38%, representing the estimated effective annual tax rates for both periods.
Financial Condition. Total assets at March 31, 1998 were $62.2 million,
an increase of $1.8 million, or 3% from $60.4 million at December 31, 1997.
Total loans increased $2.4 million, or 7.1% to $36.2 million at March 31, 1998
from $33.8 million at December 31, 1997. Investment securities increased
$760,000 or 7.1% to $11.5 million at March 31, 1998 from $10.8 million at
December 31, 1997. The increases in total loans and investment securities
available for sale were funded by a reduction in Federal funds sold of $1.2
million or 11.3% from $10.2 million at December 31, 1997 to $9.1 million at
March 31, 1998 and an increase in repurchase agreements of $2.1 million or 34.7%
from $5.9 million at December 31, 1997 to $8.0 million at March 31, 1998. Total
deposits and shareholders' equity remained relatively consistent from December
31, 1997 to March 31, 1998.
Nonaccrual loans increased to $435,000 at March 31, 1998, compared to $0
at December 31, 1997. These nonaccrual loans represent six commercial loans,
five of which are SBA loans of which $362,000 are guaranteed by the SBA, subject
to certain conditions. First National reflected these loans as nonaccrual as
they are over 120 days past-due and in liquidation at March 31, 1998. These
loans were classified as impaired loans at December 31, 1997 with an allowance
for loan losses for First National's estimated exposure on these loans.
YEAR 2000
Florida Banks is currently evaluating its computer systems as well as
those of its data processing vendor to determine whether modifications and
expenditures will be necessary to make its systems as well as those of its
vendor compliant with Year 2000 requirements. These requirements have arisen due
to the widespread use of computer programs that rely on two-digit date codes to
perform computations or decision-making functions. Many of these programs may
fail as a result of their inability to properly interpret date codes beginning
January 1, 2000. For example, such programs may misinterpret "00" as the year
1900 rather than 2000. In addition, some equipment, being controlled by
microprocessor chips, may not deal appropriately with the year "00." Florida
Banks believes that its critical systems are currently or will be Year 2000
compliant by December 31, 1998 and does not believe that material expenditures
will be necessary to implement any further modifications. Management of Florida
Banks has also evaluated the potential effect on M&I's data processing systems
resulting from Year 2000 issues. M&I has represented that M&I's core processing
systems will be fully Year 2000 compliant prior to December 31, 1998. However,
there can be no assurance that all necessary modifications will be identified
and corrected or that unforeseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of M&I or other companies
on which Florida Banks' systems rely will be modified on a timely basis, or that
the failure by another company to properly modify its systems will not
negatively impact Florida Banks' systems or operations.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS 130 requires that
all items that are required to be
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recognized under accounting standards as components of comprehensive income be
reported in a financial statements that is displayed with the same prominence as
other financial statements. SFAS 130 does not require a specific format for that
financial statements but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statements. Additionally, SFAS 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statements
and (b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. This Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. Management has
not determined the effect of this statement on its financial statements
disclosure.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. At the beginning of 1996 the Federal
Reserve decreased interest rates 75 basis points. The prime rate has remained
unchanged since that time. In addition, inflation affects financial
institutions' increased cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely effect liquidity, earnings and
shareholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase and can reduce First Nationals' earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
MONETARY POLICIES
The results of operations of First National will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Florida Banks or First National.
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DESCRIPTION OF FLORIDA BANKS CAPITAL STOCK AND
FIRST NATIONAL BANK OF TAMPA CAPITAL STOCK
FLORIDA BANKS
GENERAL
Florida Banks is authorized to issue 30,000,000 shares of Florida Banks
Common Stock, $.01 par value per share, and 1,000,000 shares of preferred stock,
$.01 par value per share (the "Florida Banks Preferred Stock"), of which 600,000
shares of Florida Banks Preferred Stock have been designated as Series A
Preferred Stock. As of the date hereof, 377,800 shares of Florida Banks Common
Stock and 60,600 shares of Series A Preferred Stock are issued and outstanding
and held by 28 shareholders of record.
The following summary of the Florida Banks Common Stock and Florida
Banks Preferred Stock is qualified in its entirety by reference to the Florida
Banks Articles, the Florida Banks Bylaws and the Florida Business Corporation
Act, as amended (the "FBCA").
FLORIDA BANKS COMMON STOCK
Subject to such preferential rights as the Florida Banks Board may grant
in connection with any issuance of Florida Banks Preferred Stock, holders of
shares of Florida Banks Common Stock are entitled to receive such dividends as
the Florida Banks Board may declare in its discretion from funds legally
available therefor. At this time, the Florida Banks Board intends to retain all
earnings to support anticipated growth in the current operations of Florida
Banks and First National and to finance future expansion. Additional
restrictions on the payment of cash dividends may be imposed in connection with
future issuances of Florida Banks Preferred Stock and indebtedness by Florida
Banks. Further declarations and payments of cash dividends, if any, will also be
determined in light of then-current conditions, including Florida Banks'
earnings, operations, capital requirements, liquidity, financial condition,
restrictions in financing agreements and other factors deemed relevant by the
Florida Banks Board. Upon the liquidation, dissolution or winding up of Florida
Banks, after payment of creditors, the remaining net assets of Florida Banks
will be distributed pro rata to the holders of Florida Banks Common Stock,
subject to any liquidation preference of the holders of Florida Banks Preferred
Stock. See "Description of Florida Banks Capital Stock and First National Bank
of Tampa Capital Stock--Florida Banks Preferred Stock." There are no preemptive
rights, conversion rights, or redemption or sinking fund provisions with respect
to the shares of Florida Banks Common Stock. All of the outstanding shares of
Florida Banks Common Stock are, and the shares to be outstanding upon completion
of the Florida Banks IPO will be, duly and validly authorized and issued, fully
paid and nonassessable.
Holders of Florida Banks Common Stock are entitled to one vote per share
of Florida Banks Common Stock held of record on all such matters submitted to a
vote of the shareholders. Holders of Florida Banks Common Stock do not have
cumulative voting rights. As a result, the holders of a majority of the
outstanding shares of Florida Banks Common Stock voting for the election of
directors can elect all the directors, and, in such event, the holders of the
remaining shares of Florida Banks Common Stock will not be able to elect any
persons to the Florida Banks Board.
FLORIDA BANKS PREFERRED STOCK
The Florida Banks Board may, without shareholder approval, from time to
time authorize the issuance of Florida Banks Preferred Stock in one or more
series for such consideration and, within certain limits, with such relative
rights, preferences and limitations as the Florida Banks Board may determine.
The relative rights,
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preferences and limitations that the Florida Banks Board has the authority to
determine as to any such series of Florida Banks Preferred Stock include, among
other things, dividend rights, voting rights, conversion rights, redemption
rights and liquidation preferences. Because the Florida Banks Board has the
power to establish the relative rights, preferences and limitations of each
series of Florida Banks Preferred Stock, it may afford to the holders of any
such series, preferences and rights senior to the rights of the holders of
shares of Florida Banks Common Stock. Although the Florida Banks Board has no
intention at the present time of doing so, it could cause the issuance of
Florida Banks Preferred Stock that could discourage an acquisition attempt or
other transactions that some, or majority of, the shareholders might believe to
be in their best interests or in which the shareholders might receive a premium
for their shares of Florida Banks Common Stock over the market price of such
shares.
Florida Banks presently has 60,600 shares of Florida Banks Preferred
Stock outstanding, designated as the Series A Preferred Stock. The terms of the
Series A Preferred Stock provide that no dividends or other distributions shall
be declared or payable on the Series A Preferred Stock. The terms of the Series
A Preferred Stock provide for a liquidation preference in the event of a winding
up, liquidation or dissolution of Florida Banks in the amount of $10.00 per
share for an aggregate liquidation preference of $606,000. Except as may be
required by law, the holders of the Series A Preferred Stock do not have any
voting rights. The Series A Preferred Stock may be redeemed, at the option of
Florida Banks, at a price of $10.00 per share. Florida Banks intends to redeem
the outstanding shares of Series A Preferred Stock with the proceeds of the
Florida Banks IPO.
CERTAIN PROVISIONS OF THE FLORIDA BANKS ARTICLES AND FLORIDA BANKS
BYLAWS
The Florida Banks Articles contain provisions requiring supermajority
shareholder approval to effect certain extraordinary corporate transactions
which are not approved by three-quarters (75%) of the Florida Banks Board. The
Florida Banks Articles require, in addition to any other required approval or
consent under Florida law, the Florida Articles or otherwise, the affirmative
vote or consent of the holders of at least two-thirds (66-2/3%) of the shares of
each class of stock entitled to vote in elections of directors to approve any
merger or consolidation of Florida Banks or any subsidiary of Florida Banks with
or into any Interested Person (as defined), regardless of the identity of the
surviving corporation, any sale, lease or other disposition of all or any
substantial part (assets having an aggregate fair market value of twenty-five
percent (25%) of the total assets of Florida Banks) of the assets of Florida
Banks or any subsidiary of Florida Banks to any Interested Person for cash, real
or personal property, including securities, or any combination thereof, issuance
or delivery of securities of Florida Banks or a subsidiary of Florida Banks to
any Interested Person in consideration for or in exchange of any securities or
other property (including cash), or liquidation of Florida Banks ("Covered
Transaction"), if any person who, as of the record date for the determination of
shareholders entitled to notice of any Covered Transaction and to vote thereon
or consent thereto, as of the date of such vote or consent, or immediately
before consummation of any Covered Transaction owns beneficially five percent or
more of any voting stock of Florida Banks entitled to vote in elections of
directors ("Interested Person") is a party to the transaction, unless
three-fourths (75%) of the entire Florida Banks Board has approved the
transaction, in which case the affirmative vote of a majority of each class of
stock entitled to vote in elections of directors is required. In addition, the
Florida Banks Articles require, in addition to any approval or consent required
under Florida law, any other provision in the Florida Banks Articles or
otherwise, the separate approval by the holders of a majority of the shares of
each class of stock of Florida Banks entitled to vote in elections of directors
which are not beneficially owned, directly or indirectly, by an Interested
Person, of any Covered Transaction other than a liquidation of Florida Banks
("Business Combination"), if an Interested Person is a party to such
transaction; provided, that such approval is not required if (a) the
consideration to be received by the holders of the stock of Florida Banks meets
certain minimal levels determined by a formula under the Florida Banks Articles
(generally the highest price paid by the Interested Person for any shares which
he has acquired), (b) there has been no reduction in the average dividend rate
from that which was obtained
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prior to the time the Interested Person became such, and (c) the consideration
to be received by shareholders who are not Interested Persons shall be paid in
cash or in the same form as the Interested Person previously paid for shares of
such class of stock. These Articles of the Florida Banks Articles, as well as
the Article classifying the Florida Banks Board, may be amended, altered, or
repealed only by the affirmative vote or consent of the holders of at least 75%
of the shares entitled to vote in elections of directors.
The effect of these provisions is to make it more difficult for a
person, entity or group to effect a change in control of Florida Banks through
the acquisition of a large block of Florida Banks' voting stock.
INDEMNIFICATION
The Florida Banks Articles and Florida Banks Bylaws require Florida
Banks to indemnify the directors and officers of Florida Banks to the fullest
extent permitted by law. In addition, as permitted by the FBCA, the Florida
Banks Articles and Florida Banks Bylaws provide that no director of Florida
Banks shall be personally liable to Florida Banks or its shareholders for
monetary damages for breach of duty of care or other duty as a director if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of Florida Banks and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. This provision, however, shall not eliminate or limit the
liability of a director (i) for a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (ii) for any transaction
from which the director derived an improper personal benefit, (iii) for unlawful
distributions to shareholders of Florida Banks in violation of Section 607.06401
of the FBCA, or (iv) for willful misconduct or a conscious disregard for the
best interests of Florida Banks in a proceeding by or in the right of Florida
Banks to procure judgment in its favor or in a proceeding by or in the right of
a shareholder. This provision of the Florida Banks Articles will limit the
remedies available to a shareholder who is dissatisfied with a decision of the
Florida Banks Board protected by this provision, and such shareholder's only
remedy in that circumstance may be to bring a suit to prevent the action of the
Florida Banks Board. In many situations, this remedy may not be effective,
including instances when shareholders are not aware of a transaction or an event
prior to action of the Florida Banks Board in respect of such transaction or
event.
FIRST NATIONAL
First National is authorized to issue five million (5,000,000) shares of
First National Common Stock, $1.00 par value per share, of which 2,065,000
shares were issued and outstanding as of the Record Date and no more than
2,065,000 shares will be issued and outstanding at the Effective Time. First
National Common Stock is not publicly traded and First National acts as its own
transfer agent and the registrar for the First National Common Stock. First
National has only one class of common stock and is not authorized to issue
preferred stock.
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COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Time, shareholders of First National, a national bank
chartered under the laws of the United States, will become shareholders of
Florida Banks, a Florida corporation, and Florida law will govern shareholder
rights after the Merger. Differences between the National Bank Act (which is the
law regulating national banks and supersedes the FBCA except when the provisions
of the National Bank Act and the FBCA are not in direct conflict) and the FBCA
and between the First National Articles and the First National Bylaws and the
Florida Banks Articles and the Florida Banks Bylaws will result in various
changes in the rights of First National Shareholders.
The following summary illustrates the material differences between the
rights of Florida Banks shareholders under Florida law, the Florida Banks
Articles and the Florida Banks Bylaws, as compared with those of First National
Shareholders under federal law, the First National Articles and the First
National Bylaws. This summary does not purport to be a complete description of
the provisions discussed and is qualified in its entirety by the FBCA, the First
National Articles, the First National Bylaws, the Florida Banks Articles and the
Florida Banks Bylaws, to which First National Shareholders are referred.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the FBCA, a corporation's shareholders may remove any or all of
the corporation's directors, with or without cause, unless the corporation's
articles of incorporation provide that directors may only be removed for cause.
Directors may be removed at a shareholders meeting provided that the notice of
meeting states that removal of the director(s) is a purpose or the purpose of
the meeting. The FBCA provides that, unless a corporation's articles of
incorporation specify otherwise, vacancies on the board, including vacancies
resulting from an increase in the number of directors, may be filled by a
majority vote of the remaining directors, though less than a quorum of the
board, or by the shareholders. The term of each person elected to fill a vacancy
expires at the next meeting of shareholders at which directors are elected.
Under the National Bank Act, the shareholders may remove a director with
or without cause at a duly convened special meeting of shareholders called for
that purpose when a quorum is present, if votes cast in favor of removal exceed
votes cast opposing removal. A majority of the outstanding shares may also
remove a director by written consent action. The National Bank Act further
provides that vacancies on the board will be filled by appointment of the
remaining directors, and that any director so appointed will hold his place
until the next election.
The Florida Banks Articles and Bylaws provide that any vacancy that on
the Florida Banks Board, other than a vacancy resulting from a director's
removal, may be filled by the affirmative vote of the majority of the directors
then in office, though less than a quorum. If the vacancy is not filled by
action of the directors, the shareholders may fill such vacancy at any meeting
held during the existence of the vacancy. A vacancy that occurs because a
director has been removed from office must be filled by the vote of at least 75%
of the outstanding shares of each class of stock entitled to vote in elections
of directors.
The First National Bylaws permit the First National Shareholders to
remove any director or the entire board of directors, with or without cause, at
a shareholders' meeting called for that purpose by vote of a majority of
outstanding shares of First National Common Stock. If the entire First National
Board is removed, the shareholders may fill any vacancies created by the
removal, and any director so elected will hold office only until the next
election of directors by the First National Shareholders. However, if less than
the entire First National Board is removed, under no circumstances may the First
National Shareholders remove a director if the votes cast against such
director's removal would be sufficient to elect such director if
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such votes were cumulatively voted in such director's favor at an election of
the entire First National Board. Except for vacancies filled by action of the
First National Shareholders at a special meeting, the First National Bylaws
provide that the remaining directors may fill a vacancy on the First National
Board at any regular meeting of the First National Board or at any special
meeting called for that purpose.
QUORUM OF SHAREHOLDERS
Under the FBCA, shares entitled to vote as a separate voting group may
take action at a meeting only if a quorum exists. The FBCA provides that, unless
a corporation's articles of incorporation provide otherwise, a majority of the
votes entitled to be cast on a particular matter constitutes a quorum for a
voting group for action on that matter. The FBCA permits the articles of
incorporation to provide for a greater or lesser quorum; provided that in no
event may a quorum consist of less than one-third of the shares entitled to
vote.
The Florida Bank Bylaws provide that a quorum for shareholder meetings
consists of the presence of shareholders, in person or represented by proxy,
holding at least a majority of the issued and outstanding capital stock of
Florida Banks entitled to vote on the matters to be presented at such
shareholders' meeting. The Florida Banks Common Stock is the only class of
Florida Bank's capital stock that is entitled to voting rights.
The First National Bylaws provide that the holders of a majority of the
outstanding capital stock, present in person or represented by proxy, will
constitute a quorum at any meetings of the First National Shareholders, unless
otherwise provided by law. Further, once a quorum has been established at a
shareholders meeting, the First National Bylaws provide that a withdrawal of
shareholders that reduces the number of shareholders entitled to vote at the
meeting below the number required for a quorum will not invalidate any action
taken at or adjournment of the meeting.
ADJOURNMENT AND NOTICE OF SHAREHOLDER MEETINGS
Under the FBCA, once a share is represented for any purpose at a
meeting, it is deemed to be present for quorum purposes for the remainder of the
meeting and for any adjournment of the meeting unless a new record date is or
must be set for the adjourned meeting. Holders of a majority of shares
represented, who would be entitled to vote at a meeting if a quorum were
present, where a quorum is not present, may adjourn such meeting. Under the
FBCA, notice of shareholder meetings must be given at least 10 and no more than
60 days before the meeting date. Unless otherwise required by the FBCA with
respect to meetings at which specified actions (including, but not limited to,
mergers, certain share exchanges, certain asset sales, and dissolution) will be
considered or as required by a corporation's articles of incorporation, notice
of an annual meeting of shareholders need not contain a description of the
purpose or purposes for which the meeting is called. However, notice of a
special meeting must include a description of the purpose or purposes for which
the meeting is called.
The Florida Banks Bylaws provide that, if a quorum is not present or
represented at a shareholder meeting, the shareholders entitled to vote may
adjourn the meeting until the requisite amount of voting stock is present. No
notice, other than an announcement at the meeting before its adjournment, is
required of the new date, time or place of the adjourned meeting, unless a new
record date for the adjourned meeting is, or is required by law or the Florida
Banks Bylaws to be, fixed. If, however, a new record date for the adjourned
meeting is or must be fixed, notice of the adjourned meeting must be given in
accordance with the Florida Banks Bylaws as if the adjourned meeting was a
newly-called meeting. The Florida Banks Bylaws further provide that the
determination of shareholders of record entitled to notice of or to vote at any
meeting of
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shareholders is effective for any adjournment of the meeting unless the meeting
is adjourned to a date more than 120 days after the date fixed for the original
meeting, in which case a new record date must be set.
The First National Bylaws provide that less than a quorum may adjourn
any shareholders' meeting, and the meeting may be held, as adjourned, without
further notice. A majority of the votes cast will decide every question or
matter submitted to the shareholders at any meeting, unless otherwise provided
by law or by the First National Articles. After a quorum has been established at
a shareholders' meeting, a withdrawal of shareholders that reduces the number of
shareholders entitled to vote at the meeting below the number required for a
quorum does not invalidate any action taken at or adjournment of the meeting.
Under the First National Bylaws, notice of shareholder meetings, specifying the
place, day, and time of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is being called, must be delivered to
each shareholder entitled to vote at the meeting at least ten and no more than
60 days before the date set for the meeting. Such notice must be made either
personally, by first-class mail, or at the direction of the president, the
secretary, or the officer or other persons calling the meeting. If mailed, the
notice is effective when deposited in the United States mail, postage prepaid
and addressed to the shareholder at his or her address as it appears on the
records of First National.
CALL OF SPECIAL SHAREHOLDER MEETINGS
Under the FBCA, special shareholders' meetings may be held in or out of
the state at a place stated in or fixed in accordance with a corporation's
bylaws or, when not inconsistent with the bylaws, in the notice of the special
meeting. Special meetings may be called by (i) the board of directors; (ii) the
person or persons authorized under the articles of incorporation or bylaws; or
(iii) holders of at least 10% (unless the articles of incorporation require a
greater percentage not to exceed 50%) of all the votes entitled to be cast on
any issue proposed to be considered at the special meeting, who make written
demand to the corporation's secretary for the meeting and describe the purpose
or purposes for which the special meeting is to be held. Only business within
the purpose or purposes described in the notice of special meeting may be
conducted at a special meeting.
The Florida Banks Bylaws provide that special meetings of the
shareholders, for any purpose or purposes, except to the extent otherwise
required by statute or the Florida Banks Articles, may be called by Florida
Banks' chief executive officer or by any presiding officer of the Florida Banks
Board. In addition, the chief executive officer or secretary of Florida Banks
must call a special meeting when requested in writing by (i) at least 3
directors; or (ii) shareholders owning at least 10% of all shares entitled to
vote. Any such written request must be signed and dated and must state the
purpose or purposes of the proposed meeting.
The First National Articles and Bylaws provide that special meetings of
the shareholders may be called, except as otherwise specifically provided by
statute, for any purpose at any time by the First National Board or by eight or
more shareholders holding, in the aggregate, at least 20% of the First National
Common Stock. Each special meeting, unless otherwise provided by law, must be
called by mailing, postage pre-paid, at least ten days before the date fixed for
the special meeting, to each shareholder at the address appearing on the records
of First National, a notice stating the purpose of the special meeting.
SHAREHOLDER CONSENT IN LIEU OF MEETING
The FBCA permits, unless a corporation's articles of incorporation
provide otherwise, any action required or permitted to be taken at a
shareholders meeting to be taken without a meeting, without prior notice and
without a vote, by action of the shareholders having at least the minimum number
of votes that would be necessary to authorize or take such action at a
shareholders meeting at which shares entitled to vote thereon
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were present and voted. To be effective, the action must be evidenced by at
least one written consent describing the action taken, dated and signed by the
requisite holders and delivered to the corporation. Under the FBCA, no written
consent will be effective to take the corporate action referred to therein
unless, within ten (10) days after obtaining such authorization by written
consent, notice is given to those shareholders who have not consented in
writing. The notice must summarize the material features of the authorized
action, and, if the action voted on was a merger, consolidation, or sale or
exchange of assets for which dissenters' rights are provided under Florida law,
the notice must contain a clear statement of the right of dissenting
shareholders to be paid the fair value of their shares upon compliance with
further provisions of Florida law regarding the rights of dissenting
shareholders. The Florida Bank Charter and Bylaws do not limit application of
the FBCA provisions permitting shareholder consents in lieu of a meeting.
Under the First National Bylaws, whenever any notice is required to be
given to any shareholder of First National, whether pursuant to the First
National Bylaws or Charter or the laws of the United States, a written waiver of
notice signed at any time by the person entitled to that notice will be entitled
to vote at a meeting, in person or by proxy, constitutes a waiver of notice of
the meeting, except when the shareholder attends a meeting for the purpose,
expressed at the beginning of the meeting, of objecting to the transaction of
any business transaction because the meeting is not lawfully called or convened.
DISSENTERS' RIGHTS
Under the FBCA, shareholders may perfect dissenters' rights with regard
to corporate actions involving certain mergers, consolidations, sale, lease or
exchange of substantially all the assets of the corporation (under limited
circumstances), or elimination of cumulative voting. However, the FBCA generally
denies dissenters' rights in the case of a merger or share exchange or a
proposed sale or exchange of property when a corporation's shares are listed on
a national securities exchange or the Nasdaq National Market or held of record
by at least 2,000 persons. A shareholder wishing to assert dissenters' rights
under the FBCA must follow the specified procedures which include: (i)
delivering, before the vote is taken on the matter, written notice of the
holder's intent to demand payment for his shares if the matter is approved; and
(ii) not voting his shares in favor of the matter proposed. Within 10 days after
the shareholders have authorized the matter, the corporation must give written
notice of the authorization to each shareholder who delivered written notice of
his intent to demand payment and who did not vote for the proposed action.
Within 20 days after the corporation has provided this notice, the shareholder
must file with the corporation a notice of his election to dissent and must
simultaneously surrender certificates representing his shares. The notice of
election must be in the form specified under the FBCA.
Under the National Bank Act, shareholders may perfect dissenters' rights
with regard to corporate actions by complying with the procedures set forth in
Section 215a, as set forth in Appendix B to this Proxy Statement-Prospectus. See
"The Merger--Dissenters' Rights of First National Shareholders."
DERIVATIVE ACTIONS
Under the FBCA, a derivative action may be brought only by a person who
was a shareholder of the corporation at the time of the alleged wrongdoing
unless the person became a shareholder through transfer by operation of law from
one who was a shareholder at that time. A complaint brought in a derivative
proceeding must be verified and must allege with particularity the demand to
obtain action by the board of directors and that the demand was refused or
ignored. The court may dismiss a derivative proceeding if it finds, on the
corporation's motion, that any one of a number of specified groups has
determined in good faith, after a reasonable investigation, that maintaining the
derivative suit is not in the corporation's best interest. The corporation will
have the burden of proving the independence and good faith of the group making
the
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determination and the reasonableness of the investigation. A derivative action
commenced under the FBCA may not be discontinued or settled without the court's
approval.
DIVIDENDS AND DISTRIBUTIONS
Under the FBCA, a corporation may not make a distribution if, after
giving effect thereto, the corporation would be unable to satisfy its debts as
they become due in the ordinary course of business or if the corporation's total
assets would be less than its total liabilities plus the amount that would be
needed, if it were to be dissolved at the time of the distribution, to satisfy
preferential rights of shareholders whose preferential rights are superior to
those of the class of shareholders receiving the dividend or other distribution.
The Florida Banks Articles do not supplement or modify application of the FBCA
restrictions on the payment of dividends or the making of shareholder
distributions.
Under the National Bank Act, the directors of a national banking
association may declare quarterly, semi-annual or annual dividends of the bank's
undivided profits; provided that until the bank's surplus fund equals its common
capital, no dividends may be declared unless at least 10% of the bank's net
income for the preceding six months (for quarterly or semi-annual dividends) or
the preceding twelve months (for annual dividends) has been transferred to the
surplus fund. In addition, OCC approval is required if the bank's total declared
dividends for any calendar year exceed its total net income combined with
retained net income of the preceding two years, less any required transfers to
surplus or any preferred stock retirement fund.
DIRECTOR QUALIFICATIONS AND NUMBER
Under the FBCA, directors must be at least 18 years of age but need not
be shareholders of the corporation or Florida residents unless the corporation's
articles of incorporation or bylaws require so. The FBCA provides that a
corporation's articles of incorporation and bylaws may impose additional
qualifications on directors.
The National Bank Act requires that a bank's board must consist of at
least five, but no more than 25 elected directors. Each director must be a U.S.
citizen during his entire term of service, and at least a majority of the
directors must have lived, for at least one year before their election and
during their entire term of service as a director, either within the state in
which the bank is located or within 100 miles of the bank. In addition, each
director must own shares of the bank with an aggregate par value of at least
$1,000.
The Florida Banks Bylaws provide for the Florida Banks Board to consist
of at least 2 but not more than 25 directors, with the Florida Banks Board to
determine from time to time the exact number. By resolution, the Florida Banks
Board has set the present size of the Florida Banks Board at 22 directors. The
Florida Banks Articles provide that the Florida Banks Board be classified into
three classes, as nearly equal as possible, with the initial term of the "Class
I Directors" to expire at the annual meeting of shareholders to be held in 1999,
the initial term of the "Class II Directors" to expire at the annual meeting of
shareholders to be held in 2000 and the initial term of the "Class III
Directors" to expire at the annual meeting of shareholders to be held in 2001.
At each annual meeting of shareholders, the successors of the class of directors
whose term expires at that meeting will be elected to hold office for a
three-year term.
Pursuant to the First National Bylaws, the First National Board must
consist of at least 5 and no more than 25 First National Shareholders, with the
exact number of directors to be fixed and determined from time to time by
resolution of a majority of the full board or by resolution of the First
National Shareholders at any meeting thereof. No decrease in the number of
directors may have the effect of shortening the term of an incumbent director
unless the shareholders remove the director. Each director of First National
must be an
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adult citizen of the United States; in addition, at least two-thirds of the
directors must, during his or her entire term of service, have resided in the
State of Florida for at least one year immediately preceding their election and
must be Florida residents during their continuance in office. In addition, each
director must directly own shares of First National's capital stock which have
an aggregate value of at least $1,000; any director who ceases to be the owner
of the required aggregate value of First National's capital stock, or who
becomes in any other manner disqualified, will be deemed to have terminated his
or her status as a director of First National.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The FBCA permits a corporation to indemnify any person who was or is a
party to any proceeding (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent 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 liability he incurs in connection
with such proceeding, including any appeal. These indemnification rights apply
if the director, officer, employee or agent 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 criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent will not, of itself, create a presumption that the
person did not act in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation or, with respect to
a criminal action or proceeding, had reasonable cause to believe that his action
was unlawful.
Under the FBCA, a corporation must indemnify any officer, director,
agent or employee who is successful (on the merits or otherwise) in defending an
action of the type referred to in the immediately preceding paragraph against
the actual and reasonable expenses of defending any such action. Except with
regard to the costs and expenses of successfully defending an action as may be
ordered by a court, indemnification as described in the previous paragraph is
only required to be made to a director, officer, agent or employee if a
determination is made that indemnification is proper under the circumstances.
Such determination will be made: (i) by the corporation's board of directors by
a majority vote of a quorum consisting of directors who were not parties to such
proceeding; (ii) by a majority vote of a committee duly designated by the board
of directors consisting of two or more directors not at the time parties to the
proceeding; (iii) by independent legal counsel selected by specified groupings
of the board of directors or (iv) by the shareholders by a majority vote of a
quorum consisting of shareholders who were not parties to such proceeding, or,
if no such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding. The reasonableness of the expenses to be indemnified
is determined in the same manner as the determination of whether the
indemnification is permissible. Florida law further provides that a corporation
may pay expenses incurred in defending any action or proceeding in advance of
the final disposition if the applicable director or officer first gives the
corporation an undertaking to repay the amount if it is ultimately determined
that the director or officer is not entitled to be indemnified by the
corporation.
Under Florida law, the provisions for indemnification and advancement of
expenses are not exclusive. Accordingly, a corporation may make any other or
further indemnification or advancement of expenses of any of its officers,
directors, employees or agents under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
Under the FBCA, indemnification or advancement of expenses, however,
will not be made to or on behalf of any officer, director, employee or agent if
a judgment or other final adjudication establishes that his
107
<PAGE> 115
actions or omissions were material to the cause of action so adjudicated and
constitute: (i) a violation of the criminal law, unless the officer, director,
employee or agent had reasonable cause to believe that his conduct was lawful or
had no reasonable cause to believe that his conduct was unlawful; (ii) a
transaction from which the officer, director, employee or agent derived an
improper personal benefit; (iii) in the case of a director, a circumstance under
which the liability provisions of the FBCA Section 607.0834 (relating to
unlawful distributions) apply or (iv) willful misconduct or a conscious
disregard for the best interest of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder. The Florida Banks Bylaws further provide
that, in addition to the circumstances described in the preceding sentence, no
indemnification or advancement of expenses will be made to or on behalf of any
officer, director, employer or agent if a judgment or other final adjudication
establishes that his actions or omissions were material to the action so
adjudicated and constitute recklessness or an act or omission committed in bad
faith or with malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property in a proceeding by or in the right
of someone other than Florida Banks or a shareholder. Except for the further
exclusion from indemnification provided in the preceding sentence, the Florida
Banks Bylaws provide that Florida Banks' directors, officers and any other
persons designated by the Florida Banks Board are entitled to be indemnified to
the full extent provided under Florida law, and the Florida Banks Articles and
Bylaws limit the personal liability of such directors, officers and other
persons to the full extent permitted under Florida law.
Florida law permits a corporation to purchase and maintain insurance on
behalf of any director or officer of the corporation against any liability
asserted against the director or officer and incurred in such capacity, whether
or not the corporation would have the power to indemnify the director or officer
against such liability. The Florida Banks Bylaws permit Florida Banks to
purchase such insurance as provided under Florida law.
DIRECTOR LIABILITY
Under Florida law, a director is not personally liable for monetary
damages for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless the director breached or
failed to perform his duties as a director and the director's breach of, or
failure to perform, those duties constitutes a violation of criminal law (unless
the director had reasonable cause to believe his conduct was lawful or no
reasonable cause to believe his conduct was unlawful), self dealing, willful
misconduct, or recklessness.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING FLORIDA BANKS
PURSUANT TO THE FOREGOING PROVISIONS OF THE FLORIDA BANKS ARTICLES, FLORIDA
BANKS HAS BEEN INFORMED THAT IN THE OPINION OF THE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT AND
IS THEREFORE UNENFORCEABLE.
108
<PAGE> 116
AMENDMENT OF ARTICLES OF INCORPORATION AND BY-LAWS
The FBCA generally requires the affirmative vote of the holders of at
least a majority of the votes actually cast on an amendment to the articles of
incorporation; provided, however, a majority of the votes entitled to be cast on
the amendment is required with respect to an amendment that would create
dissenters' rights. Under Florida corporate law, shareholder approval is not
required for certain non-material amendments. The FBCA provides that a
corporation's bylaws may be amended or repealed by the board of directors or
shareholders; provided, however, that the board may not amend or repeal the
corporation's bylaws if the articles of incorporation reserve such power to the
shareholders, or the shareholders, in amending or repealing the bylaws,
expressly provide that the board of directors may not amend or repeal the bylaws
or a particular bylaw provision.
The National Bank Act provides that, except as otherwise required by law
or in the national bank's articles of association, the articles of association
may be amended in any lawful manner. Any amendment requiring shareholder
approval may be effected at a shareholder meeting by the affirmative vote of the
holders of at least a majority of the voting stock.
The Florida Banks Articles, provide that, except as otherwise
specifically provided therein, the Florida Banks Articles may be amended,
altered, changed or repealed only by the affirmative vote of at least fifty
percent (50%) of the Florida Banks Common Stock. The affirmative vote of at
least 75% of the shareholders entitled to vote is required to approve the (i)
amendment, alteration, change or repeal of the Article containing provisions
relating to the election of directors, classification of the Florida Banks Board
and filling vacancies on the Florida Banks Board; and (ii) the Articles
providing for supermajority approval of various extraordinary corporate
transactions. The Florida Banks Bylaws provide that the Florida Banks Bylaws may
be amended by the affirmative vote of a majority of the Florida Banks Board then
holding office or by the affirmative vote of the holders of at least 75% of the
outstanding Florida Banks Common Stock entitled to vote thereon. The Florida
Banks Bylaws provide that the Florida Banks Board may not adopt, amend, or
repeal any by-law which sets a greater quorum or voting requirement for
shareholders (or shareholder voting groups) than the minimum required by the
FBCA. In addition, a by-law that fixes a greater quorum or voting requirement
for the Florida Banks Board than the minimum required by the FBCA may be amended
or repealed (i) only by the shareholders if the shareholders originally adopted
such by-law and (ii) either by the Florida Banks Board or the shareholders if
the Florida Banks Board originally adopted such by-law. A by-law adopted or
amended by the shareholders that fixes a greater quorum or voting requirement
for the Florida Banks Board may be amended or repealed only by a specified vote
of either the shareholders or the Florida Banks Board, if such by-law provision
so provides.
Under the First National Articles and Bylaws, unless otherwise required
by law, the First National Articles may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the First National Common Stock. The First National Bylaws may be amended,
altered or repealed, at any regular meeting of the First National Board, by a
vote of the majority of the total number of directors.
109
<PAGE> 117
VOTE REQUIRED FOR EXTRAORDINARY CORPORATE TRANSACTIONS
Under the FBCA, a merger, consolidation, share exchange, dissolution or
sale of substantially all of a corporation's assets other than in the ordinary
course of business must be generally approved by the affirmative vote of the
holders of a majority of the shares entitled to vote thereon unless the
corporation's articles of incorporation require a higher vote.
The Florida Banks Articles require the affirmative vote of at least 75%
of the outstanding shares of Florida Banks Common Stock entitled to vote to
approve a merger, consolidation, or sale, lease, exchange or other disposition,
in a single transaction or series of related transactions, of all or
substantially all or a substantial part of the properties or assets of Florida
Banks, unless a majority of the Florida Banks Board has approved and recommended
the transaction prior to the consummation thereof.
INTERESTED SHAREHOLDER TRANSACTIONS
Under the FBCA, any merger, consolidation, disposition of all or a
substantial part of the assets of the corporation or a subsidiary of the
corporation, or exchange of securities requiring shareholder approval (a
"Business Combination"), if an Interested Person is a party to such transaction,
will be approved by the affirmative vote of the holders of two-thirds of the
voting shares other than the shares beneficially owned by the Interested Person;
provided, that such approval is not required if (a) the Interested Shareholder
Transaction has been approved by a majority of the disinterested directors; (b)
the corporation has not had more than 300 shareholders of record at any time
during the three years preceding the announcement date; (c) the Interested
Person has been the beneficial owner of at least 80% of the corporation's
outstanding voting shares for at least five years preceding the announcement
date; (d) the Interested Person is the beneficial owner of at least 90% of the
outstanding voting shares of the corporation, exclusive of shares acquired
directly from the corporation in a transaction not approved by a majority of the
disinterested directors; (e) the corporation is an investment company registered
under the Investment Company Act of 1940 or (f) the consideration to be received
by holders of the stock of the corporation meets certain minimum levels
determined by a formula under Section 607.0901(4)(f) of the FBCA (generally, the
highest price paid by the Interested Person for any shares which she or he has
acquired). Florida Banks has explicitly opted out of this statutory provision.
FIDUCIARY DUTY
Under Florida law, a director is required to discharge his or her duties
in good faith, with the care an ordinarily prudent person in a like position
would exercise under similar circumstances and in a manner reasonably believed
to be in the best interest of the corporation. In discharging his or her duties,
a director is entitled to rely on: (i) information, opinions, reports, or
statements, including financial statements and other financial data, if
presented or prepared by officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented; (ii) legal counsel, public accountants or other persons as to matters
the director reasonably believes are within the person's professional or expert
competence or (iii) a committee of the board of which the director is not a
member if the director reasonably believes the committee merits confidence. In
addition, in discharging his or her duties, a director may consider such factors
as the director deems relevant, including the long-term prospects and interest
of the corporation and its shareholders, and the social, economic, legal, or
other effects of any action on the employees, suppliers, customers of the
corporation or its subsidiaries, the communities and society in which the
corporation or its subsidiaries operate, and the economy of the state and the
nation.
110
<PAGE> 118
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
Section 607.0902 of the FBCA restricts the voting rights of certain
shares of a corporation's stock when those shares are acquired by a party who,
by such acquisition, would control at least one-fifth of all voting rights of
the corporation's issued and outstanding stock. The statute provides that the
acquired shares (the "control shares") will, upon such acquisition, cease to
have any voting rights. The acquiring party may, however, petition the
corporation to have voting rights re-assigned to the control shares by way of an
"acquiring person's statement" submitted to the corporation in compliance with
the requirements of the statute. Upon receipt of such request, the corporation
must submit, for shareholder approval, the acquiring person's request to have
voting rights re-assigned to the control shares. Voting rights may be reassigned
to the control shares by a resolution of a majority of the corporation's
shareholders for each class and series of stock. If such a resolution is
approved, and the voting rights re-assigned to the control shares represent a
majority of all voting rights of the corporation's outstanding voting stock,
then, unless the corporation's articles of incorporation or Bylaws provide
otherwise, all shareholders of the corporation will be able to exercise
dissenter's rights in accordance with Florida law.
A corporation may, by amendment to its articles of incorporation or
bylaws, provide that, if the party acquiring the control shares does not submit
an acquiring person's statement in accordance with the statute, the corporation
may redeem the control shares at any time during the period ending 60 days after
the acquisition of control shares. If the acquiring party files an acquiring
person's statement, the control shares are not subject to redemption by the
corporation unless the shareholders, acting on the acquiring party's request,
deny full voting rights to the control shares.
The statute does not alter the voting rights of any stock of the
corporation acquired in any of the following manners: (i) pursuant to the laws
of intestate succession or pursuant to a gift or testamentary transfer; (ii)
pursuant to the satisfaction of a pledge or other security interest created in
good faith and not for the purpose of circumventing the statute; (iii) pursuant
to either a merger or share exchange if the corporation is a party to the
agreement or plan of merger or share exchange; (iv) pursuant to any savings,
employee stock ownership or other benefit plan of the corporation or (v)
pursuant to an acquisition of shares specifically approved by the board of
directors of the corporation.
The Florida Banks Articles provide that the Florida Banks Board, in
evaluating a proposal for an extraordinary corporate transaction, will consider
all relevant factors, including the economic effect, both immediate and
long-term, upon the Florida Banks shareholders, including shareholders, if any,
who will not participate in the transaction; the social and economic effect on
the employees, depositors and customers of, and others dealing with, Florida
Banks and its subsidiaries and on the communities in which Florida Banks and its
subsidiaries operate or are located; whether the proposal is acceptable based on
the historical and current operating results or financial condition of Florida
Banks; whether a more favorable price could be obtained for Florida Banks'
securities in the future; the reputation and business practices of the offeror
and its management and affiliates as they would affect the employees, depositors
and customers of Florida Banks and its subsidiaries; and the future value of
Florida Banks' stock; and any antitrust or other legal and regulatory issues
that are raised by the proposal.
The following provisions of the Florida Banks Articles and the Florida
Banks Bylaws may be considered to have anti-takeover implications: (i) the
ability of the Florida Banks Board to fill the vacancies (but only until the
next selection of the class of directors for which such director has been
chosen) resulting from an increase in the number of directors; (ii) the ability
of the Florida Banks Board to issue substantial amounts of Florida Banks Common
Stock without the need for shareholder approval, which Florida Banks Common
Stock, among other things and in certain circumstances, may be used to dilute
the stock ownership
111
<PAGE> 119
of holders of Florida Banks Common Stock seeking to obtain control of Florida
Banks; (iii) the ability of the Florida Banks Board to establish the rights of,
and to issue, substantial amounts of Florida Banks Preferred Stock without the
need for shareholder approval which Florida Banks Preferred Stock, among other
things, may be used to create voting impediments with respect to changes in
control of Florida Banks or, to dilute the stock ownership of holders of Florida
Banks Common Stock seeking to obtain control of Florida Banks; (iv) the
supermajority voting requirements for certain extraordinary corporate
transactions and (v) the broad range of factors that the Florida Banks Board may
consider in evaluating such a proposal, and the broad range of actions it may
take to reject such a proposal, if it so decides. In addition to the provisions
of Section 607.09 of the FBCA, the classification of the Florida Banks Board may
serve as an anti-takeover protection.
LEGAL OPINIONS
The legality of the shares of Florida Banks Common Stock to be issued to
the holders of First National Common Stock pursuant to the Merger will be passed
upon by Smith, Gambrell & Russell, LLP, Atlanta, Georgia. Smith, Gambrell &
Russell, LLP has from time to time acted as counsel in advising Florida Banks
and its affiliates with respect to certain matters and in connection with
various transactions. Certain other legal matters will be passed upon for First
National by Igler & Dougherty, P.A., Tampa, Florida.
The Merger Agreement provides as a condition to each party's obligation
to consummate the Merger that Florida Banks and First National receive the
opinion of Smith, Gambrell & Russell, LLP, Atlanta, Georgia, special counsel to
Florida Banks, substantially to the effect that the Merger will constitute a
"reorganization" under Section 368(a) of the Code.
EXPERTS
The financial statements included in this Proxy Statement-Prospectus and
elsewhere in the Registration Statement have also been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in this Registration Statement and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the First National
Board knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement- Prospectus.
However, if any other matters will properly come before the Special Meeting or
any adjournments or postponements thereof and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of First National.
112
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
FINANCIAL STATEMENTS FOR FLORIDA BANKS, INC.
Independent Auditors' Report.......................................................................... F-2
Balance Sheets as of as of March 31, 1998 (unaudited) and December 31, 1997........................... F-3
Statement of Operations for the Three Months Ended March 31, 1998 (unaudited)......................... F-4
Statement of Shareholders' Equity for the Three Months Ended March 31, 1998 (unaudited)............... F-5
Statement of Cash Flows for the Three Months Ended March 31, 1998 (unaudited)......................... F-6
Notes to Financial Statement.......................................................................... F-7
FINANCIAL STATEMENTS FOR FIRST NATIONAL BANK OF TAMPA
Independent Auditors' Report.......................................................................... F-10
Balance Sheets as of as of March 31, 1998 (unaudited) and December 31, 1997 and 1996.................. F-11
Statements of Income for the Three Months Ended March 31, 1998 and 1997
(unaudited) and for the Years Ended December 31, 1997, 1996 and 1995............................ F-12
Statements of Shareholders' Equity for the Three Months Ended March 31, 1998
(unaudited) and for the Years Ended December 31, 1997, 1996 and 1995............................ F-13
Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997
(unaudited) and for the Years Ended December 31, 1997, 1996 and 1995............................ F-14
Notes to Financial Statements......................................................................... F-16
</TABLE>
F-1
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Florida Banks, Inc.:
We have audited the accompanying balance sheet of Florida Banks, Inc. (the
Company) (a development stage corporation) as of December 31, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying balance sheet of the Company as of
December 31, 1997 presents fairly in all material respects, the financial
position of the Company in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
March 20, 1998
Jacksonville, Florida
F-2
<PAGE> 122
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH........................................................ $ 409,218
DEFERRED PUBLIC OFFERING COSTS.............................. 74,645
ORGANIZATIONAL COSTS........................................ $26,442
----------- -------
TOTAL ASSETS...................................... $ 483,863 $26,442
=========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCRUED EXPENSES............................................ $ 100 $26,442
----------- -------
Total liabilities................................. 100 26,442
----------- -------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; 60,600 and 0 shares issued and outstanding
(redemption value of $606,000)......................... 606,000
Common Stock, $.01 par value; 30,000,000 shares
authorized; 377,800 and 0 shares issued and
outstanding............................................ 3,778
Additional paid-in capital................................ 4,152,022
Warrants to acquire 80,800 shares of Common Stock......... 164,832
Deficit accumulated during development stage.............. (4,442,869)
----------- -------
Total shareholders' equity........................ 483,763
----------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 483,863 $26,442
=========== =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 123
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 15, 1997
(DATE OF INCORPORATION)
TO
MARCH 31, 1998
AND
THREE MONTHS ENDED
MARCH 31, 1998
-----------------------
(UNAUDITED)
<S> <C>
EXPENSES:
Salaries and benefits..................................... $ 3,325,199
Financing costs........................................... 1,052,824
Occupancy and equipment................................... 3,455
Other..................................................... 34,949
-----------
Net loss before cumulative effect of changes in accounting
for organizational costs............................... (4,416,427)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR ORGANIZATIONAL
COSTS (Note 1)............................................ (26,442)
-----------
NET LOSS.................................................... $(4,442,869)
===========
LOSS PER SHARE:
Basic and diluted......................................... $ (20.87)
===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 124
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
WARRANTS ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL TO ACQUIRE DURING
----------------- ---------------- PAID-IN COMMON DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK STAGE TOTAL
------ -------- ------- ------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1997
Issuance of Common
Stock................ 297,000 $2,970 $3,264,030 $ 3,267,000
Issuance of units...... 60,600 $606,000 80,800 808 887,992 $164,832 1,659,632
Net loss............... $(4,442,869) (4,442,869)
------ -------- ------- ------ ---------- -------- ----------- -----------
Balance, March 31,
1998................. 60,600 $606,000 377,800 $3,778 $4,152,022 $164,832 $(4,442,869) $ 483,763
====== ======== ======= ====== ========== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 125
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 15, 1997
(DATE OF INCORPORATION)
TO
MARCH 31, 1998
AND
THREE MONTHS ENDED
MARCH 31, 1998
-----------------------
(UNAUDITED)
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(4,442,869)
Adjustments to reconcile net loss to net cash used in
operating activities...................................
Noncash charge on issuance of Common Stock............. 4,316,854
Decrease in organizational costs....................... 26,442
Decrease in accrued liabilities........................ (26,342)
-----------
Net cash used in operating activities............. (125,915)
-----------
FINANCING ACTIVITIES:
Proceeds from the issuance of stock....................... 609,778
Increase in deferred public offering costs................ (74,645)
-----------
Net cash provided by financing activities......... 535,133
-----------
NET INCREASE IN CASH........................................ 409,218
CASH, BEGINNING OF PERIOD................................... --
-----------
CASH, END OF PERIOD......................................... $ 409,218
===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 126
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENT
AS OF DECEMBER 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Florida Banks, Inc. (the "Company") was incorporated on
October 15, 1997 for the purpose of becoming a bank holding company and
acquiring First National Bank of Tampa. The Company is in the development stage
and will remain in the development stage until the consummation of the merger
with First National Bank of Tampa and the proposed initial public offering.
Operations through December 31, 1997, relate primarily to expenditures for
incorporating and organizing the Company.
Organizational Costs -- Through December 31, 1997, incurred organizational
costs (consisting principally of legal, regulatory, consulting and incorporation
fees) were deferred and were to be amortized over the Company's initial sixty
months of operations. During the quarter ended March 31, 1998, the Company
elected to early adopt the provision of SOP 98-5, "Reporting on the Costs of
Start-Up Activities", which provides that start-up costs (including
organizational costs) should be expensed as incurred. The cumulative effect of
adoption of SOP 98-5 has been reflected in the Statement of Operations.
New Accounting Pronouncements -- During the quarter ended March 31, 1998,
the Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). This Statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 does not require a specific format for the
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in the financial
statement. Additionally, SFAS 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. This Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company has
no other comprehensive income in the three months ended March 31, 1998.
Interim Financial Information. Interim Financial Information at March 31,
1998 and for the three months ended March 31, 1998 is unaudited. The unaudited
interim financial statements reflect all adjustments consisting of only normal
accruals, which are, in the opinion of management, necessary to a fair statement
of the results for the interim period. Information for the interim period is not
necessarily indicative of results to be achieved for the full year.
2. SUBSEQUENT EVENTS (UNAUDITED)
In January 1998, the Company entered into an employment agreement with its
President and Chief Executive Officer (the "President"). The agreement has a
three-year term and provides for a minimum annual base salary of $220,000 until
the closing of the offering and $250,000 subsequent to the offering. In
addition, the Board will issue an option to the President to purchase 80,000
shares of common stock at the initial public offering price. This option will be
exercisable for a period of ten years. The agreement provides that if the
Company is unable to close on the public offering or if the President is
terminated without cause, the President is entitled to liquidated damages of
$100,000.
On February 3, 1998, the Company sold 101 Units to accredited foreign
investors. Each Unit was comprised of (i) 600 shares of Series A Preferred
Stock, (ii) 800 shares of Common Stock, and
F-7
<PAGE> 127
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
(iii) Warrants to purchase 800 shares of Common Stock at the initial public
offering price, at the price of $6,008 per Unit. The net proceeds to the Company
from this private placement was approximately $600,000. The Series A Preferred
Stock has been valued at its redemption value of $606,000 as the Company
contemplates redeeming the Series A Preferred Stock using a portion of the
proceeds from the initial public offering. The Series A Preferred Stock is
non-voting, and at the option of the Company, the Series A Preferred Stock may
be redeemed at any time in whole or in part at a cash redemption price of $10
per share. The Company recorded a nonrecurring noncash charge of $1,053,000
relating to the issuance to the Common Stock and Warrants, with a corresponding
increase to shareholders' equity. Financing costs relating to the Common Stock
have been measured as the difference between the fair value of the Common Stock,
based on an assumed initial public offering price of $11.00 per share (the
mid-point of the estimated range), and the allocated proceeds of $.01 per share.
The Warrants have been valued at an aggregate price of $165,000, or $2.04 per
share, as determined by an independent appraisal. The proceeds from the issuance
of such Units provided funding for the Company's development stage operations.
On February 11, 1998, the Company sold 297,000 shares of Common Stock to 14
investors as Founder Shares at the price of $.01 per share. Such investors
include the President and Chief Executive Officer, certain directors of the
Company, T. Stephen Johnson and other employees of T. Stephen Johnson &
Associates ("TSJ&A"). The difference between the proceeds from the sale and the
fair value of the Common Stock, based on an assumed initial public offering
price of $11.00 per share (the mid-point of the estimate range), has been
recorded as compensation expense of $3,264,000 with a corresponding increase in
additional paid-in capital. Such compensation expense and corresponding increase
to additional paid-in capital relating to the sale of such Common Stock will be
adjusted to the actual initial public offering price.
On March 30, 1998, the Company executed a definitive agreement with First
National Bank of Tampa, pursuant to which the Bank will be merged with and into
Interim Bank No. 1, N.A., a wholly-owned subsidiary of the Company, which will
be renamed "Florida Bank, N.A." Shareholders of First National Bank of Tampa
will receive $13,750,000 payable in common stock of Florida Banks, Inc. The
number of shares to be issued is based upon the price per share in the proposed
initial public offering. The Merger is contingent, among other things, upon the
receipt of approval of the Merger by the Board of Governors of the Federal
Reserve System, the OCC and the FDIC. In addition, the Merger must be approved
by shareholders of First National Bank of Tampa. The Merger is considered a
reverse acquisition for accounting purposes, with the Bank identified as the
accounting acquirer. The Merger will be accounted for as a purchase, but no
goodwill will be recorded in the Merger and the financial statements of the Bank
will become the historical financial statements of the Company.
As compensation for consulting services during the organization and
formation of the Company and acquisition of the Bank, TSJ&A will be paid a fee
of $15,000 per month for a term of six months. In addition, TSJ&A will receive
finder's fee of $137,500, which represents 1% of the purchase price of First
National Bank of Tampa, to be paid upon consummation of the public offering. T.
Stephen Johnson is Vice-Chairman of the Company and is Chairman of TSJ&A.
Mr. Robin Kelton, a significant shareholder of the Company, serves as the
Chairman of Kelton International Limited which received a fee of $45,450 in
connection with the offering of Units to foreign investors.
On June 4, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"), effective March 31, 1998, which provides for the grant of incentive or
non-qualified stock options to certain directors, officers and key employees who
participate in the Plan. An aggregate of 900,000 shares of Common Stock are
reserved for issuance pursuant to the Plan. The Company has committed to issue
options for a total of 465,000 shares of Common Stock upon completion of the
initial public offering, of which 325,000 options are immediately exercisable.
The exercise price will be the equal to the initial public offering price.
F-8
<PAGE> 128
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
Also on June 4, 1998, the shareholders of the Company voted to increase the
total number of authorized shares of the Company's capital stock from 10,000,000
to 31,000,000 and to increase the total number of authorized shares of the
Company's Common Stock from 9,000,000 to 30,000,000. The financial statements
have been restated to reflect this increase in authorized shares.
F-9
<PAGE> 129
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First National Bank of Tampa
Tampa, Florida
We have audited the accompanying balance sheets of First National Bank of
Tampa (the "Bank") as of December 31, 1996 and 1997, and the related statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Bank as of December 31, 1996 and 1997,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
February 27, 1998
Jacksonville, Florida
F-10
<PAGE> 130
FIRST NATIONAL BANK OF TAMPA
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS..................................... $ 2,598,921 $ 2,788,211 $ 2,488,784
FEDERAL FUNDS SOLD.......................................... 9,090,000 10,245,000 12,410,000
----------- ----------- -----------
Total cash and cash equivalents.................... 11,688,921 13,033,211 14,898,784
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $11,256,956
(unaudited), $10,445,885 and $8,289,420 at March 31,
1998 and December 31, 1997 and 1996 respectively)....... 11,233,108 10,452,185 8,279,765
Other investments......................................... 291,850 313,050 270,850
LOANS:
Commercial real estate.................................... 16,236,639 15,281,442 13,078,357
Commercial................................................ 14,394,770 13,157,905 12,412,325
Residential mortgage...................................... 3,395,685 3,268,704 3,952,731
Consumer.................................................. 1,287,123 1,222,045 1,423,161
Credit card and other loans............................... 885,645 869,031 838,108
----------- ----------- -----------
Total loans........................................ 36,199,862 33,799,127 31,704,681
Allowance for loan losses................................. (505,103) (481,462) (432,238)
Net deferred loan fees.................................... (84,269) (78,765) (77,621)
----------- ----------- -----------
Net loans.......................................... 35,610,490 33,238,900 31,194,822
PREMISES AND EQUIPMENT, NET................................. 533,499 511,503 488,077
ACCRUED INTEREST RECEIVABLE................................. 345,223 332,031 285,420
DEFERRED INCOME TAXES, NET.................................. 2,400,114 2,420,271
OTHER ASSETS................................................ 69,784 94,628 87,391
----------- ----------- -----------
TOTAL ASSETS....................................... $62,172,989 $60,395,779 $55,505,109
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand................................ $ 6,500,383 $ 6,441,785 $ 8,121,621
Interest-bearing demand................................... 2,581,607 3,073,535 3,917,819
Regular savings........................................... 6,450,486 5,874,911 2,712,877
Money market accounts..................................... 1,389,538 1,348,431 1,386,291
Time $100,000 and over.................................... 10,686,727 10,214,403 9,666,810
Other time................................................ 17,605,691 18,507,107 19,720,653
----------- ----------- -----------
Total deposits..................................... 45,214,432 45,460,172 45,526,071
REPURCHASE AGREEMENTS....................................... 7,964,257 5,911,513 5,389,440
OTHER BORROWED FUNDS........................................ 2,403,563 2,405,604 1,018,636
ACCRUED INTEREST PAYABLE.................................... 174,642 198,817 178,828
ACCOUNTS PAYABLE AND ACCRUED EXPENSES....................... 69,241 106,038 122,692
----------- ----------- -----------
Total liabilities.................................. 55,826,135 54,082,144 52,235,667
----------- ----------- -----------
COMMITMENTS (NOTES 6 and 8)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 5,000,000 shares authorized
1,825,000 shares issued and outstanding................. 1,825,000 1,825,000 1,825,000
Additional paid-in capital................................ 3,725,148 3,725,148 1,070,359
Retained earnings (deficit of $8,134,037 eliminated upon
quasi-reorganization on December 31, 1995) (Note 11).... 811,492 759,707 383,738
Unrealized gain (loss) on available for sale investment
securities, net of tax.................................. (14,786) 3,780 (9,655)
----------- ----------- -----------
Total shareholders' equity......................... 6,346,854 6,313,635 3,269,442
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $62,172,989 $60,395,779 $55,505,109
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-11
<PAGE> 131
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees.............. $ 807,818 $ 796,532 $3,352,741 $2,890,204 $2,187,558
Investment securities.............. 162,716 140,132 583,590 460,321 436,973
Federal funds sold................. 96,289 100,757 365,658 263,552 312,512
---------- ---------- ---------- ---------- ----------
Total interest income...... 1,066,823 1,037,421 4,301,989 3,614,077 2,937,043
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits........................... 509,486 508,976 2,075,429 1,744,407 1,380,650
Repurchase agreements.............. 60,702 40,480 178,200 108,357 68,494
Borrowed funds..................... 24,715 6,634 42,099 18,878 24,414
---------- ---------- ---------- ---------- ----------
Total interest expense..... 594,903 556,090 2,295,728 1,871,642 1,473,558
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME.................. 471,920 481,331 2,006,261 1,742,435 1,463,485
PROVISION (BENEFIT) FOR LOAN
LOSSES............................. 15,000 15,000 60,000 60,000 (138,394)
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
(BENEFIT) FOR LOAN LOSSES.......... 456,920 466,331 1,946,261 1,682,435 1,601,879
---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service fees....................... 94,963 86,126 324,693 331,421 245,942
Gain on sale of loans.............. 19,709 64,375 94,805 137,655 41,767
Gain (loss) on sale of available
for sale investment
securities...................... 8,197 7,391 7,635 (2,446) 12,868
Gain on sale of other real estate
owned........................... 10,546
Other noninterest income........... 29,363 10,594 76,596 50,005 64,058
---------- ---------- ---------- ---------- ----------
152,232 168,486 503,729 516,635 375,181
---------- ---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and benefits.............. 299,870 238,782 999,382 872,643 784,517
Occupancy and equipment............ 75,710 60,165 256,160 226,965 295,562
Data processing.................... 25,465 22,767 92,633 75,366 62,068
Other.............................. 124,583 133,235 493,848 423,462 478,742
---------- ---------- ---------- ---------- ----------
525,628 454,949 1,842,023 1,598,436 1,620,889
---------- ---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 83,524 179,868 607,967 600,634 356,171
PROVISION FOR INCOME TAX EXPENSES.... 31,739 68,637 231,998 216,896
---------- ---------- ---------- ---------- ----------
NET INCOME........................... $ 51,785 $ 111,231 $ 375,969 $ 383,738 $ 356,171
========== ========== ========== ========== ==========
EARNINGS PER SHARE:
Basic.............................. $ 0.03 $ 0.06 $ 0.21 $ 0.21 $ 0.20
========== ========== ========== ========== ==========
Diluted............................ $ 0.03 $ 0.06 $ 0.19 $ 0.20 $ 0.19
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-12
<PAGE> 132
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
AVAILABLE
FOR SALE
COMMON STOCK ADDITIONAL RETAINED INVESTMENT
----------------------- PAID-IN EARNINGS SECURITIES,
SHARES PAR VALUE CAPITAL (DEFICIT) NET OF TAX TOTAL
---------- ---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995....... 1,825,000 $1,825,000 $ 8,987,500 $(8,490,208) $(179,152) $2,143,140
Net income................... 356,171 356,171
Unrealized loss on available
for sale investment
securities, net............ 179,152 179,152
Quasi-reorganization......... (8,134,037) 8,134,037
---------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1995..... 1,825,000 1,825,000 853,463 2,678,463
Net income................... 383,738 383,738
Adjustment to deferred tax
asset valuation allowance
subsequent to quasi-
reorganization............. 216,896 216,896
Unrealized loss on available
for sale investment
securities, net............ (9,655) (9,655)
---------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1996..... 1,825,000 1,825,000 1,070,359 383,738 (9,655) 3,269,442
Net income................... 375,969 375,969
Adjustment to deferred tax
asset valuation allowance
subsequent to quasi-
reorganization............. 2,654,789 2,654,789
Unrealized gain on available
for sale investment
securities, net............ 13,435 13,435
---------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1997..... 1,825,000 1,825,000 3,725,148 759,707 3,780 6,313,635
Net income (unaudited)....... 51,785 51,785
Unrealized loss on available
for sale investment
securities, net
(unaudited)................ (18,566) (18,566)
---------- ---------- ----------- ----------- --------- ----------
BALANCE, MARCH 31, 1998
(unaudited).................. 1,825,000 $1,825,000 $ 3,725,148 $ 811,492 $ (14,786) $6,346,854
========== ========== =========== =========== ========= ==========
</TABLE>
See notes to financial statements.
F-13
<PAGE> 133
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................. $ 51,785 $ 111,231 $ 375,969 $ 383,738 $ 356,171
Adjustments to reconcile
net income to net cash
provided by operating
activities:
SBA loans originated for
resale................ -- (1,064,674) (1,261,766) (1,121,977) (857,383)
Proceeds from sale of
SBA loans............. -- 846,218 1,454,895 1,852,401 570,650
Depreciation and
amortization.......... 31,587 24,915 109,595 87,056 111,726
Deferred income taxes... 31,739 68,637 231,998 216,896
Loss on disposition of
furniture and
equipment............. 57,253
Gain on sale of
securities............ (8,197) (7,391) (7,635) (12,868)
Gain on disposal of
other real estate
owned................. (10,546)
Amortization of premiums
on investments, net... (21,048) (1,709) 6,072 4,824
Provision (benefit) for
loan losses........... 15,000 15,000 60,000 60,000 (138,394)
Increase in accrued
interest receivable... (13,192) (12,092) (46,611) (60,350) (42,245)
Increase in accrued
interest payable...... (24,175) 11,226 19,989 41,779 17,503
Decrease (increase) in
other assets.......... 24,844 (14,398) (7,237) (42,797) 247,374
Increase (decrease) in
other liabilities..... (36,797) (51,227) (16,654) 35,288 57,405
------------ ------------ ------------ ----------- -----------
Net cash (used in)
provided by
operating
activities....... 51,546 (74,264) 918,615 1,452,034 361,470
------------ ------------ ------------ ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales,
paydowns and maturities
of investment
securities:
Available for sale...... 3,716,159 5,753,841 13,543,810 3,884,442 4,415,664
Other................... 28,600
Purchases of investment
securities:
Available for sale...... (4,497,985) (6,521,388) (15,698,714) (5,683,851) (3,494,601)
Other investments....... (7,400) (17,000) (42,200)
Net increase in loans...... (2,371,590) (2,186,757) (2,297,207) (5,753,768) (6,065,863)
Purchases of premises and
equipment............... (53,583) (28,304) (133,020) (33,709) (424,905)
</TABLE>
F-14
<PAGE> 134
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Proceeds from sale of other
real estate owned....... 45,000 55,546
Proceeds from sale of fixed
assets.................. 480,024
------------ ------------ ------------ ----------- -----------
Net cash used in
investing
activities....... (3,200,799) (2,999,608) (4,627,331) (7,541,886) (5,034,135)
------------ ------------ ------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase in demand
deposits, money market
accounts and savings
accounts................ 183,352 (1,987,032) 600,054 3,436,405 1,328,694
Net increase (decrease) in
time deposits........... (429,092) 201,995 (665,952) 7,456,862 1,417,852
Increase in repurchase
agreements.............. 2,052,744 867,656 522,073 1,780,682 3,608,758
Increase (decrease) in
other borrowed funds.... (2,041) 278,094 1,386,968 415,002 (176,354)
------------ ------------ ------------ ----------- -----------
Net cash provided
by (used in)
financing
activities....... 1,804,963 (639,287) 1,843,143 13,088,951 6,178,950
------------ ------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS................ (1,344,290) (3,713,159) (1,865,573) 6,999,099 1,506,285
CASH AND CASH EQUIVALENTS:
Beginning of year.......... 13,033,211 14,898,784 14,898,784 7,899,685 6,393,400
------------ ------------ ------------ ----------- -----------
End of year................ $ 11,688,921 $ 11,185,625 $ 13,033,211 $14,898,784 $ 7,899,685
============ ============ ============ =========== ===========
</TABLE>
See notes to financial statements.
F-15
<PAGE> 135
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First National Bank of Tampa (the "Bank") is a nationally chartered bank
regulated by the Office of the Comptroller of the Currency. The Bank is a member
of the Federal Reserve System and commenced operations on July 11, 1988.
The accounting and reporting policies of the Bank conform to generally
accepted accounting principles and to general practices within the banking
industry. The following summarizes these policies and practices:
Use of 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.
Investment Securities -- Debt securities for which the Bank has the
positive intent and ability to hold to maturity are classified as held to
maturity and reported at amortized cost. Securities are classified as
trading securities if bought and held principally for the purpose of
selling them in the near future. No investments are held for trading
purposes. Securities not classified as held to maturity are classified as
available for sale, and reported at fair value with unrealized gains and
losses excluded from earnings and reported net of tax as a separate
component of stockholders' equity until realized. Other investments, which
include Federal Reserve Bank stock and Federal Home Loan Bank stock, are
carried at cost as such investments do not have readily determinable fair
values.
Realized gains and losses on sales of investment securities are
recognized in the statements of income upon disposition based upon the
adjusted cost of the specific security. Declines in value of investment
securities judged to be other than temporary are recognized as losses in
the statement of income.
Loans -- Loans are stated at the principal amount outstanding, net of
unearned income and an allowance for loan losses. Interest income on all
loans is accrued based on the outstanding daily balances.
Management has established a policy to discontinue accruing interest
(non-accrual status) on a loan after it has become 90 days delinquent as to
payment of principal or interest unless the loan is considered to be well
collateralized and the Bank is actively in the process of collection. In
addition, a loan will be placed on non-accrual status before it becomes 90
days delinquent if management believes that the borrower's financial
condition is such that collection of interest or principal is doubtful.
Interest previously accrued but uncollected on such loans is reversed and
charged against current income when the receivable is estimated to be
uncollectible. Interest income on non-accrual loans is recognized only as
received.
Nonrefundable fees and certain direct costs associated with
originating or acquiring loans are recognized over the life of related
loans on a method that approximates the interest method.
Allowance for Loan Losses -- The determination of the balance in the
allowance for loan losses is based on an analysis of the loan portfolio and
reflects an amount which, in management's judgment, is adequate to provide
for probable loan losses after giving consideration to the growth and
composition of the loan portfolio, current economic conditions, past loss
experience, evaluation of potential losses in the current loan portfolio
and such other factors that warrant current recognition in estimating loan
losses.
Loans which are considered to be uncollectible are charged-off against
the allowance. Recoveries on loans previously charged-off are added to the
allowance.
F-16
<PAGE> 136
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impaired loans are loans for which it is probable that the Bank will
be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impairment losses are included in the allowance for
loan losses through a charge to the provision for loan losses. Impairment
losses are measured by the present value of expected future cash flows
discounted at the loan's effective interest rate, or, as a practical
expedient, at either the loan's observable market price or the fair value
of the collateral. Interest income or impaired loans is recognized only as
received.
Large groups of smaller balance homogeneous loans (consumer loans) are
collectively evaluated for impairment. Commercial loans and larger balance
real estate and other loans are individually evaluated for impairment.
Premises and Equipment -- Premises and equipment are stated at cost
less accumulated depreciation computed on the straight-line method over the
estimated useful lives of 3 to 20 years. Leasehold improvements are
amortized on the straight-line method over the shorter of their estimated
useful life or the period the Bank expects to occupy the related leased
space. Maintenance and repairs are charged to operations as incurred.
Income Taxes -- Deferred tax liabilities are recognized for temporary
differences that will result in amounts taxable in the future and deferred
tax assets are recognized for temporary differences and tax benefit
carryforwards that will result in amounts deductible or creditable in the
future. Net deferred tax liabilities or assets are recognized through
charges or credits to the deferred tax provision. A deferred tax valuation
reserve is established if it is more likely than not that all or a portion
of the deferred tax assets will not be realized. Subsequent to the Bank's
quasi-reorganization (see note 11) reductions in the deferred tax valuation
allowance are credited to paid in capital.
Loan Origination Fees and Costs -- Loan fees, net of certain specific
incremental direct loan origination costs, are deferred and accreted into
income over the life of each loan as a yield adjustment.
Repurchase Agreements -- Repurchase agreements consist of agreements
with customers to pay interest daily on funds swept into a repo account
based on a rate of .75% to 1.00% below the Federal funds rate. Such
agreements generally mature within one to four days from the transaction
date. Information concerning repurchase agreements at December 31, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Average balance during the year............. $3,957,381 $2,588,850
Average interest rate during the year....... 4.50% 4.19%
Maximum month-end balance during the year... $6,257,096 $5,389,440
</TABLE>
Other Borrowed Funds -- Other borrowed funds consist of treasury tax
and loan deposits and generally are repaid within one to 120 days from the
transaction date.
Stock Options -- The Bank has elected to account for its stock options
under the intrinsic value based method with pro forma disclosures of net
earnings and earnings per share, as if the fair value based method of
accounting defined in SFAS No. 123 "Accounting for Stock Based
Compensation" had been applied. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the
vesting period.
Earnings Per Share -- In March 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
establishes standards for computing and presenting earnings per share
F-17
<PAGE> 137
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
("EPS") and applies to all entities with publicly held common stock or
potential common stock. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilutive securities that could share in the earnings. The
Company adopted the requirements of SFAS No. 128 in the year ended December
31, 1997 (Note 12).
New Accounting Pronoucements -- During the quarter ended March 31,
1998, the Bank adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). This Statement establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for the financial statement but requires that an
enterprise display an amount representing total comprehensive income for
the period in the financial statement. Additionally, SFAS 130 requires that
an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
This Statement is effective for fiscal years beginning after December 15,
1997. Total comprehensive income for the three months ended March 31, 1998
was $33,219. Other comprehensive income was comprised solely of the change
in unrealized gain (loss) on available for sale investment securities, net.
Supplementary Cash Flow Information -- For purposes of reporting cash
flows, cash and cash equivalents include cash and due from banks and
Federal funds sold. Generally, Federal funds are sold for one day periods.
Interest paid on deposits and borrowed funds for the years ended December
31, 1997, 1996 and 1995 was $2,275,739, $1,829,863 and $1,456,055
respectively. Interest paid on deposits and borrowed funds for the three
month periods ended March 31, 1998 and 1997 was $619,078 and $544,864
(unaudited), respectively.
Interim Financial Information -- Interim Financial Information at
March 31, 1998 and for the three months ended March 31, 1998 and 1997 is
unaudited. The unaudited interim financial statements reflect all
adjustments consisting of normal reoccuring accruals which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods. Information for the interim periods is not necessarily
indicative of results to be achieved for the full year.
F-18
<PAGE> 138
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT SECURITIES
The amortized cost and estimated fair value of available for sale
investment securities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities and other U.S.
agency obligations..................... $ 3,998,153 $ 4,288 $ (4,862) $ 3,997,579
Mortgage-backed securities............... 6,447,732 27,303 (20,429) 6,454,606
----------- ------- -------- -----------
$10,445,885 $31,591 $(25,291) $10,452,185
=========== ======= ======== ===========
DECEMBER 31, 1996
U.S. Treasury securities and other U.S.
agency obligations..................... $ 2,483,771 $ 1,231 $ (5,002) $ 2,480,000
Mortgage-backed securities............... 5,805,649 20,417 (26,301) 5,799,765
----------- ------- -------- -----------
$ 8,289,420 $21,648 $(31,303) $ 8,279,765
=========== ======= ======== ===========
</TABLE>
Expected maturities of debt securities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties. The amortized cost and estimated fair
value of debt securities available for sale, at December 31, 1997, by
contractual maturity, are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due within one year......................................... $ 2,502,712 $ 2,502,944
Due after one year through five years....................... 1,495,441 1,494,635
Due after five years through ten years......................
Due after ten years.........................................
----------- -----------
3,998,153 3,997,579
Mortgage-backed securities.................................. 6,447,732 6,454,606
----------- -----------
Total............................................. $10,445,885 $10,452,185
=========== ===========
</TABLE>
Investment securities with a carrying value of $9,303,244 and $6,467,682
were pledged as security for certain borrowed funds and public deposits held by
the Bank at December 31, 1997 and 1996, respectively.
3. LOANS
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $432,238 $339,837
Provision for loan losses................................... 60,000 60,000
Charge-offs................................................. (43,292) (7,349)
Recoveries.................................................. 32,516 39,750
-------- --------
Balance, end of year........................................ $481,462 $432,238
======== ========
</TABLE>
The Bank's primary lending area is Tampa, Florida and surrounding areas.
Although the Bank's loan portfolio is diversified, a significant portion of its
loans are collateralized by real estate. Therefore the Bank
F-19
<PAGE> 139
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
could be susceptible to economic downturns and natural disasters. It is the
Bank's lending policy to collateralize real estate loans based upon certain loan
to appraised value ratios.
The Bank had no loans on nonaccrual as of December 31, 1997 and 1996.
Loans considered impaired totaled $372,111 at December 31, 1997 of which
$299,611 is guaranteed by the SBA. The total allowance for loan losses related
to these loans was $72,500 at December 31, 1997. There were no impaired loans at
December 31, 1997 that did not have an allowance. The Bank's average investment
in impaired loans was approximately $186,000 in 1997. The amount of interest
income and interest collected on these impaired loans during 1997 was not
significant. No loans were impaired as of December 31, 1996.
The Bank lends to shareholders, directors, officers, and their related
business interests on substantially the same terms as loans to other individuals
and businesses of comparable credit worthiness. Such loans outstanding were
approximately $249,000 and $496,000 at December 31, 1997 and 1996. During the
year ended December 31, 1997, such shareholders, directors, officers and their
related business interest borrowed approximately $15,000 from the Bank and
repaid approximately $262,000.
4. PREMISES AND EQUIPMENT
Major classifications of these assets are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Leasehold improvements...................................... $ 271,456 $ 261,136
Furniture, fixtures and equipment........................... 742,810 620,110
---------- ---------
1,014,266 881,246
Accumulated depreciation and amortization................... (502,763) (393,169)
---------- ---------
$ 511,503 $ 488,077
========== =========
</TABLE>
Depreciation and amortization amounted to $109,595, $87,056 and $111,726
for the years ended December 31, 1997, 1996 and 1995, respectively.
5. INCOME TAXES
The components of the provision for income tax expenses for the years ended
December 31, 1997, 1996 and 1995, all of which are Federal, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Deferred tax expense................................... $231,998 $216,896 $ --
-------- -------- --------
$231,998 $216,896 $ --
======== ======== ========
</TABLE>
Income taxes for the years ended December 31, 1997, 1996 and 1995, differ
from the amount computed by applying the federal statutory corporate rate to
earnings before income taxes as summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Provision based on Federal income tax rate............. $204,216 $206,709 $121,098
Change in deferred tax asset valuation allowance....... (125,151)
Nondeductible items, state income taxes net of federal
benefit and other.................................... 27,782 10,187 4,053
-------- -------- --------
$231,998 $216,896 $ --
======== ======== ========
</TABLE>
At December 31, 1997 and 1996, the Bank had tax operating loss
carryforwards of approximately $7,001,000 and $7,628,000, respectively. During
the years ended December 31, 1997, 1996 and 1995 the Bank
F-20
<PAGE> 140
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
utilized net operating loss carryforwards to reduce current taxes payable by
approximately $236,000, $272,000 and $128,000, respectively. The utilization of
net operating losses for the years ended December 31, 1997 and 1996 (periods
subsequent to the date of the Bank's quasi reorganization) and the complete
recognition of all remaining deferred tax assets at December 31, 1997, totaling
approximately $2,423,000, have been reflected as an increase to additional
paid-in capital.
The components of net deferred income taxes at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $2,467,698 $2,689,133
Allowance for loan losses................................. 24,478 7,127
Loan fees................................................. 19,733 19,330
Unrealized loss on investment securities.................. -- 3,862
Other..................................................... 13,078 9,627
---------- ----------
2,524,987 2,729,079
---------- ----------
Deferred tax liabilities:
Accumulated depreciation.................................. 53,143 53,143
Cash to accrual adjustment................................ 49,053 31,958
Unrealized gain in investment securities.................. 2,520 --
---------- ----------
104,716 85,101
---------- ----------
Valuation allowance....................................... -- 2,643,978
---------- ----------
Deferred tax assets, net.................................... $2,420,271 $ --
========== ==========
</TABLE>
At December 31, 1997, the Bank had tax net operating loss carryforwards of
approximately $7,001,000. Such carryforwards expire as follows: $611,000 in
2004, $1,588,000 in 2005, $1,171,000 in 2006, $1,919,000 in 2007, $1,620,000 in
2008 and $92,000 in 2009. Future changes in ownership, as defined in section 382
of the Internal Revenue Code, could limit the amount of net operating loss
carryforwards used in any one year.
At December 31, 1997, the Bank assessed its earnings history and trends
over the past three years, its estimate of future earnings, and the expiration
dates of the loss carryforwards and has determined that it is more likely than
not that the deferred tax assets will be realized. Accordingly, no valuation
allowance is recorded at December 31, 1997.
6. COMMITMENTS
The Bank is obligated under certain noncancellable operating leases for
office space and office property. Rental expense for 1997, 1996 and 1995 was
approximately $116,000, $101,000 and $134,000, respectively, and is included in
net occupancy and equipment expense in the accompanying statements of income.
The following is a schedule of future minimum lease payments at December 31,
1997.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1998........................................................ $ 94,354
1999........................................................ 98,547
2000........................................................ 102,741
2001........................................................ 104,838
2002........................................................ 104,838
Later years................................................. 1,436,274
----------
$1,941,592
==========
</TABLE>
F-21
<PAGE> 141
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK OPTIONS
During 1994, the Bank's Board of Directors approved a Stock Option Plan
(the "Plan") for certain key officers, employees and directors whereby 300,000
shares of the Bank's common stock were made available through qualified
incentive stock options and non-qualified stock options. The Plan specifies that
the exercise price per share of common stock under each option shall not be less
than the fair market value of the common stock on the date of the grant, except
for qualified stock options granted to individuals who own either directly or
indirectly more than 10% of the outstanding stock of the Bank. For qualified
stock options granted to those individuals owning more than 10% of the Bank's
outstanding stock, the exercise price shall not be less than 110% of the fair
market value of the common stock on the date of grant. Options issued under the
Plan expire ten years after the date of grant, except for qualified stock
options granted to more than 10% shareholders as defined above. For qualified
stock options granted to more than 10% shareholders, the expiration date shall
be five years from the date of grant or earlier if specified in the option
agreement. During 1994, the Bank granted stock options to purchase 240,000
shares of the Bank's common stock at an exercise price of $1.00. No options were
granted during 1995, 1996 or 1997.
During July, 1988, the Bank granted stock warrants to purchase 225,000
shares of the Bank's common stock at an exercise price of $10.25. Such warrants
expire June 10, 1998.
8. FINANCIAL INSTRUMENTS
The Bank originates financial instruments with off-balance sheet risk in
the normal course of business, usually for a fee, primarily to meet the
financing needs of its customers. The financial instruments include letters of
credit and unused lines of credit. These commitments involve varying degrees of
credit risk, however, management does not anticipate losses upon the fulfillment
of these commitments.
At December 31, 1997, financial instruments having credit risk in excess of
that reported in the balance sheet totaled approximately $6,507,000.
9. 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 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.
F-22
<PAGE> 142
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997 and 1996, notifications from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category. The Bank's actual capital amounts and ratios are also
presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ----------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total capital (to risk-weighted
assets).......................... $4,545,625 14.29% > $2,545,537 > 8.0% > $3,181,922 > 10.0%
- - - -
Tier I capital (to risk-weighted
assets).......................... 4,137,864 13.00 > 1,272,769 > 4.0 > 1,909,153 > 6.0
- - - -
Tier I capital (to average
assets).......................... 4,137,864 7.42 > 2,230,741 > 4.0 > 2,788,426 > 5.0
- - - -
AS OF DECEMBER 31, 1996:
Total capital (to risk-weighted
assets).......................... $3,651,326 12.26% > $2,382,265 > 8.0% > $2,977,832 > $10.0
- - - -
Tier I capital (to risk-weighted
assets).......................... 3,279,097 11.01 > 1,191,133 > 4.0 > 1,786,699 > 6.0
- - - -
Tier I capital (to average
assets).......................... 3,279,097 6.42 > 2,044,372 > 4.0 > 1,488,916 > 5.0
- - - -
</TABLE>
The following is a reconciliation of shareholders' equity as reported in
the financial statements to regulatory capital as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
TIER I TOTAL
LEVERAGE RISK BASED RISK BASED
CAPITAL CAPITAL CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1997:
Shareholders' equity.......................... $ 6,313,635 $ 6,313,635 $ 6,313,635
Unrealized gain on available for sale
investment securities...................... (3,780) (3,780) (3,780)
Allowance for loan loss....................... 407,761
Deferred tax asset in excess of projected
benefit for 1998........................... (2,171,991) (2,171,991) (2,171,991)
----------- ----------- -----------
Regulatory capital.............................. $ 4,137,864 $ 4,137,864 $ 4,545,625
=========== =========== ===========
December 31, 1996:
Shareholders' equity.......................... $ 3,269,442 $ 3,269,442 $ 3,269,442
Unrealized loss on available for sale
investment securities...................... 9,655 9,655 9,655
Allowance for loan loss....................... 372,229
----------- ----------- -----------
Regulatory capital.............................. $ 3,279,097 $ 3,279,097 $ 3,651,326
=========== =========== ===========
</TABLE>
10. FAIR VALUE OF FINANCIAL INSTRUMENT
The following methods and assumptions were used by the Bank in estimating
financial instrument fair values:
General Comment -- The financial statements include various estimated fair
value information as required by Statement of Financial Accounting Standards No.
107, Disclosures about Fair Value of Financial Instruments (Statement 107). Such
information, which pertains to the Bank's financial instruments is based on the
requirement set forth in Statement 107 and does not purport to represent the
aggregate net fair value of the Bank. Furthermore, the fair value estimates are
based on various assumptions, methodologies and
F-23
<PAGE> 143
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subjective considerations, which vary widely among different financial
institutions and which are subject to change.
Cash and Cash Equivalents -- The carrying amount for cash and cash
equivalents approximate the estimated fair values of such assets.
Available for Sale Investment Securities -- Fair values for securities
available for sale are based on quoted market prices, if available. If quoted
market prices are not available, fair values are based on quoted market prices
of comparable instruments.
Other Investment Securities -- Fair value of the Bank's investment in
Federal Reserve Bank stock and Federal Home Loan Bank stock is based on its
redemption value, which is its cost of $100 per share.
Loans -- For variable rate loans that reprice frequently, the carrying
amount is a reasonable estimate of fair value. The fair value of other types of
loans is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings
for the same remaining maturities.
Accrued Interest Receivable and Payable -- The carrying amount of accrued
interest receivable and payable approximates the estimated fair value of such
asset.
Deposits -- The fair value of demand deposits, savings deposits and certain
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed rate certificates of deposit is estimated using a discounted
cash flow calculation that applies interest rates currently being offered to a
schedule of aggregated expected monthly time deposit maturities.
Repurchase Agreements and Other Borrowed Funds -- The carrying amounts of
repurchase agreements and other borrowed funds approximates the estimated fair
value of such liabilities due to the short maturities of such instruments.
Commitments to Originate Loans -- The fair value of commitments is
estimated using fees currently charged to enter into similar agreements, taking
into account the remaining term of the agreements and the present
creditworthiness of the counterparties. The carrying amount of deferred fees
relating to such commitments approximates the fair value and such amounts are
insignificant.
A comparison of the carrying amount to the fair values of the Bank's
significant financial instruments as of December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents....................... $13,033 $13,033 $14,899 $14,899
Investment available for sale................... 10,452 10,452 8,280 8,280
Other investments............................... 313 313 271 271
Loans........................................... 33,799 33,444 31,705 31,464
Accrued interest receivable..................... 332 332 285 285
Financial liabilities:
Deposits........................................ 45,460 45,460 45,526 45,432
Repurchase agreements........................... 5,912 5,912 5,389 5,389
Other borrowed funds............................ 2,406 2,406 1,019 1,019
Accrued interest payable........................ 199 199 178 178
</TABLE>
F-24
<PAGE> 144
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. QUASI-REORGANIZATION
Effective December 31, 1995, the Bank completed a quasi-reorganization of
its capital accounts. A quasi-reorganization is an accounting procedure provided
for under current banking regulations that allows a bank to restructure its
capital accounts to remove a deficit in undivided profits without undergoing a
legal reorganization. A quasi-reorganization allows a bank that has previously
suffered losses and subsequently corrected its problems to restate its records
as if it had been reorganized. A quasi-reorganization is subject to regulatory
approval and is contingent upon compliance with certain legal and accounting
requirements of the banking regulations. The Bank's quasi-organization was
authorized by the Office of the Comptroller of the Currency upon final approval
of the Bank's shareholders which was granted November 15, 1995.
As a result of the quasi-reorganization, the Bank charged against
additional paid-in capital its accumulated deficit through December 31, 1995 of
$8,134,037.
12. EARNINGS PER SHARE
Following is a reconciliation of the denominator used in the computation of
basic and diluted earnings per common share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding -- Basic.................... 1,825,000 1,825,000 1,825,000 1,825,000 1,825,000
Incremental shares from the assumed
conversion of stock options............. 155,840 129,010 129,010 82,570 50,919
--------- --------- --------- --------- ---------
Total -- Diluted................ 1,980,840 1,954,010 1,954,010 1,907,570 1,875,919
========= ========= ========= ========= =========
</TABLE>
The incremental shares from the assumed conversion of stock options were
determined using the treasury stock method under which the assumed proceeds were
equal to (1) the amount that the Bank would receive upon the exercise of the
options plus (2) the amount of the tax benefit that would be credited to
additional paid-in capital assuming exercise of the options. The assumed
proceeds are used to purchase outstanding common shares at an assumed fair value
equal to the Bank's average book value per common share as the Bank's stock is
not actively traded and limited trades during 1996 through 1997 indicate that
book value is a reasonable estimate of fair value.
13. SUBSEQUENT EVENT (UNAUDITED)
On March 30, 1998, the Bank executed a definitive agreement with Florida
Banks, Inc. (a development stage corporation), pursuant to which the Bank will
be merged with and into Interim Bank No. 1, N.A., a wholly-owned subsidiary of
the Company, which will be renamed "Florida Bank, N.A." Shareholders of the Bank
will receive $13,750,000 payable in common stock of Florida Banks, Inc. The
number of shares to be issued is based upon the price per share in Florida
Banks, Inc.'s proposed initial public offering. The Merger is contingent, among
other things, upon the receipt of approval of the Merger by the Board of
Governors of the Federal Reserve System, the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation. In addition, the Merger
must be approved by shareholders of the Bank. The Merger is considered to be a
reverse acquisition for accounting purposes, with the Bank identified as the
accounting acquirer. The Merger will be accounted for as a purchase, but no
goodwill will be recorded in the Merger and the financial statements of the Bank
will become the historical financial statements of Florida Banks, Inc.
F-25
<PAGE> 145
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FLORIDA BANKS, INC.
AND
FIRST NATIONAL BANK OF TAMPA
DATED AS OF MARCH 30, 1998
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE ..............................................................................1
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER...........................................1
1.1 Merger...............................................................1
1.2 Time and Place of Closing............................................1
1.3 Effective Time.......................................................2
ARTICLE 2 - TERMS OF MERGER............................................................2
2.1 Charter..............................................................2
2.2 Bylaws...............................................................2
ARTICLE 3 - MANNER OF CONVERTING SHARES................................................2
3.1 Conversion of Shares.................................................2
3.2 Anti-Dilution Provisions............................................3
3.3 Fractional Shares....................................................3
3.4 Treatment of Options and Warrants....................................3
ARTICLE 4 - EXCHANGE OF SHARES.........................................................4
4.1 Exchange Procedures..................................................4
4.2 Rights of Former First National Shareholders.........................4
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF FIRST NATIONAL...........................5
5.1 Organization, Standing, and Power....................................5
5.2 Authority; No Breach by Agreement....................................5
5.3 Capital Stock........................................................6
5.4 First National Subsidiaries..........................................6
5.5 Regulatory Filings; Financial Statements.............................6
5.6 Notes and Obligations. ..............................................7
5.7 Absence of Certain Changes or Events.................................7
5.8 Tax Matters..........................................................7
5.9 Assets...............................................................8
5.10 Environmental Matters................................................8
5.11 Compliance With Laws.................................................9
5.12 Labor Relations......................................................9
5.13 Employee Benefit Plans..............................................10
5.14 Material Contracts..................................................11
5.15 Legal Proceedings...................................................12
5.16 Reports.............................................................12
5.17 Statements True and Correct.........................................12
5.18 Accounting, Tax and Regulatory Matters..............................13
5.19 Articles of Association Provisions..................................13
5.20 Derivatives Contracts...............................................13
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF FBI AND INTERIM.........................13
6.1 Organization, Standing, and Power...................................13
6.2 Authority; No Breach By Agreement...................................14
6.3 Capital Stock.......................................................14
6.4 FBI Subsidiaries....................................................15
6.5 Financial Statements................................................15
6.6 Absence of Certain Changes or Events................................15
6.7 Tax Matters.........................................................16
6.8 Compliance With Laws................................................16
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.9 Assets..............................................................17
6.10 Legal Proceedings...................................................17
6.11 Reports.............................................................17
6.12 Statements True and Correct.........................................17
6.13 Accounting, Tax and Regulatory Matters..............................18
6.14 Environmental Matters...............................................18
6.15 Derivatives Contracts...............................................18
6.16 Outstanding First National Common Stock.............................18
ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION..................................19
7.1 Affirmative Covenants of First National.............................19
7.2 Negative Covenants of First National................................19
7.3 Covenants of FBI....................................................21
7.4 Adverse Changes In Condition........................................21
7.5 Reports.............................................................21
ARTICLE 8 - ADDITIONAL AGREEMENTS.....................................................22
8.1 Registration Statement; Proxy Statement; Shareholder Approval.......22
8.2 Applications........................................................22
8.3 Agreement As To Efforts To Consummate...............................22
8.4 Access to Information; Confidentiality..............................22
8.5 Current Information.................................................23
8.6 Other Actions.......................................................24
8.7 Press Releases......................................................24
8.8 No Solicitation.....................................................24
8.9 Accounting and Tax Treatment........................................24
8.10 Articles of Association Provisions.....................................24
8.11 Agreement of Affiliates.............................................24
8.12 Employee Benefits and Contracts........................................25
8.14 Indemnification.......................................................25
ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.........................26
9.1 Conditions to Obligations of Each Party.............................26
9.2 Conditions to Obligations of FBI....................................27
9.3 Conditions to Obligations of First National.........................28
ARTICLE 10 - TERMINATION..............................................................29
10.1 Termination.........................................................29
10.2 Effect of Termination...............................................30
10.3 Non-Survival of Representations and Covenants.......................32
ARTICLE 11 - MISCELLANEOUS............................................................32
11.1 Definitions.........................................................32
11.2 Expenses............................................................38
11.3 Brokers and Finders.................................................38
11.4 Entire Agreement....................................................38
11.5 Amendments..........................................................39
11.6 Obligations of FBI..................................................39
11.7 Waivers.............................................................39
11.8 Assignment..........................................................39
11.9 Notices.............................................................39
11.10 Governing Law; Arbitration..........................................40
11.11 Counterparts........................................................40
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
11.12 Captions............................................................41
11.14 Enforcement of Agreement............................................41
</TABLE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
1. FORM OF AGREEMENT OF AFFILIATES OF FIRST NATIONAL (SECTION 8.12).
2. Form Opinion of Igler & Dougherty, P.A.
3. Form Opinion of Smith, Gambrell & Russell, LLP
</TABLE>
<PAGE> 149
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of March 30, 1998, by and between FLORIDA BANKS, INC. ("FBI"), a
Florida corporation having its principal office located in Jacksonville, Florida
to be joined in by Florida Interim Bank No. 1, N.A., a national bank to be
chartered under the laws of the United States and to become a wholly-owned
subsidiary of FBI ("Interim"); and FIRST NATIONAL BANK OF TAMPA ("First
National"), a national bank chartered under the laws of the United States having
its principal office located in Tampa, Florida.
PREAMBLE
The Boards of Directors of First National and FBI are of the opinion
that the acquisition described herein is in the best interests of the parties
and their respective shareholders. This Agreement provides for the acquisition
of First National by FBI pursuant to the merger of First National with and into
Interim (the "Merger"). At the effective time of such Merger, the outstanding
shares of the capital stock of First National shall be converted into the right
to receive shares of the common stock of FBI (except as provided herein). As a
result, shareholders of First National shall become shareholders of FBI. The
transactions described in this Agreement are subject to the approvals of the
shareholders of First National, the Board of Governors of the Federal Reserve
System, the Florida Department of Banking and Finance, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the Merger (as hereinafter
defined) for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and will be a
tax free exchange for the shareholders of First National except for cash
received.
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, First National shall be merged with and into Interim in
accordance with the provisions of the National Bank Act. The separate existence
of First National shall thereupon cease, and Interim, which shall be a wholly
owned subsidiary of FBI, shall be the Resulting Association resulting from the
Merger, shall have the name "Florida Bank, N.A.," and shall continue to be
governed by the National Bank Act. The Merger shall have the effects specified
in the National Bank Act. The Merger shall be consummated pursuant to the terms
of this Agreement, which has been approved and adopted by the respective Boards
of Directors of First National, FBI and Interim.
1.2 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") will be immediately prior to the
closing of FBI's public offering referred to Section 9.1(h) herein. The Closing
will take place at a time, place and date specified by the Parties as they,
acting through their chief executive officers or chief financial officers, may
mutually agree. In no event, however, will the Closing take place on or before
June 10, 1998, the date on which the outstanding Warrants to purchase First
National Common Stock expire.
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1.3 Effective Time. The Merger and other transactions contemplated
by this Agreement shall become effective on the date and at the time
certification of the Merger is received from the Comptroller of the Currency
(the "Effective Time"). Subject to the terms and conditions hereof, unless
otherwise mutually agreed upon in writing by each Party, the Parties shall use
their reasonable best efforts to cause the Effective Time to occur on the date
of Closing.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. Pursuant to the Merger, the Articles of Association
of Interim in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Resulting Association until otherwise amended
or repealed, except that the name of the Resulting Association shall be changed
to "Florida Bank, N.A."
2.2 Bylaws. The Bylaws of Interim in effect immediately prior to
the Effective Time shall be the Bylaws of the Resulting Association until
otherwise amended or repealed.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any action
on the part of FBI, Interim or First National, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of common stock of the Resulting Association
issued and outstanding immediately prior to the Effective Time shall
remain outstanding and entirely issued to FBI.
(b) Each share of FBI Capital Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(c) Except for First National Common Stock issued and
outstanding immediately prior to the Effective Time as to which
dissenters' rights have been perfected and not withdrawn, and subject
to Section 3.4 relating to fractional shares, each share of First
National Common Stock issued and outstanding at the Effective Time
shall cease to be outstanding and shall be converted into and exchanged
for the number of shares of FBI Common Stock equal to the quotient
obtained by dividing 6.6586 by the initial public offering price per
share of FBI Common Stock as determined by FBI's underwriters in the
public offering referred to in Section 9.1(h), below, rounded to the
nearest third decimal point (the "Exchange Ratio"). Notwithstanding the
foregoing, in no event shall more than 2,065,000 shares of Common Stock
of First National be converted to FBI Common Stock.
(d) Notwithstanding Section 3.1(c) of this Agreement, First
National Common Stock issued and outstanding at the Effective Time
which is held by a holder who has not voted in favor of the Merger and
who has demanded payment of the fair cash value of such shares in
accordance with 12 U.S.C. ss. 215a ("Dissenting First National Shares")
shall not be converted into or represent the right to receive the FBI
Common Stock payable thereon pursuant to Section 3.1(c)
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of this Agreement, and shall be entitled only to such rights of
appraisal as are granted by 12 U.S.C. ss. 215a ("Dissent Provisions"),
unless and until such holder fails to perfect or effectively withdraws
or otherwise loses his right to appraisal. If after the Effective Time
any such holder fails to perfect or effectively withdraws or loses his
right to appraisal, such shares of First National Common Stock shall be
treated as if they had been converted at the Effective Time into the
right to receive the FBI Common Stock payable thereon pursuant to
Section 3.1(c) of this Agreement. First National shall give FBI prompt
notice upon receipt by First National of any written objection to the
Merger and such written demands for payment of the fair value of shares
of First National Common Stock, and the withdrawals of such demands,
and any other instruments provided to First National pursuant to the
Dissent Provisions (any shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). Each Dissenting
Shareholder that becomes entitled, pursuant to the Dissent Provisions,
to payment for any shares of First National Common Stock held by such
Dissenting Shareholder shall receive such payment from FBI (but only
after the amount thereof shall have been agreed upon or at the times
and in the amounts required by the Dissent Provisions) and all of such
Dissenting Shareholders' shares of First National Common Stock shall be
canceled. First National shall not, except with the prior written
consent of FBI, voluntarily make any payment with respect to, or settle
or offer to settle, any demand for payment by any Dissenting
Shareholder.
3.2 Anti-Dilution Provisions. In the event FBI changes the number
of shares of FBI Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, recapitalization,
reclassification, or similar transaction with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
thereof (in the case of a stock split or similar recapitalization for which a
record date is not established) shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.
3.3 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of First National Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of FBI Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of FBI
Common Stock multiplied by the market price of one share of FBI Common Stock at
the Effective Time. The market price of one share of FBI Common Stock at the
Effective Time shall be the initial public offering price of one share of FBI
Common Stock.
3.4 Treatment of Options and Warrants. At the Effective Time of
the Merger, all rights with respect to First National Common Stock issuable
pursuant to the exercise of options to purchase First National Common Stock (the
"First National Options") granted by First National pursuant to stock option
plans or other agreements of First National, which First National Options as of
the date hereof are listed and described in Section 5.3 and which First National
Options are outstanding at the Effective Time of the Merger, whether or not such
First National Options are then exercisable, shall be cancelled without the
holders thereof being entitled to receive any payment or consideration therefor.
Such holder of First National Options so surrendered shall execute a
cancellation agreement pursuant to which the rights held by such holder shall be
surrendered and the First National Options held by such holder shall be
cancelled and shall be of no further force or effect.
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ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. At the Effective Time, FBI shall deposit
or shall cause to be deposited with the exchange agent selected by FBI and
agreed to by First National (the "Exchange Agent") certificates evidencing
shares of FBI Common Stock in such amount necessary to provide all consideration
required to be exchanged by FBI for First National Common Stock pursuant to the
terms of this Agreement. Within 15 business days after the Effective Time, FBI
shall cause the Exchange Agent to mail to the former shareholders of First
National appropriate transmittal materials (which shall specify that delivery
shall be effected, and risk of loss and title to the certificates theretofore
representing shares of First National Common Stock shall pass, only upon proper
delivery of such certificates to the Exchange Agent). After the Effective Time,
each holder of shares of First National Common Stock issued and outstanding at
the Effective Time shall surrender the certificate or certificates representing
such shares to the Exchange Agent and shall upon surrender thereof promptly
receive in exchange therefor the consideration provided in Section 3.1 of this
Agreement, together with all undelivered dividends or distributions in respect
of such shares (without interest thereon) pursuant to Section 4.2 of this
Agreement. To the extent required by Section 3.3 of this Agreement, each holder
of shares of First National Common Stock issued and outstanding at the Effective
Time also shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of FBI Common
Stock to which such holder may be otherwise entitled (without interest). FBI
shall not be obligated to deliver the consideration to which any former holder
of First National Common Stock is entitled as a result of the Merger until such
holder surrenders such holder's certificate or certificates representing the
shares of First National Common Stock for exchange as provided in this Section
4.1. The certificate or certificates of First National Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may require. Any other
provision of this Agreement notwithstanding, neither FBI nor the Exchange Agent
shall be liable to a holder of First National Common Stock for any amounts paid
or property delivered in good faith to a public official pursuant to any
applicable abandoned property Law.
4.2 Rights of Former First National Shareholders. At the Effective
Time, the stock transfer books of First National shall be closed as to holders
of First National Common Stock immediately prior to the Effective Time and no
transfer of First National Common Stock by any such holder shall thereafter be
made or recognized. Until surrendered for exchange in accordance with the
provisions of Section 4.1 of this Agreement, each certificate theretofore
representing shares of First National Common Stock shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Sections 3.1 and 3.3 of this Agreement in exchange
therefor, subject, however, to FBI's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which have
been declared or made by First National in respect of such shares of First
National Common Stock in accordance with the terms of this Agreement and which
remain unpaid at the Effective Time. Whenever a dividend or other distribution
is declared by FBI on the FBI Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but beginning
30 days after the Effective Time no dividend or other distribution payable to
the holders of record of FBI Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate representing
shares of First National Common Stock issued and outstanding at the Effective
Time until such holder surrenders such certificate for exchange as provided in
Section 4.1 of this Agreement. However, upon surrender of such First National
Common Stock certificate, both the FBI Common Stock certificate (together with
all such undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such certificate. Any portion of the consideration
(including the proceeds
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of any investments thereof) which had been made payable to the Exchange Agent
pursuant to Section 4.1 of this Agreement that remain unclaimed by the
shareholders of First National for six (6) months after the Effective Time shall
be paid to FBI. Any shareholders of First National who have not theretofore
complied with this Article 4 shall thereafter look only to FBI for payment of
their shares of FBI Common Stock and cash in lieu of fractional shares and
unpaid dividends and distributions on the FBI Common Stock deliverable in
respect of each First National share of Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FIRST NATIONAL
First National hereby represents and warrants to FBI as follows:
5.1 Organization, Standing, and Power. First National is a
national banking association duly organized, validly existing, and in good
standing under the laws of the United States, and has the corporate power and
authority to carry on its business as now conducted and to own, lease, and
operate its material Assets. First National is duly qualified or licensed to
transact business as a national bank as provided under the National Bank Act, as
amended, and is in good standing in each jurisdiction where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National.
5.2 Authority; No Breach by Agreement.
(a) First National has the corporate power and authority
necessary to execute and deliver this Agreement and, subject to the
approval and adoption of this Agreement by the shareholders of First
National, to perform its obligations under this Agreement and
consummate the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement by First National and the
consummation by First National of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of First
National, subject to the approval of the OCC and the approval of this
Agreement by its shareholders as contemplated by Section 8.1 of this
Agreement. Subject to such requisite shareholder approval (and assuming
due authorization, execution and delivery by FBI and Interim), this
Agreement represents a legal, valid, and binding obligation of First
National, enforceable against First National in accordance with its
terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights generally
and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought). The First National
Board of Directors will have received from Mercer Capital Management,
Inc. a letter dated on or about the date of the Proxy Statement to the
effect that, in the opinion of such firm, the Exchange Ratio is fair,
from a financial point of view, to the holders of First National Common
Stock.
(b) Neither the execution and delivery of this Agreement by
First National, nor the consummation by First National of the
transactions contemplated hereby, nor compliance by First National with
any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of First National's Articles of Incorporation
or Bylaws, or, (ii) except as disclosed in Schedule 5.2(b), constitute
or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of First National
under, any Contract or Permit
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of First National, where such Default or Lien, or any failure to obtain
such Consent, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National, or, (iii)
subject to receipt of the requisite Consents referred to in Section
9.1(b) of this Agreement, violate any Law or Order applicable to First
National or material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws,
and rules of the Nasdaq, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation
with respect to any employee benefit plans, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on First National, no notice to, filing with, or Consent
of, any public body or authority is necessary for the consummation by
First National of the Merger and the other transactions contemplated in
this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of First National consists of
(i) 5,000,000 shares of First National Common Stock, of which 1,825,000
shares are issued and outstanding as of the date of this Agreement and
not more than 2,065,000 shares will be issued and outstanding at the
Effective Time, and (ii) zero shares of preferred stock will be issued
and outstanding. All of the issued and outstanding shares of capital
stock of First National are duly and validly issued and outstanding and
are fully paid and nonassessable under the National Bank Act (except
for the assessment contemplated by 12 U.S.C. ss. 55). None of the
outstanding shares of capital stock of First National has been issued
in violation of any preemptive rights. First National has reserved
300,000 shares of First National Common Stock for issuance under the
First National Stock Plans, pursuant to which options to purchase not
more than 240,000 shares of First National Common Stock are
outstanding. Warrants to purchase not more than 225,000 shares of First
National Common Stock are outstanding and expire on June 10, 1998.
(b) Except as set forth in Section 5.3(a) of this Agreement, or
as provided pursuant to the Stock Option Agreement, there are no shares
of capital stock or other equity securities of First National
outstanding and no outstanding Rights relating to the capital stock of
First National.
5.4 First National Subsidiaries. First National has no active or
inactive subsidiaries as of the date of this Agreement.
5.5 Regulatory Filings; Financial Statements. First National has
filed and made available to FBI copies of the First National Financial
Statements and all reports of any outside auditors, consultants or advisors to
First National. Each of the First National Financial Statements (including, in
each case, any related notes), including any First National Financial Statements
filed after the date of this Agreement until the Effective Time, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements),
and fairly present the consolidated financial position of First National and its
Subsidiaries at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
and except for the absence of certain footnote information in the unaudited
interim financial statements.
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5.6 Notes and Obligations.
(a) Except as set forth in Schedule 5.6 or as provided in the
loss reserve described in subparagraph (b) below, without conducting
any independent investigation, First National is not aware of any facts
which would cause management of First National to believe that any
notes receivable or any other obligations owned by First National or
due to it, shown on the First National Financial Statements or any such
notes receivable and obligations on the date hereof and as of the
Effective Time have not been and will not be genuine, legal, valid and
collectible obligations of the respective makers thereof and are not
and will not be subject to any offset or counterclaim. Except as set
forth in subparagraph (b) below, all such notes and obligations are
evidenced by written agreements, true and correct copies of which will
be made available to FBI for examination prior to the Effective Time.
All such notes and obligations were entered into by First National in
the ordinary course of its business and in compliance with all
applicable laws and regulations, except as to any non-compliance which
has not and will not have a Material Adverse Effect on First National.
(b) First National has established a loss reserve on the First
National Financial Statements which is adequate to cover anticipated
losses which might result from such items as the insolvency or default
of borrowers or obligors on such loans or obligations, defects in the
notes or evidences of obligation (including losses of original notes or
instruments), offsets or counterclaims properly chargeable to such
reserve, or the availability of legal or equitable defenses which might
preclude or limit the ability of First National to enforce the note or
obligation, and the representations set forth in subparagraph (a) above
are qualified in their entirety by the aggregate of such loss reserves.
As of the Effective Time, the ratio of the loss reserve, as established
on such date in good faith by management of First National, to total
loans outstanding at such time, shall not be below 1.4% (except as
otherwise agreed to by First National and FBI).
5.7 Absence of Certain Changes or Events. Since December 31, 1997,
except as disclosed in Schedule 5.7, (i) there have been no events, changes, or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on First National, and (ii) First
National has not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of First National provided in Article 7 of this
Agreement.
5.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of
First National have been timely filed for periods ended on or before
December 31, 1996, and all Tax Returns filed are complete and accurate
in all material respects to the Knowledge of First National. All Taxes
shown on filed Tax Returns have been paid. There is no audit
examination, deficiency, or refund Litigation with respect to any Taxes
that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on First
National, except as reserved against in the First National Financial
Statements delivered prior to the date of this Agreement or as
disclosed in Schedule 5.8(a). All Taxes and other Liabilities due with
respect to completed and settled examinations or concluded Litigation
have been paid.
(b) First National has not executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax
due that is currently in effect.
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(c) Adequate provision for any Taxes due or to become due for
First National for the period or periods through and including the date
of the First National Financial Statements has been made and is
reflected on the First National Financial Statements.
(d) Deferred Taxes of First National have been adequately
provided for in the First National Financial Statements.
(e) First National is in compliance with, and its records
contain all information and documents (including properly completed
Internal Revenue Service Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under
federal, state, and local Tax Laws, and such records identify with
specificity all accounts subject to backup withholding under Section
3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on First
National.
(f) Except as disclosed in Schedule 5.8(f), First National has
not made any payments, is not obligated to make any payments, or is a
party to any contract, agreement, or other arrangement that could
obligate it to make any payments that would be disallowed as a
deduction under Section 280G or 162(m) of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes upon any of the
Assets of First National.
(h) First National has not filed any consent under Section
341(f) of the Internal Revenue Code concerning collapsible corporation.
(i) All material elections with respect to Taxes affecting
First National as of the date of this Agreement have been or will be
timely made as set forth in Schedule 5.8. After the date hereof, other
than as set forth in Schedule 5.8(a) no election with respect to Taxes
will be made without the prior written consent of FBI, which consent
will not be unreasonably withheld.
5.9 Assets. Except as disclosed in Schedule 5.9, First National
has good and marketable title, free and clear of all Liens, to all of its
Assets. All tangible properties used in the business of First National are in
good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with First National's past practices. All
Assets which are material to First National's business that are held under
leases or subleases, are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. First
National currently maintains insurance in amounts, scope, and coverage as
disclosed in Schedule 5.9. First National has not received written notice from
any insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. Except as disclosed
in Schedule 5.9, there are presently no claims pending under such policies of
insurance and no notices have been given by First National under such policies.
The Assets of First National include all required assets, leases and Permits
necessary to operate its business as presently conducted.
5.10 Environmental Matters.
(a) To the Knowledge of First National, First National, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except for violations
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which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National.
(b) Except as disclosed in Schedule 5.10(b), to the Knowledge
of First National, there is no Litigation pending or threatened before
any court, governmental agency, or authority or other forum in which
First National or any of its Loan Properties or Participation
Facilities has been or, with respect to threatened Litigation, may be
named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous
Material, whether or not occurring at, on, under, or involving any of
its Loan Properties or Participation Facilities, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on First
National.
(c) To the Knowledge of First National, there is no reasonable
basis for any Litigation of a type described above in subsection (b),
except such as is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National.
(d) To the Knowledge of First National, there have been no
releases of Hazardous Material in, on, under, or affecting any
Participation Facility or Loan Property of First National, except such
as are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on First National.
5.11 Compliance With Laws. First National has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on First National, and there has occurred no Default under any
such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on First National.
(a) To the Knowledge of First National, it is not in violation
of any Laws, Orders, or Permits applicable to its business or employees
conducting its business, except for violations which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse
Effect on First National; and
(b) First National has not received any written notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i)
asserting that First National is not in substantial compliance with any
of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
First National, (ii) threatening to revoke any Permits, the revocation
of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National , or (iii)
requiring First National to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or to adopt any Board resolution or
similar undertaking, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit
or reserve policies, its management, or the payment of dividends.
5.12 Labor Relations. First National is not the subject of any
Litigation asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or comparable state law) or seeking
to compel it to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving First
National, pending or, to the
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Knowledge of First National, threatened, nor is there any activity involving
First National's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.13 Employee Benefit Plans.
(a) First National has disclosed in Schedule 5.13(a) and has
delivered or made available to FBI prior to the execution of this
Agreement, copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plans,
all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance
plans, and all other employee benefit plans or fringe benefit plans,
including "employee benefit plans" (as that term is defined in Section
3(3) of ERISA), currently adopted, maintained by, sponsored in whole or
in part by, or contributed to by First National for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the
"First National Benefit Plans"). Any of the First National Benefit
Plans which is an "employee pension benefit plan" (as that term is
defined in Section 3(2) of ERISA), is referred to herein as a "First
National ERISA Plan." No First National Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All First National Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
First National, and each First National ERISA Plan which is intended to
be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue
Service, and First National is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. Except
as disclosed in Schedule 5.13(b), to the Knowledge of First National,
it has not engaged in a transaction with respect to any First National
Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject it to a Tax imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on First National.
(c) Except as disclosed in Schedule 5.13(c), no First National
Pension Plan has any "unfunded current liability" (as that term is
defined in Section 302[d][8][A] of ERISA) and the fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities,"
as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Except
as disclosed in Schedule 5.13(c), since the date of the most recent
actuarial valuation, there has been (i) no material change in the
financial position of any First National Pension Plan, (ii) no change
in the actuarial assumptions with respect to any First National Pension
Plan, and (iii) no increase in benefits under any First National
Pension Plan as a result of plan amendments or changes in applicable
Law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on First National or materially
adversely affect the funding status of any such plan. Neither any First
National Pension Plan nor any "single- employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by First National, or the single-employer plan of any entity
which is considered one employer with First National under Section 4001
of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has
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an "accumulated funding deficiency" within the meaning of Section 412
of the Internal Revenue Code or Section 302 of ERISA, which is
reasonably likely to have a Material Adverse Effect on First National.
First National has not provided, and is not required to provide,
security to an First National Pension Plan or to any single-employer
plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by First National with respect to any ongoing,
frozen, or terminated single-employer plan or the single-employer plan
of any ERISA Affiliate, which Liability is reasonably likely to have a
Material Adverse Effect on First National. First National has not
incurred any withdrawal Liability with respect to a multiemployer plan
under Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably
likely to have a Material Adverse Effect on First National. No notice
of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30- day reporting requirement has not been waived, has
been required to be filed for any First National Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof
(e) Except as disclosed in Schedule 5.13(e), First National has
no Liability for retiree health and life benefits under any of the
First National Benefit Plans and there are no restrictions on the
rights of First National to amend or terminate any such plan without
incurring any Liability thereunder, which Liability is reasonably
likely to have a Material Adverse Effect on First National.
(f) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i)
result in any payment (including severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any
employee of any First National under any First National Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any First
National Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit, where such payment,
increase, or acceleration is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on First National.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of
employees and former employees of First National and their respective
beneficiaries, other than entitlements accrued pursuant to funded
retirement plans subject to the provisions of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, have been fully
reflected on the First National Financial Statements to the extent
required by and in accordance with GAAP.
5.14 Material Contracts. Except as disclosed in Schedule 5.14A,
First National is not a party to or subject to the following: (i) any
employment, severance, termination, consulting, or retirement Contract providing
for aggregate payments to any Person in any calendar year in excess of $50,000,
(ii) any Contract relating to the borrowing of money by First National or the
guarantee by First National of any such obligation exceeding $50,000 (other than
Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances of
depository institution Subsidiaries, trade payables, and Contracts relating to
borrowings or guarantees made in the ordinary course of business), and (iii) any
other Contract or amendment thereto as of the date of this Agreement not made in
the ordinary course of business to which First National is a party or by which
it is bound (together with all Contracts referred to in Sections 5.9 and 5.13(a)
of this Agreement, the "First National Contracts"). With respect to each First
National Contract and except as disclosed in Schedule 5.14B: (i) the Contract is
in full force and effect;
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(ii) First National is not in Default thereunder, other than Defaults which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on First National; (iii) First National has not repudiated or
waived any material provision of any such Contract; and (iv) no other party to
any such Contract is, to the Knowledge of First National, in Default in any
respect, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on First National,
or has repudiated or waived any material provision thereunder. Except for
Federal Home Loan Bank advances, all of the indebtedness of First National for
money borrowed is prepayable at any time by First National without penalty or
premium.
5.15 Legal Proceedings. Except as disclosed in Schedule 5.15A,
there is no Litigation instituted or pending, or, to the Knowledge of First
National, threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an unfavorable
outcome) against First National, or against any Asset, employee benefit plan,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on First National,
nor are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against First National Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on First National. Schedule 5.15B is a summary report of all Litigation
as of the date of this Agreement to which any First National Company is a party
and which names a First National as a defendant or cross-defendant and where the
estimated maximum exposure to be $10,000 or more.
5.16 Reports. For the three years ended December 31, 1997, 1996 and
1995, and since January 1, 1998, or the date of organization if later, First
National has timely filed and to the extent permitted by Law has made available
for FBI to review, all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
Regulatory Authorities. As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.17 Statements True and Correct. None of the information supplied
or to be supplied by First National for inclusion in the Registration Statement
to be filed by FBI with the SEC will, when the Registration Statement becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein not misleading.
None of the information supplied by First National for inclusion in the Proxy
Statement to be mailed to First National's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by a First National
with any Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, and with respect
to the Proxy Statement, when first mailed to the shareholders of First National,
be false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the Shareholders' Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that First National is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
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5.18 Accounting, Tax and Regulatory Matters. To the knowledge of
First National, First National has not taken or agreed to take any action or has
any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 9.1(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the last sentence of such Section.
5.19 Articles of Association Provisions. First National has taken
all action so that the entering into of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement do not and
will not result in any super-majority voting requirement or the grant of any
rights to any Person under the Articles of Association, Bylaws, or other
governing instruments of First National.
5.20 Derivatives Contracts. First National is not a party to nor
has it agreed to enter into an exchange-traded or over-the-counter swap,
forward, future, option, cap, floor, or collar financial contract, or any other
interest rate or foreign currency protection contract not included on its
balance sheet which is a financial derivative contract (including various
combinations thereof) (each a "Derivatives Contract").
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF FBI AND INTERIM
FBI hereby represents and warrants to First National, and Interim, when
formed, will represent and warrant to First National, as follows:
6.1 Organization, Standing, and Power.
(a) FBI is a corporation duly organized, validly existing, and
in active status under the Laws of the State of Florida, and has the
corporate power and authority to carry on its business as now conducted
and to own, lease, and operate its material Assets. FBI is in good
standing in the State of Florida which is where the character of its
Assets or the nature or conduct of its business requires it to be so
qualified or licensed except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
FBI.
(b) Interim will be a national bank organized under the
National Bank Act (as a wholly owned subsidiary of FBI), after the
execution of this Agreement and prior to the Effective Time and shall
have the corporate power and authority to carry on the business of
banking. Interim shall become duly qualified or licensed to transact
business as a foreign corporation, and shall maintain its corporate
status in good standing, in the States of the United States and foreign
jurisdictions where the character of the assets or the nature or
conduct of the business, to be purchased, received or operated by
Interim, shall require it to be so qualified or licensed, except for
such jurisdictions in which the failure to be so qualified or licensed
is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Interim.
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6.2 Authority; No Breach By Agreement.
(a) FBI has, and upon its formation Interim will have, the
corporate power and authority necessary to execute, deliver, and
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the
part of FBI and will be duly and validly authorized by all necessary
corporate action in respect thereof by Interim upon its formation. This
Agreement represents a legal, valid, and binding obligation of FBI, and
shall become such an obligation of Interim upon its formation,
enforceable against FBI, and to become enforceable against Interim upon
its formation, in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before
which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
FBI, or, upon its formation, Interim, nor the consummation by FBI or
Interim of the transactions contemplated hereby, nor compliance by FBI
or Interim with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of the Articles of Incorporation or
Bylaws of FBI or, upon its formation, Interim, or (ii) constitute or
result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any FBI Company or
Interim under, any Contract or Permit of any FBI Company or Interim,
where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI or Interim, or, (iii) subject to receipt of the
requisite Consents referred to in Section 9.1(b) of this Agreement,
violate any Law or Order applicable to any FBI Company or, upon its
formation, Interim or any of their respective material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws,
and rules of Nasdaq, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI, Southwest and, upon its formation, Interim, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by FBI, Southwest and Interim of the
Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of FBI consists of
9,000,000 shares of FBI Common Stock, of which 377,800 shares were issued and
outstanding as of the date of this Agreement and (ii) 1,000,000 shares of FBI
Preferred Stock, of which 60,600 shares were issued and outstanding as of the
date of this Agreement. All of the issued and outstanding shares of FBI Capital
Stock are authorized and validly issued, and all of the FBI Common Stock to be
issued in exchange for First National Common Stock upon consummation of the
Merger, will be authorized and reserved for issuance prior to the Effective Time
and, when issued in accordance with the terms of this Agreement, will be, duly
and validly issued and outstanding and fully paid and nonassessable under the
FBCA. None of the outstanding shares of FBI Capital Stock has been, and none of
the shares of FBI Common Stock to be issued in exchange for shares of First
National Common Stock upon consummation of the Merger will be, issued in
violation of any preemptive
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rights of the current or past shareholders of FBI. FBI will issue no additional
Common Stock or Preferred Stock until the Effective Time.
6.4 FBI Subsidiaries. Upon its formation, Interim will become
FBI's only Subsidiary. At the Effective Time First National will be merged with
and into Interim and Interim will be the Resulting Association. Except as
disclosed in Schedule 6.4, FBI owns all of the issued and outstanding shares of
capital stock of each FBI Subsidiary. No equity securities of any FBI Subsidiary
are or may become required to be issued (other than to another FBI Company) by
reason of any Rights, and there are no Contracts by which any FBI Subsidiary is
bound to issue (other than to another FBI Company) additional shares of its
capital stock or Rights or by which any FBI Company is or may be bound to
transfer any shares of the capital stock of any FBI Subsidiary (other than to
another FBI Company). There are no Contracts relating to the rights of any FBI
Company to vote or to dispose of any shares of the capital stock of any FBI
Subsidiary. All of the shares of capital stock of each FBI Subsidiary held by a
FBI Company are fully paid and nonassessable under the applicable corporation
Law of the jurisdiction in which such Subsidiary is incorporated or organized
(except, in the case of Subsidiaries that are national banks, for the assessment
contemplated by 12 U.S.C. ss. 55), and are owned by the FBI Company free and
clear of any Lien. Each FBI Subsidiary is either a bank or a corporation, and is
duly organized, validly existing, and (as to corporations) in good standing
under the Laws of the jurisdiction in which it is incorporated or organized, and
has the corporate power and authority necessary for it to own, lease, and
operate its Assets and to carry on its business as now conducted. Interim, when
formed, will be a national banking association formed under the laws of the
United States, and, through the Effective Time, shall be a wholly owned direct
subsidiary of FBI. Each FBI Subsidiary is duly qualified or licensed to transact
business as a foreign corporation and is in good standing in each jurisdiction
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FBI. Each
FBI Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund.
6.5 Financial Statements.
FBI has delivered to First National prior to the execution of
this Agreement copies of the FBI Financial Statements as of December 31, 1997.
FBI shall provide First National with its unaudited Financial Statements for the
stub period ending March 31, 1998, as soon as practicable after same become
available.
The FBI Financial Statements (as of the dates thereof): (i) are
in accordance with the books and records of FBI, which are complete and accurate
in all material respects and which have been maintained in accordance with good
business practices, and (ii) present fairly the financial position of FBI as of
December 31, 1997 in accordance with GAAP.
6.6 Absence of Certain Changes or Events. Since January 1, 1998,
except as disclosed in the FBI Financial Statements delivered prior to the date
of this Agreement, (i) there have been no events, changes or occurrences which
have had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI, and (ii) the FBI Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of FBI provided in Articles 7 or 8 of this Agreement.
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6.7 Tax Matters.
(a) As of the date of this Agreement, no federal, state, local
and foreign Tax Returns have been required to be filed by or on behalf
of the Company. There is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to
result in a determination that would have, individually or in the
aggregate, a Material Adverse Effect on FBI, except as reserved against
in the FBI Financial Statements delivered prior to the date of this
Agreement. All Taxes and other liabilities due with respect to
completed and settled examinations or concluded Litigation have been
paid.
(b) Adequate provision for any Taxes due or to become due for
any of the FBI Companies for the period or periods through and
including the date of the respective FBI Financial Statements has been
made and is reflected on such FBI Financial Statements.
(c) Deferred Taxes of the FBI Companies have been adequately
provided for in the FBI Financial Statements.
(d) To the Knowledge of FBI, each of the FBI Companies is in
compliance with, and its records contain all information and documents
(including properly completed Internal Revenue Service Forms W-9)
necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and
such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for
such instances of noncompliance and such omissions as are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI.
6.8 Compliance With Laws. Prior to the consummation of the
transactions contemplated by this Agreement FBI will become duly registered as a
bank holding company under the BHC Act. Each FBI Company has in effect all
Permits necessary for it to own, lease, or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI. FBI is not presently in Default under or in
violation of any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
FBI. FBI:
(a) is not in violation of any Laws, Orders, or Permits
applicable to its business or employees conducting its business, except
for violations which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FBI; and
(b) has not received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that FBI is not
in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FBI, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FBI, or (iii) requiring FBI
to enter into or consent to the issuance of a cease and desist order,
formal agreement, directive, commitment, or memorandum of
understanding, or to adopt any board resolution or similar undertaking,
which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies,
its management or the payment of dividends.
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6.9 Assets. Except as disclosed in Schedule 6.9A, FBI has good and
marketable title, free and clear of all Liens (except for those Liens which are
not likely to have a Material Adverse Effect on FBI), to all of its respective
material Assets, reflected in FBI Financial Statements as being owned by FBI as
of the date hereof. All material tangible properties used in the business of FBI
are in good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with FBI's past practices. All Assets
which are material to FBI's business on a consolidated basis, held under leases
or subleases by FBI, are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. FBI
currently maintains insurance in amounts, scope, and coverage as disclosed in
Schedule 6.9B. FBI has not received written notice from any insurance carrier
that (i) such insurance will be canceled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. Except as disclosed in Schedule 6.9C,
to the Knowledge of FBI there are presently no occurrences giving rise to a
claim under such policies of insurance and no notices have been given by FBI
under such policies.
6.10 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of FBI, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against FBI, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against FBI, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FBI.
6.11 Reports. Since its incorporation, FBI has filed all reports
and statements, together with any amendments required to be made with respect
thereto, that it was required to file with Regulatory Authorities (except, in
the case of state securities authorities, failures to file which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
6.12 Statements True and Correct. None of the information supplied
or to be supplied by FBI for inclusion in the Registration Statement to be filed
by FBI with the SEC, will, when the Registration Statement becomes effective, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein not misleading. None of
the information supplied or to be supplied by FBI for inclusion in the Proxy
Statement to be mailed to First National's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by FBI or with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
First National, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Shareholders' Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
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solicitation of any proxy for the Shareholders' Meeting. All documents that FBI
is responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
6.13 Accounting, Tax and Regulatory Matters. FBI has not taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the transactions contemplated hereby,
including the Merger, from qualifying as a reorganization within the meaning of
Section 368(a)(2)(D) of the Internal Revenue Code, or (ii) materially impede or
delay receipt of any Consents referred to in Section 9.1(b) of this Agreement or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section.
6.14 Environmental Matters.
(a) To the Knowledge of FBI, except as disclosed in Schedule
6.14(a), FBI, its Participation Facilities, and its Loan Properties
are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FBI.
(b) Except as disclosed in Schedule 6.14(b), there is no
Litigation pending, or, to the Knowledge of FBI, threatened before any
court, governmental agency, or authority or other forum in which any
FBI Company or any of its Loan Properties or Participation Facilities
(or any FBI Company in respect of any such Loan Property or
Participation Facility) has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on,
under, or involving any of its Loan Properties or Participation
Facilities, except for such Litigation pending or threatened that is
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI.
(c) To the Knowledge of FBI, except as disclosed in Schedule
6.14(c), there is no reasonable basis for any Litigation of a type
described above in Section 6.14(b), except such as is not reasonably
likely to have, individually or in the aggregate, a Material Adverse
Effect on FBI.
(d) To the Knowledge of FBI, except as disclosed in Schedule
6.14(d), during the period of (i) FBI's ownership or operation of any
of their respective properties, (ii) FBI's participation in the
management of any Participation Facility, or (iii) FBI's holding a
security interest in a Loan Property, to the Knowledge of FBI there
have been no releases of Hazardous Material in, on, under, or affecting
any Participation Facility or Loan Property of FBI, except such as are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FBI.
6.15 Derivatives Contracts. FBI is not a party to or has agreed to
enter into a Derivatives Contract, except for those Derivatives Contracts.
6.16 Outstanding First National Common Stock. As of the date of
this Agreement, FBI does not beneficially own any shares of First National
Common Stock. During the term of this Agreement, FBI shall not purchase or
otherwise acquire beneficial ownership of any First National Common Stock except
pursuant to the terms of this Agreement.
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6.17 Material Contracts. All material Contracts to which FBI is a
party and which are required to be filed as exhibits to the Registration
Statement will be filed with the SEC in connection with the filing of the
Registration Statement and Proxy Statement.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of First National. Unless the prior
written consent of FBI shall have been obtained, and except as otherwise
expressly contemplated herein, First National shall: (i) operate its business
only in the usual, regular, and ordinary course, (ii) use its reasonable best
efforts to preserve intact its business organization and Assets and maintain its
rights and franchises, (iii) use its reasonable best efforts to maintain its
current employee relationships, and (iv) take no action which would materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) of
this Agreement, or materially adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of First National. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement, First National covenants and agrees that it will not do or agree or
commit to do, any of the following without the prior written consent of the
chief executive officer of FBI:
(a) amend the Articles of Incorporation, Bylaws, or other
governing instruments of First National or, except as expressly
contemplated by this Agreement; or
(b) incur any additional debt obligation or other obligation
for borrowed money in excess of an aggregate of $50,000 except in the
ordinary course of the business of First National consistent with past
practices (it being understood and agreed that the incurrence of
indebtedness in the ordinary course of business shall include, without
limitation, creation of deposit liabilities, purchases of federal
funds, advances from the Federal Reserve Bank or Federal Home Loan
Bank, and entry into repurchase agreements fully secured by U.S.
government or agency securities), or impose, or suffer the imposition,
on any Asset of First National of any Lien or permit any such Lien to
exist (other than in connection with deposits, repurchase agreements,
bankers acceptances, "treasury tax and loan" accounts established in
the ordinary course of business, the satisfaction of legal requirements
in the exercise of trust powers, and Liens in effect as of the date
hereof; or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into
any shares, of the capital stock of any First National Company, or
declare or pay any dividend or make any other distribution in respect
of First National's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the
terms thereof in existence on the date hereof, or as disclosed in
Schedule 7.2(d), issue, sell, pledge, encumber, authorize the issuance
of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding,
any additional shares of First National Common Stock, or any stock
appreciation rights,
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or any option, warrant, conversion, or other right to acquire any such
stock, or any security convertible into any such stock; or
(e) adjust, split, combine, reclassify or declare and pay any
dividend or other distribution on any capital stock of First National
or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of First National Common Stock, or
sell, lease, mortgage, or otherwise dispose of or otherwise encumber
(x) any shares of capital stock of any First National, or (y) any Asset
other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of United States Treasury securities
or United States Government agency securities, which in either case
have maturities of five years or less, purchase any securities or make
any material investment, either by purchase of stock or securities,
contributions to capital, Asset transfers, or purchase of any Assets,
in any Person, or otherwise acquire direct or indirect control over any
Person, other than in connection with (i) foreclosures in the ordinary
course of business, (ii) acquisitions of control by First National, in
its fiduciary capacity, or (iii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities otherwise
permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the
officers or directors of First National, (provided, however, that First
National may increase the compensation of non-officer employees by not
more than 5% of such employees' annual compensation if such increase is
consistent with past practice); pay any severance or termination pay or
any bonus other than pursuant to written policies or written Contracts
in effect on the date of this Agreement and as disclosed in Schedule
7.2(g); enter into or amend any severance agreements with officers of
First National; or voluntarily accelerate the vesting of any stock
options or other stock-based compensation or employee benefits; or
(h) enter into or amend any employment Contract between First
National and any Person (unless such amendment is required by Law) that
First National does not have the unconditional right to terminate
without Liability (other than Liability for services already rendered),
at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of First National or
make any material change in or to any existing employee benefit plans
of First National other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice or settle any Litigation involving any Liability of First
National for material money damages or restrictions upon the operations
of First National without first consulting with FBI; or
(l) except in the ordinary course of business, modify, amend,
or terminate any material Contract other than renewals without material
adverse change of terms, or waive, release, compromise, or assign any
material rights or claims; or
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(m) make any investment in excess of $50,000 either by purchase
of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual,
corporation or other entity other than a wholly owned Subsidiary
thereof; or
(n) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets to any individual, corporation
or other entity other than a direct or indirect wholly owned
Subsidiary, or cancel, release or assign any indebtedness to any such
Person or any claims held by any such Person, except in the ordinary
course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of this Agreement.
7.3 Covenants of FBI. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, FBI
covenants and agrees that it shall (i) continue to conduct its business and the
business of its Subsidiaries in a manner designed in its reasonable judgment, to
enhance the long-term value of the FBI Common Stock and the business prospects
of FBI, and (ii) take no action which would (a) materially adversely affect the
ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the last sentence of Section 9.1(b) of this Agreement, or (b)
materially adversely affect the ability of any Party to perform its covenants
and agreements under this Agreement; provided, that the foregoing shall not
prevent FBI from discontinuing or disposing of any of its Assets or business if
such action is, in the judgment of FBI, desirable in the conduct of the business
of FBI. FBI further covenants and agrees that it will not, without the prior
written consent of the Chairman and Chief Executive Officer of First National,
which consent shall not be unreasonably withheld, amend the Articles of
Incorporation or Bylaws of FBI, in each case in any manner adverse to the
holders of First National Common Stock.
7.4 Adverse Changes In Condition. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the occurrence
or impending occurrence of any event or circumstance relating to it which (i) is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on it or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable best efforts to prevent or promptly to remedy the same.
7.5 Reports. First National, FBI and Interim shall file all
reports required to be filed by each of them with Regulatory Authorities between
the date of this Agreement and the Effective Time and shall deliver to each
other copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material and
except for the absence of certain footnote information in the unaudited
financial statements). As of their respective dates, such reports filed with the
SEC will comply in all material respects with the Securities Laws and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
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ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval.
As soon as practicable after execution of this Agreement (in no event later than
April 30, 1998), FBI shall file the Registration Statement with the SEC, and
shall use its reasonable best efforts to cause the Registration Statement to
become effective under the 1933 Act and take any action required to be taken
under the applicable state blue sky or securities Laws in connection with the
issuance of the shares of FBI Common Stock upon consummation of the Merger.
First National shall furnish all information concerning it and the holders of
its capital stock as FBI may reasonably request in connection with such action.
First National shall call a Shareholders' Meeting, to be held on a date that is
determined by the Parties to be a mutually desirable date, which date shall be
as soon as practicable after the Registration Statement is declared effective by
the SEC, for the purpose of voting upon approval of this Agreement and such
other related matters as it deems appropriate. In connection with the
Shareholders' Meeting, (i) First National shall prepare a Proxy Statement
relating to the Merger and mail such Proxy Statement to its shareholders, (ii)
the Parties shall furnish to each other all information concerning them that
they may reasonably request in connection with such Proxy Statement, (iii) the
Board of Directors of First National shall recommend (subject to compliance with
their fiduciary duties under applicable law as advised by counsel) to its
shareholders the approval of this Agreement, (iv) each member of the Board of
Directors of First National shall vote all First National Common Stock
beneficially owned by each in favor of the approval of this Agreement, and (v)
the Board of Directors and officers of First National shall (subject to
compliance with their fiduciary duties under applicable law as advised by
counsel) use their reasonable best efforts to obtain such shareholders'
approval.
8.2 Applications. FBI shall promptly prepare and file, and First
National shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement and
thereafter use its reasonable best efforts to cause the Merger to be consummated
as expeditiously as possible.
8.3 Agreement As To Efforts To Consummate. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including the use of their respective reasonable best efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9 of this Agreement; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement. First
National, FBI and Interim shall use their reasonable best efforts to obtain all
Permits and Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.4 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time or termination
pursuant to Article 10 of this Agreement, upon reasonable notice and
subject to applicable Laws, FBI and First National shall afford each
other, and each other's accountants, counsel, and other
representatives, during normal working hours for the period of time
prior to the Effective Time, reasonable access to all of its and its
Subsidiaries' properties, books, contracts, commitments, and records
and, during such period, each
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shall furnish promptly to the other party (i) a copy of each report,
schedule, and other document filed or received by it or any of its
Subsidiaries during such period pursuant to the requirements of the
Securities Laws, (ii) a copy of all filings made with any Regulatory
Authorities or other governmental entities in connection with the
transactions contemplated by this Agreement and all written
communications received from such Regulatory Authorities and
governmental entities related thereto, and (iii) all other information
concerning its or its Subsidiaries' business, properties and personnel
as such other party may reasonably request, including reports of
condition filed with Regulatory Authorities. In this regard, without
limiting the generality of the foregoing, each of the parties hereto
shall notify the other parties hereto promptly upon the receipt by it
of any comments from the SEC, or its staff, and of any requests by the
SEC for amendments or supplements to the Registration Statement or the
Proxy Statement or for additional information and will supply the other
parties hereto with copies of all correspondence between it and its
representatives, on the one hand, and the SEC or the members of its
staff or any other government official, on the other hand, with respect
to the Registration Statement or the Proxy Statement. Each party hereto
shall, and shall cause its advisors and representatives to (x) conduct
its investigation in such a manner which will not unreasonably
interfere with the normal operations, customers or employee relations
of the other and shall be in accordance with procedures established by
the parties having the due regard for the foregoing, and (y) refrain
from using for any purposes other than as set forth in this Agreement,
and shall treat as confidential, all information obtained by each
hereunder or in connection herewith and not otherwise known to them
prior to the Effective Time.
(b) FBI and its Affiliates will hold, and will use their best
efforts to cause their officers, directors, employees, consultants,
advisors, representatives, and agents to hold, in confidence, unless
compelled by judicial or other legal process, all confidential
documents and information concerning First National furnished to FBI
and its Affiliates in connection with the transactions contemplated by
this Agreement, including information provided in accordance with this
Section 8.4, except to the extent that such information can clearly be
demonstrated by FBI to have been (i) previously known on a
nonconfidential basis by FBI, (ii) in the public domain other than as a
result of disclosure by FBI and any of its Affiliates, or (iii) later
lawfully acquired by FBI from sources other than First National;
provided, however, that FBI may disclose such information to its
officers, directors, employees, consultants, advisors, representatives,
and agents in connection with the transactions contemplated by this
Agreement only to the extent that such Persons who, in FBI's reasonable
judgment, need to know such information for the purpose of evaluating
First National (provided that such Persons shall be informed of the
confidential nature of such information and shall agree to be bound by
the terms of this provision) and, in any event, such disclosures shall
be made only to the extent necessary for such purposes. If this
Agreement is terminated in accordance with Article 10 hereof, FBI and
its Affiliates shall maintain the confidence of such information and
will, and will use their best efforts to cause its officers, directors,
employees, consultants, advisors, representatives, and agents to,
return to First National all documents and other materials, and all
copies made thereof, obtained by FBI or any of its Affiliates in
connection with this Agreement that are subject to this Section 8.4.
8.5 Current Information. During the period from the date of this
Agreement until the Effective Time or termination of this Agreement pursuant to
Article 10 hereof, each of First National and FBI shall, and shall cause its
representatives to, confer on a regular and frequent basis with representatives
of the other. Each of First National and FBI shall promptly notify the other of
(i) any material change in its business or operations, (ii) any material
complaints, investigations, or hearings (or communications indicating that the
same may be contemplated) of any Regulatory Authority, (iii) the institution or
threat of material Litigation involving such party, or (iv) the occurrence or
nonoccurrence, of an event or condition, the occurrence, or
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nonoccurrence, of which would be reasonably expected to cause any of such
party's representations or warranties set forth herein to be false or untrue in
any respect as of the Effective Time; and in each case shall keep the other
fully informed with respect thereto.
8.6 Other Actions. No Party shall, or shall permit any of its
Subsidiaries, if any, to, take any action, except in every case as may be
required by applicable Law, that would or is intended to result in (i) any of
its representations and warranties set forth in this Agreement that are
qualified as to materiality being or becoming untrue, (ii) any of such
representations and warranties that are not so qualified become untrue in any
material manner having a Material Adverse Effect, (iii) any of the conditions
set forth in this Agreement not being satisfied or in a violation of any
provision of this Agreement, or (iv) adversely affecting the ability of any of
them to obtain any of the Consents or Permits from Regulatory Authorities
(unless such action is required by sound banking practice).
8.7 Press Releases. Prior to the Effective Time, First National
and FBI shall consult with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
other transaction contemplated hereby; provided, that nothing in this Section
8.7 shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 No Solicitation. Except with respect to this Agreement and the
transactions contemplated hereby, from the date of this Agreement until the
Effective Time or termination pursuant to Article 10, neither First National nor
any of its Representatives shall directly or indirectly solicit any Acquisition
Proposal by any Person. Except to the extent necessary to comply with the
fiduciary duties of First National's Board of Directors determined after
consultation with counsel neither First National nor any Affiliate or
Representative of First National shall furnish any nonpublic information that it
is not legally obligated to furnish or negotiate with respect to, any
Acquisition Proposal, but First National may communicate information about such
an Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
counsel. First National shall promptly notify FBI orally and in writing in the
event that it receives any inquiry or proposal relating to any such transaction.
First National shall (i) immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any Persons conducted
heretofore with respect to any of the foregoing, and (ii) direct and use its
reasonable best efforts to cause of all its Representatives not to engage in any
of the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes
and agrees to use its reasonable best efforts to cause the Merger, and to take
no action which would cause the Merger not, to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
8.10 Articles of Association Provisions. First National shall take
all necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do not
and will not result in any super-majority voting requirements or the grant of
any rights to any Person under the Articles of Association, Bylaws, or other
governing instruments of First National.
8.11 Agreement of Affiliates. First National has disclosed in
Schedule 8.11 all Persons whom it reasonably believes are "affiliates" of First
National for purposes of Rule 145 under the 1933 Act. First National shall use
its reasonable best efforts to cause each such Person to deliver to FBI not
later than 30 days prior to the Effective Time, a written agreement,
substantially in the form of Exhibit 2 attached hereto,
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providing that such Person will not sell, pledge, transfer, or otherwise dispose
of the shares of First National Common Stock held by such Person, except as
contemplated by such agreement or by this Agreement and will not sell, pledge,
transfer, or otherwise dispose of the shares of FBI Common Stock to be received
by such Person upon consummation of the Merger except in compliance with
applicable provisions of the 1933 Act and the rules and regulations thereunder
(and FBI shall be entitled to place restrictive legends upon certificates for
shares of FBI Common Stock issued to affiliates of First National pursuant to
this Agreement to enforce the provisions of this Section 8.11). FBI shall not be
required to maintain the effectiveness of the Registration Statement under the
1933 Act for the purposes of resale of FBI Common Stock by such affiliates.
8.12 Employee Benefits and Contracts. Following the Effective Time,
FBI shall provide generally to continuing officers and employees of First
National employee benefits under employee benefit plans (other than stock option
or other plans involving the potential issuance of FBI Common Stock), on terms
and conditions which when taken as a whole are no less favorable than those
currently provided by First National or those currently provided by FBI to their
similarly situated officers and employees. For purposes of participation and
vesting (but not benefit accrual under any employee benefit plans of FBI other
than the First National Benefit Plans) under such employee benefit plans, the
service of the employees of First National prior to the Effective Time shall be
treated as service with FBI participating in such employee benefit plans. FBI
shall honor in accordance with their terms all employment, severance,
consulting, and other compensation Contracts disclosed in Schedule 8.12 between
First National and any current or former director, officer, or employee thereof,
and all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under the First National Benefit Plans.
8.13 Management Contracts. FBI has agreed to provide written
employment contracts to John S. McMullen and T. Edwin Stinson, Jr., which shall
take effect at the Effective Time of the Merger. The employment contracts must
be executed within 30 days following the date of this Agreement. If the Parties
are not able to execute the respective employment contracts within that period,
Messrs. McMullen and Stinson shall retain and be governed by their respective
employment agreements with First National.
8.14 Indemnification.
(a) FBI shall, and shall cause the Resulting Association (and
its successors and assigns) to, indemnify, defend, and hold harmless
the present and former directors, officers, employees, and agents of
First National (each, an "Indemnified Party") against all costs, fees
or expenses (including reasonable attorneys' fees), judgments, fines,
penalties, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any Litigation arising out of actions or
omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the full extent
permitted under Florida Law and by First National's Articles of
Association and Bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of
any Litigation. Without limiting the foregoing, in any case in which
approval by FBI is required to effectuate any indemnification, FBI
shall direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel
mutually agreed upon between FBI and the Indemnified Party.
(b) If FBI or the Resulting Association or any of their
successors or assigns shall consolidate with or merge into any other
Person and shall not be the continuing or surviving corporation of such
consolidation or merger or shall transfer all or substantially all of
its assets to any Person, then and in each case, proper provision shall
be made so that the successors and assigns of FBI shall assume the
obligations set forth in this Section 8.14.
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(c) The provisions of this Section 8.14 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party, his
or her heirs and representatives and shall survive the consummation of
the Merger and be binding on all successors and assigns of FBI and the
Resulting Association.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.7 of this Agreement:
(a) Shareholder Approval. The shareholders of First National
shall have approved this Agreement by the requisite 662/3% vote, and
the consummation of the transactions contemplated hereby, including the
Merger, as and to the extent required by Law.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner
(including requirements relating to the raising of additional capital
or the disposition of Assets) which in the reasonable judgment of the
Board of Directors of either Party would so materially adversely impact
the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known, such
Party would not, in its reasonable judgment, have entered into this
Agreement.
(c) Consents and Approvals. Other than filing the Certificate
to Merge and receipt of a certification of the Merger, each Party shall
have obtained any and all Consents required for consummation of the
Merger (other than those referred to in Section 9.1(b) of this
Agreement or listed in Schedule 9.1[c]) or for the preventing of any
Default under any Contract or Permit of such Party which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary, or permanent) or taken any other action which prohibits,
restricts, or makes illegal consummation of the transactions
contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall
have been declared effective under the 1933 Act, and no stop orders
suspending the effectiveness of the Registration Statement shall have
been issued, and no action, suit, proceeding, or investigation by the
SEC to suspend the effectiveness thereof shall have been initiated and
be continuing, and all necessary approvals under state securities Laws
or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of FBI Common Stock issuable pursuant to the Merger shall have
been received.
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(g) Tax Matters. Each Party shall have received a written
opinion or opinions from Smith, Gambrell & Russell, LLP, and in a form
reasonably satisfactory to such Parties (the "Tax Opinion"), to the
effect that (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and (ii) the
exchange in the Merger of First National Common Stock for FBI Common
Stock will not give rise to gain or loss to the shareholders of First
National with respect to such exchange (except to the extent of any
cash received). In rendering such Tax Opinion, such counsel shall be
entitled to rely upon representations of officers of First National and
FBI reasonably satisfactory in form and substance to such counsel.
(h) Public Offering. FBI shall have executed a definitive
underwriting agreement with The Robinson-Humphrey Company, LLC (or such
other investment banking firm equivalent in stature and reputation as
determined in the sole discretion of the Board of Directors of FBI)
providing for the firm commitment underwriting of shares of FBI Common
Stock having an aggregate gross purchase price of at least $30 million.
9.2 Conditions to Obligations of FBI. The obligations of FBI to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by FBI pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
First National set forth in this Agreement shall be assessed as of the
date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made
on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as
of such date). The representations and warranties of First National set
forth in Section 5.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimus in amount). The
representations and warranties of First National set forth in Sections
5.17, 5.18, 5.19, and 5.20 of this Agreement shall be true and correct
in all material respects. There shall not exist inaccuracies in the
representations and warranties of First National set forth in this
Agreement (including the representations and warranties set forth in
Sections 5.3, 5.17, 5.18, 5.19, and 5.20) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a
Material Adverse Effect on First National; provided that, for purposes
of this sentence only, those representations and warranties which are
qualified by references to Immaterial" or "Material Adverse Effect"
shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of First National to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been duly
performed and complied with in all respects.
(c) Certificates. First National shall have delivered to FBI
(i) a certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and its chief financial officer,
to the effect that the conditions of its obligations set forth in
Section 9.2(a) and 9.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by First National's
Board of Directors and shareholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery, and
performance of this Agreement, and the
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consummation of the transactions contemplated hereby, all in such
reasonable detail as FBI and its counsel shall request.
(d) Affiliates Agreements. FBI shall have received from each
affiliate of First National the affiliates letter referred to in
Section 8.12 of this Agreement.
(e) Opinion of Counsel. FBI shall have received a written
opinion of Igler & Dougherty, P.A., Tallahassee, Florida, counsel to
First National, dated as of the Effective Time, with respect to such
matters and in such form as shall be agreed upon between such firm and
FBI in substantially the form that is attached as Exhibit 3.
(f) Options Cancellation Agreements. FBI shall have received
from each holder of First National Options the cancellation agreement
referred to in Section 3.4 of this Agreement.
(g) Opinion of Accountants. First National shall have received
an opinion from Deloitte & Touche, dated as of the Effective Time, a
copy of which shall be provided to FBI and the contents of which shall
be acceptable to FBI in its sole discretion, to the effect that there
has not been an ownership change, as defined in Internal Revenue Code
Section 382(g), of First National that occurred during or after any
Taxable Period in which First National incurred a net operating loss
that carries over to any Taxable Period ending after December 31, 1996.
9.3 Conditions to Obligations of First National. The obligations
of First National to perform this Agreement and consummate the Merger and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by First National pursuant to Section 11.7
of this Agreement:
(a) Representations and Warranties. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
FBI set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of FBI set forth in Section
6.3 of this Agreement shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties of FBI set forth in Section 6.11 of this Agreement shall be
true and correct in all material respects. There shall not exist
inaccuracies in the representations and warranties of FBI set forth in
this Agreement (including the representations and warranties set forth
in Sections 6.3 and 6.11) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse
Effect on FBI; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" shall be deemed not to include
such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of FBI to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. FBI shall have delivered to First National
(i) a certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and its chief financial officer,
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to the effect that the conditions of its obligations set forth in
Section 9.3(a) and 9.3(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by FBI's Board of
Directors evidencing the taking of all corporate action necessary to
authorize the execution, delivery, and performance of this Agreement,
and the consummation of the transactions contemplated hereby, all in
such reasonable detail as First National and its counsel shall request.
(d) Fairness Opinion. First National shall have received from
Mercer Capital Management, Inc. a letter, dated not more than five
business days prior to the date of the Proxy Statement, to the effect
that, in the opinion of such firm, the Exchange Ratio is fair, from a
financial point of view, to the holders of First National Common Stock.
(e) Payment of Consideration. FBI shall have delivered to the
Exchange Agent the consideration to be paid to holders of the First
National Common Stock pursuant to Sections 3.1 and 3.3 of this
Agreement.
(f) Opinion of Counsel. First National shall have received a
written opinion of Smith, Gambrell & Russell, LLP, counsel to FBI,
dated as of the Effective Time, with respect to such matters and in
substantially the form that is attached hereto as Exhibit 4.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of First National, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual written consent of the Board of Directors of FBI
and the Board of Directors of First National; or
(b) By the Board of Directors of either FBI or First National
(provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(b) of this Agreement in
the case of First National and Section 9.3(a) in the case of FBI or in
material breach of any covenant or other agreement contained in this
Agreement) in the event of an inaccuracy of any representation or
warranty of the other Party contained in this Agreement which cannot be
or has not been cured within 30 days after the giving of written notice
to the breaching Party of such inaccuracy and which inaccuracy would
provide the terminating Party the ability to refuse to consummate the
Merger under the applicable standard set forth in Section 9.2(b) of
this Agreement in the case of First National and Section 9.3(a) of this
Agreement in the case of FBI; or
(c) By the Board of Directors of either FBI or First National
in the event of a material breach by the other Party of any covenant,
agreement, or obligation contained in this Agreement which breach
cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either FBI or First National
in the event (i) any Consent of any Regulatory Authority required for
consummation of the Merger and the other transactions
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contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is
not appealed within the time limit for appeal; or (ii) the shareholders
of First National fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the FBCA at the
Shareholders' Meeting where the transactions were presented to such
shareholders for approval and voted upon; or
(e) By the Board of Directors of either FBI or First National
in the event that the Merger shall not have been consummated by
September 30, 1998, if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach
of this Agreement by the Party electing to terminate pursuant to this
Section 10.1(e); or
(f) By FBI in the event dissenters' rights are claimed,
pursuant to the applicable provisions of the FBCA, by persons owning in
the aggregate more than 10% of the issued and outstanding First
National Common Stock; or
(g) By the Board of Directors of either FBI or First National
(provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(b) of this Agreement in
the case of First National and Section 9.3(a) in the case of FBI or in
material breach of any covenant or other agreement contained in this
Agreement) in the event that any of the conditions precedent to the
obligations of such Party to consummate the Merger cannot be satisfied
or fulfilled by the date specified in Section 10.1(e) of this
Agreement; or
(h) By First National, if at any time prior to the Effective
Time, the fairness opinion of Mercer Capital Management, Inc., is
withdrawn.
(i) By First National if prior to the Effective Time, a
corporation, partnership, person, or other entity or group shall have
made a bona fide Acquisition Proposal that the First National Board
determines in its good faith judgment and in the exercise of its
fiduciary duties, with respect to legal matters on the written opinion
of legal counsel and as to financial matters on the written opinion of
an investment banking firm of national reputation, is more favorable to
the First National shareholders and that the failure to terminate this
Agreement and accept such alternative Acquisition Proposal would be
inconsistent with the proper exercise of such fiduciary duties.
(j) By FBI, if First National has not received the opinion
referenced in Section 9.2(g).
10.2 Effect of Termination. (a) In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Sections 8.5 and 11.1 of this Agreement shall survive
any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b) or 10.1(c) or 10.1 (f), of this Agreement shall not relieve the
breaching Party from liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination; provided, further, that in the event of any termination of this
Agreement following the occurrence of an Initial Triggering Event (as defined
below) other than termination due to: (A) the failure of FBI to satisfy a
condition to closing, (B) determination of FBI pursuant to Section 9.2(a) not to
perform this Agreement, (C) withdrawal of the fairness opinion of Mercer Capital
Management, Inc. (so long as such withdrawal is not due to materially inaccurate
or fraudulent information provided by First National to Mercer Capital
Management, Inc.), or (D) the failure to satisfy the conditions set forth in
Section 9.1 paragraphs (b), (d),
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(e), (f) and (g), FBI shall be entitled to a cash payment from First National in
an amount equal to $1,000,000 upon the occurrence of any Subsequent Triggering
Event (as defined below) within twelve (12) months following the date of such
termination. In the event this Agreement is terminated as a result of FBI's or
First National's failure to satisfy any of its representations, warranties or
covenants set forth herein, the non-terminating party shall reimburse the
terminating party for its reasonable out-of-pocket expenses relating to the
Merger in an amount not to exceed $250,000.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date of this Agreement:
(i) First National, without having received FBI's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any Person (the term
"Person" for purposes of this Section also having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (the
"1934 Act"), and the rules and regulations thereunder) other than FBI or any of
its Subsidiaries (each a "FBI Subsidiary") or the Board of Directors of First
National shall have recommended that the shareholders of First National approve
or accept any Acquisition Transaction other than as contemplated by this
Agreement. For purposes of this Agreement, (a) "Acquisition Transaction" shall
mean (x) a merger or consolidation, or any similar transaction, involving First
National, (y) a purchase, lease or other acquisition of all or substantially all
of the assets or deposits of First National, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 15% or more of the voting power of First
National, and (b) "Subsidiary", for purposes of this Section, also shall have
the meaning set forth in Rule 12b-2 under the 1934 Act;
(ii) Any Person (excluding the officers, directors and
existing shareholders of First National), other than FBI or any FBI Subsidiary
acting in a fiduciary capacity, shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the outstanding First
National Common Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the 1934 Act,
and the rules and regulations thereunder) and such Person does not vote such
First National Common Stock in favor of this Agreement at the meeting
contemplated in clause (iii) below or such meeting is not held or is cancelled;
(iii) The meeting of shareholders of First National to be held
for the purpose of approving the transaction contemplated by this Agreement
shall not have been held or shall have been canceled prior to termination of
this Agreement, or First National, without having received FBI's prior written
consent, shall have authorized, recommended, proposed (or publicly announced its
intention to authorize, recommend or propose, or its interest in authorizing,
recommending or proposing) an agreement to engage in an Acquisition Transaction,
with any person other than FBI or a FBI Subsidiary;
(iv) Any Person other than FBI or any FBI Subsidiary shall
have made a bona fide proposal to First National or its shareholders by public
announcement or written communication (a copy of which shall be provided to FBI)
to engage in an Acquisition Transaction, which proposal has an economic value
equivalent to or in excess of that of FBI.
(v) After a proposal is made by a third party to First
National to engage in an Acquisition Transaction, First National shall have
willfully and materially breached any material covenant or obligation
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contained in this Agreement in anticipation of engaging in an Acquisition
Transaction, and such breach would entitle FBI to terminate this Agreement and
such breach is not cured; or
(vi) Any person other than FBI or any FBI Subsidiary, other
than in connection with a transaction to which FBI has given its prior written
consent, shall have filed an application or notice with the Federal Reserve
Board or other federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (excluding the officers,
directors and existing shareholders of First National) of beneficial ownership
of 25% or more of the then outstanding First National Common Stock; or
(ii) The closing of the Acquisition Transaction described in
clause (i) of subsection (b) of this Section 10.2, except that the percentage
referred to in clause (z) shall be 25%.
(d) First National shall notify FBI promptly upon the occurrence
of any Initial Triggering Event or Subsequent Triggering Event.
10.3 Non-Survival of Representations and Covenants. The respective
representations and warranties of the Parties shall not survive the Effective
Time. All agreements of the Parties to this Agreement which by their terms are
to be performed following the Effective Time shall survive the Effective Time
until performed in accordance with their terms.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or any
proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, such Party or
any of its Subsidiaries (other than the transactions contemplated or
permitted by this Agreement).
"Affiliate" of a Person shall mean: (i) any other Person directly,
or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any
officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity
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or voting interest of such Person; or (iii) any other Person for which
a Person described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated
herein by reference.
"Assets" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character,
and description, whether real, personal, or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized
in such Person's business, directly or indirectly, in whole or in part,
whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of
such Person and wherever located.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as
amended.
"Certificate of Merger" shall mean the Certificate of Merger filed
with the OCC to consummate the Merger.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written agreement, commitment, contract,
note, bond, mortgage, indenture, instrument, lease, obligation,
license, or plan of any kind or character, or other document to which
any Person is a party or that is binding on any Person or its capital
stock or Assets.
"Default" shall mean (i) any breach or violation of or default
under any Contract, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, or (iii) any
occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate,
increase, or impose any liability under, any Contract where, in any
such event, such default is reasonably likely to have a Material
Adverse Effect on a Party.
"Derivatives Contract" shall have the meaning set forth in Section
5.20 of this Agreement.
"Effective Time" shall have the meaning set forth in Section 1.3
of this Agreement.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface, or subsurface strata) and
which are administered, interpreted, or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., and other Laws relating to emissions,
discharges, releases, or threatened releases of any Hazardous Material,
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of any
Hazardous Material.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
5.13(c) of this Agreement.
"Exchange Agent" shall have the meaning set forth in Section 4.1
of this Agreement.
"Exchange Ratio" shall have the meaning set forth in Section
3.1(c)of this Agreement.
"Exhibits" 1, 2 and 3 shall mean the Exhibits so marked, copies of
which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or
document without being attached hereto.
"FBCA" shall mean the Florida Business Corporation Act.
"FBI" shall have the meaning set forth in the first paragraph of
this Agreement.
"FBI Capital Stock" shall mean, collectively, the FBI Common
Stock, the FBI Preferred Stock, and any other class or series of
capital stock of FBI.
"FBI Common Stock" shall mean the $.01 par value common stock of
FBI.
"FBI Companies" shall mean, collectively, FBI and all FBI
Subsidiaries.
"FBI Financial Statements" shall mean the unaudited consolidated
balance sheets (including related notes and schedules, if any) of FBI
as of March 31, 1998, and as of December 31, 1997, and the related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for the three months
ended March 31, 1998, and for year ended December 31, 1997.
"FBI Preferred Stock" shall mean the $10.00 par value preferred
stock of FBI.
"First National" shall have the meaning set forth in the first
paragraph of this Agreement.
"First National Benefits Plans" shall have the meaning set forth
in Section 5.13(a) of this Agreement.
"First National Common Stock" shall mean the $1.00 par value
common stock of First National.
"First National Contract" shall have the meaning set forth in
Section 5.14.
"First National Financial Statements" shall mean (i) the
consolidated balance sheets (including related notes and schedules, if
any) of First National as of March 31, 1998, and as of December 31,
1997, 1996 and 1995, and the related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) for the three months ended March 31, 1998, and for
each of the three fiscal years ended December 31, 1997, 1996, and 1995,
as filed by First National with the Comptroller of the Currency and
(ii) the consolidated balance sheets of First National (including
related notes and schedules, if any) and related statements of income,
changes in
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shareholders' equity, and cash flows (including related notes and
schedules, if any) included in First National's Call Reports filed and
published in accordance with applicable federal regulation with respect
to periods ended subsequent to December 31, 1997.
"First National Pension Plan" shall have the meaning set forth in
Section 5.13(a) of this Agreement.
"First National Stock Plans" shall mean the existing stock option
and other stock-based compensation plans and warrant instruments of
First National set forth in Schedule 3.4.
"First National Options" shall have the meaning set forth in
Section 3.4(a) of this Agreement.
"GAAP" shall mean generally accepted accounting principles in the
United States, consistently applied during the periods involved
applicable to banks or bank holding companies, as the case may be.
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products, or oil (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated
biphenyls).
"Indemnified Party" shall have the meaning set forth in Section
8.14 of this Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean the
personal knowledge of the chairman, president, chief financial officer,
chief accounting officer, chief credit officer, general counsel, any
assistant or deputy general counsel, or any senior or executive vice
president of such Person and the knowledge of any such persons obtained
or which would have been obtained from a reasonable investigation,
except as otherwise stated in this Agreement.
"Law" shall mean any code, law, ordinance, regulation, reporting
or licensing requirement, rule, or statute applicable to a Person or
its Assets, Liabilities, or business, including those promulgated,
interpreted, or enforced by any Regulatory Authority.
"Lien" with respect to any Asset, shall mean any conditional sale
agreement, default of title, easement, encroachment, encumbrance,
hypothecation, infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention, or other security
arrangement, or any adverse right or interest, charge, or claim of any
nature whatsoever of, on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party,
pledges to secure deposits, and (iii) other Liens incurred in the
ordinary course of the banking business.
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"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding, or notice by any Person alleging potential liability.
"Loan Property" shall mean any property owned, leased, or operated
by the Party in question or by any of its Subsidiaries or in which such
Party or its Subsidiary holds a security or other interest (including
an interest in a fiduciary capacity), and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"Material Adverse Effect" on a Party shall mean an event, change,
or occurrence which, individually or together with any other event,
change, or occurrence, (i) would in the aggregate result in an adverse
impact of $200,000 or more on the financial position or results of
operations of such Party, or (ii) would impair the ability of such
Party to perform its obligations under this Agreement or to consummate
the Merger or the other transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include
the impact of (a) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in GAAP or regulatory accounting principles
generally applicable to banks and their holding companies, (c) actions
and omissions of a Party (or any of its Subsidiaries) taken with the
prior informed consent of the other Party in contemplation of the
transactions contemplated hereby, (d) circumstances affecting regional
bank holding companies generally, and (e) the Merger and compliance
with the provisions of this Agreement on the operating performance of
the Parties.
"Merger" shall have the meaning set forth in Section 1.1 of this
Agreement.
"Nasdaq" shall mean the Nasdaq Stock Market.
"National Bank Act" shall mean 12 U.S.C. ss. 1, et seq.
"OCC" shall mean the Office of the Comptroller of the Currency.
"Order" shall mean any decree, injunction, judgment, order,
decision or award, ruling, or writ of any federal, state, local, or
foreign or other court, arbitrator, mediator, tribunal, administrative
agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in
the management and, where required by the context, said term means the
owner or operator of such facility or property, but only with respect
to such facility or property.
"Party" shall mean either First National or FBI, and "Parties"
shall mean both First National and FBI.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person.
"Person" shall mean a natural person or any legal, commercial, or
governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
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liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity.
"Proxy Statement" shall mean the proxy statement used by First
National to solicit the approval of its shareholders of the
transactions contemplated by this Agreement, which shall include the
prospectus of FBI relating to the issuance of the FBI Common Stock to
holders of First National Common Stock.
"Registration Statement" shall mean the Registration Statement on
Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
FBI under the 1933 Act with respect to the shares of FBI Common Stock
to be issued to the shareholders of First National in connection with
the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Office of
the Comptroller of the Currency, the United States Department of
Justice, the Board of the Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the SEC, NASD, Nasdaq and all
state regulatory agencies having jurisdiction over the Parties and
their respective Subsidiaries.
"Resulting Association" shall mean the surviving corporation in
the Merger, First National, which will operate under the new name
"Florida Bank, N.A."
"Rights" shall mean all arrangements, calls, Contracts, options,
rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or any Contract, commitments or other
arrangements by which a Person is or may be bound to issue additional
shares of its capital stock or options, warrants, rights to purchase or
acquire any additional shares of its capital stock, or other Rights.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders
of First National to be held pursuant to Section 8.1 of this Agreement,
including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, there shall not be included any
such entity acquired through foreclosure or any such entity the equity
securities of which are owned or controlled in a fiduciary capacity.
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"Tax" or "Taxes" shall mean all federal, state, local, and foreign
taxes, charges, fees, levies, imposts, duties, or other assessments,
including income, gross receipts, excise, employment, sales, use,
transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent,
customs duties, capital stock, paid-up capital, profits, withholding,
Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added,
alternative or add-on minimum, estimated, or other tax or governmental
fee of any kind whatsoever, imposed or required to be withheld by the
United States or any state, local, foreign government or subdivision or
agency thereof, including any interest, penalties or additions thereto.
"Tax Opinion" shall have the meaning set forth in Section 9.1(g)
of this Agreement.
"Taxable Period" shall mean any period prescribed by any
governmental authority, including the United States or any state,
local, foreign government or subdivision or agency thereof for which a
Tax Return is required to be filed or Tax is required to be paid.
"Tax Return" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or
combined or unitary group that includes a Party or its Subsidiaries.
(b) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words
"include," "includes," or "including" are used in this Agreement, they
shall be deemed followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of FBI
and First National shall bear and pay all direct costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including filing, registration, and application
fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, except
that each of FBI and First National shall bear and pay one-half of the
printing costs incurred in connection with the printing of the
Registration Statement and the Proxy Statement.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach
by a Party of the terms of this Agreement or otherwise limit the rights
of the nonbreaching Party.
11.3 Brokers and Finders. Each of the Parties represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder in connection with this Agreement
or the transactions contemplated hereby. In the event of a claim by any broker
or finder based upon his or its representing or being retained by or allegedly
representing or being retained by First National or FBI, each of First National
and FBI, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement constitutes the entire agreement between the Parties with
respect to the transactions contemplated hereunder and
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<PAGE> 187
supersedes all prior arrangements or understandings with respect thereto,
written or oral (except for the Confidentiality Agreements).
11.5 Amendments. To the extent permitted by Law, this Agreement may
be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement has been obtained; provided, that
after any such approval by the holders of First National Common Stock, there
shall be made no amendment that reduces or modifies in any material respect the
consideration to be received by holders of First National Common Stock, without
the further approval of such shareholders.
11.6 Obligations of FBI. Whenever this Agreement requires FBI
(including the Resulting Association) to take any action, such requirement shall
be deemed to include an undertaking by FBI to cause the FBI Subsidiaries to take
such action.
11.7 Waivers.
(a) Prior to or at the Effective Time, FBI, acting through its
Board of Directors, chief executive officer, president or other
authorized officer, shall have the right to waive any default in the
performance of any term of this Agreement by First National, to waive
or extend the time for the compliance or fulfillment by First National
of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of FBI under
this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of FBI.
(b) Prior to or at the Effective Time, First National, acting
through its Board of Directors, chief executive officer, president or
other authorized officer, shall have the right to waive any default in
the performance of any term of this Agreement by FBI, to waive or
extend the time for the compliance or fulfillment by FBI of any and all
of its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of First National under this
Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless
in writing signed by a duly authorized officer of First National.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the
breach of any term contained in this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of
such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
11.8 Assignment. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by the Parties and their respective successors and assigns.
11.9 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such
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<PAGE> 188
other address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
First National: First National Bank of Tampa
100 West Kennedy Boulevard
Tampa, Florida 33602
Telephone Number:(813) 221-7910
Telecopy Number:(813) 221-7912
Attention: W. Andrew Krusen, Jr., Chairman
and John S. McMullen, President
Copy to Counsel: Igler & Dougherty, P.A.
1501 Park Avenue East
Tallahassee, Florida 32301
Telephone Number: (850) 878-2411
Telecopy Number: (850) 878-1230
Attention: A. George Igler, Esq.
FBI and Interim: Charles E. Hughes, Jr.
Florida Banks, Inc.
Suite 212, Southpoint Square II
Jacksonville, Florida 37216-0925
Telephone Number: (904) 296-2329
Telecopy Number: (904) 296-2820
Attention: President and Chief Executive Officer
Copy to Counsel: Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street
Atlanta, Georgia 30309-3592
Telephone Number: (404) 815-3758
Telecopy Number: (404) 685-7058
Attention: Robert C. Schwartz, Esq.
11.10 Governing Law; Arbitration. This Agreement shall be governed
by and construed in accordance with the Laws of the State of Florida, without
regard to any applicable conflicts of Laws, except to the extent that the Laws
of the United States. Any and all disputes arising out of or in connection with
this Agreement shall be submitted to arbitration, and finally settled, under the
Rules of the American Arbitration Association ("AAA") by one arbitrator
appointed in accordance with the said Rules. Any such arbitration shall be
conducted in Hillsborough County, Florida. Each party of this Agreement shall be
bound by the result of such arbitration. Each party shall bear its own expenses
relating to such disputes or disagreements so arbitrated, and the parties hereto
shall share equally the fees and charges of the arbitrators for conducting such
arbitration. Such arbitration shall be governed by the Federal Arbitration Act,
9 U.S.C. ss. 1 et seq; provided however, that the substantive law of the State
of Florida shall govern any and all such disputes. The Parties agree that any
action to confirm an arbitration award shall be brought in any competent court
in Hillsborough County, Florida, and that such court may enforce or compel
compliance with such award.
11.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 189
11.12 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.14 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.15 Directors' Termination Fee. At the Effective Time, any
director of First National who will not become an advisory director of the
Resulting Association or become a director or executive officer of FBI, shall
receive a cash payment from FBI in the amount of $25,000, provided that such
director of First National execute and deliver to FBI an agreement containing a
representation that such director of First National will not compete with FBI or
any of its Affiliates for a period of one year from the Effective Time and
containing a general release by which such director releases the Resulting
Association, FBI, the directors and officers of the Resulting Association and
FBI and the former directors and officers of First National from any claims or
causes of action (whether known or unknown) which may have arisen or occurred at
any time prior to the Effective Time.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
FLORIDA BANKS, INC.
By: /s/ Charles E. Hughes, Jr.
--------------------------------------
Name: Charles E. Hughes, Jr.
Title: President and Chief Executive Officer
FIRST NATIONAL BANK OF TAMPA
By: /s/ W. Andrew Krusen, Jr.
--------------------------------------
Name: W. Andrew Krusen, Jr.
Title: Chairman of the Board
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<PAGE> 190
Florida Interim Bank No. 1 hereby joins in the foregoing Agreement,
undertakes that it will be bound thereby and that it will duly perform all the
acts and things therein referred to or provided to be done by it.
IN WITNESS WHEREOF, Florida Interim Bank No. 1 has caused this
undertaking to be made in counterparts by its duly authorized officers and its
corporate seal to be hereunto affixed as of this ___ day of ___________, 1998.
FLORIDA INTERIM BANK NO. 1
By:
----------------------------
Name:
Title: President
Attest:
---------------------------------
Secretary
[Corporate Seal]
A-42
<PAGE> 191
APPENDIX B
12 U.S.C. SS.215A
MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(A) APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER AGREEMENT; NOTICE;
CAPITAL STOCK; LIABILITY OF RECEIVING ASSOCIATION
One or more national banking associations or one or more State banks, with
the approval of the Comptroller, under an agreement not inconsistent with this
subchapter, may merge into a national banking association located within the
same State, under the charter of the receiving association. The merger agreement
shall --
(1) be agreed upon in writing by a majority of the board of
directors of each association or State bank participating in the plan of
merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater proportion of
such capital stock in the case of a State bank if the laws of the State
where it is organized so require, at a meeting to be held on the call of
the directors, after publishing notice of the time, place, and object of
the meeting for four consecutive weeks in a newspaper of general
circulation published in the place where the association or State bank is
located, or, if there is no such newspaper, then in the newspaper of
general circulation published nearest thereto, and after sending such
notice to each shareholder of record by certified or registered mail at
least ten days prior to the meeting, except to those shareholders who
specifically waive notice, but any additional notice shall be given to the
shareholders of such State bank which may be required by the laws of the
State where it is organized. Publication of notice may be waived, in cases
where the Comptroller determines that an emergency exists justifying such
waiver, by unanimous action of the shareholders of the association or State
banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located
and which will be outstanding upon completion of the merger, the amount of
stock (if any) to be allocated, and cash (if any) to be paid, to the
shareholders of the association or State bank being merged into the
receiving association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the
receiving association.
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger
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<PAGE> 192
shall be approved by the Comptroller upon written request made to the receiving
association at any time before thirty days after the date of consummation of the
merger, accompanied by the surrender of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES;
STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this Section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
(E) STATUS OF RECEIVING ASSOCIATION; PROPERTY RIGHTS AND INTERESTS VESTED AND
HELD AS FIDUCIARY
The corporate existence of each of the merging banks or banking
associations participating in such merger shall be merged into and continued in
the receiving association and such receiving association shall be deemed to be
the same corporation as each bank or banking association participating in the
merger. All rights, franchises, and interests of the individual merging banks or
banking associations in and to every type of property (real, personal, and
mixed) and choses in action shall be transferred to and vested in the receiving
association by virtue of such merger without any deed or other transfer. The
receiving association, upon the merger and without any order or other action on
the part of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of lunatics, and in every other fiduciary
capacity, in the same
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<PAGE> 193
manner and to the same extent as such rights, franchises, and interests were
held or enjoyed by any one of the merging banks or banking associations at the
time of the merger, subject to the conditions hereinafter provided.
(F) REMOVAL AS FIDUCIARY; DISCRIMINATION
Where any merging bank or banking association, at the time of the merger,
was acting under appointment of any court as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver, or
committee of estates of lunatics, or in any other fiduciary capacity, the
receiving association shall be subject to removal by a court of competent
jurisdiction in the same manner and to the same extent as was such merging bank
or banking association prior to the merger. Nothing contained in this Section
shall be considered to impair in any manner the right of any court to remove the
receiving association and to appoint in lieu thereof a substitute trustee,
executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor
shall any receiving association be removed solely because of the fact that it is
a national banking association.
(G) ISSUANCE OF STOCK BY RECEIVING ASSOCIATION; PREEMPTIVE RIGHTS
Stock of the receiving association may be issued as provided by the terms
of the merger agreement, free from any preemptive rights of the shareholders of
the respective merging banks.
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<PAGE> 194
APPENDIX C
[MERCER CAPITAL LETTERHEAD]
June 25, 1998
The Board of Directors
c/o Mr. John S. McMullen
President
First National Bank of Tampa
100 West Kennedy Boulevard
Tampa, Florida 33602
RE: Fairness Opinion Regarding the Proposed Merger of First National Bank of
Tampa into Florida Banks, Inc.
Dear Directors:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Board of Directors of First National Bank of Tampa ("First National") to issue
a fairness opinion in regard to the proposed merger ("the Merger") of First
National into Florida Banks, Inc. ("FBI"). This fairness opinion is issued
from a financial point of view on behalf of the shareholders of First National.
Under the terms of the Agreement and Plan of Merger by and between Florida
Banks, Inc. and First National Bank of Tampa, dated March 30, 1998 ("the Merger
Agreement"), First National will be merged into Florida Banks, Inc.
simultaneously with the initial public offering of the common stock of FBI. At
that time, all of the common stock of First National will be exchanged for
shares of FBI common stock.
It is our understanding that FBI's common stock has been approved for quotation
on the Nasdaq National Market System subject to notice of issuance.
We have been advised that an opinion of qualified tax counsel that the merger
constitutes a non-taxable reorganization under Section 386(a) of the Internal
Revenue Code has been obtained by FBI on behalf of First National shareholders.
<PAGE> 195
The Board of Directors
c/o Mr. John S. McMullen
June 25, 1998
Page two
Consideration for the common stock of First National will be based on a fixed
aggregate price and a floating exchange rate. The nominal price at the closing
date is to be $6.6586 per First National share, or $13,750,000 for the 2,065,000
shares of First National stock (1,825,000 shares currently outstanding and
240,000 options to purchase one share each at $1.00 per share which are to be
exercised prior to closing). The ratio at which First National shares are to be
exchanged for FBI shares shall be determined by dividing the number 6.6586 by
the initial public offering price per share of FBI common stock as determined by
FBI's underwriters. Under this pricing formula, at any initial public offering
price per FBI share, the resulting exchange ratio will provide First National
shareholders with FBI common stock having an aggregate market value at closing
of $13,750,000, or $6.6586 per exchanged First National common share.
We noted the following significant risk factors in the transaction: (1) FBI's
lack of history of operations as a bank holding company [FBI was first
incorporated on October 15, 1997 and has no significant operations.]; (2) lack
of a trading history for FBI's stock; and, (3) risks related to FBI's plan of
expansion via further acquisitions and the opening of new banking offices in
Florida following the merger and initial public offering.
In evaluating the purchase price offered to First National shareholders in the
Merger, we considered the following: (1) the pricing of the merger relative
to other recent bank change of control transactions; (2) potential pricing of
First National if merged into established regional bank holding companies
presently active in acquiring banks located in Florida; (3) the potential value
to be realized for shareholders were First National to remain independent for
the foreseeable future; and, (4) an analysis of the estimated pro forma changes
in book value per share and earnings per share from the perspective of First
National's shareholders.
<PAGE> 196
The Board of Directors
c/o Mr. John S. McMullen
June 25, 1998
Page three
In arriving at out opinion, we reviewed and analyzed: (1) the Merger
Agreement; (2) FBI's Registration Statement; (3) to the best of our knowledge,
all of First National's publicly available documents issued within the last
five years; (4) financial and operational information with respect to the
business, operation and prospects of First National furnished to us by First
National; (5) recent trading history of First National's common stock, to the
extent available, as supplied by the First National's management; (6) a
comparison of the historical financial results and present financial condition
of First National with those of other companies which we deemed relevant; and,
(7) current economic and banking industry conditions in the Tampa area and
statewide in Florida. In addition, we have had discussions with the management
of First National concerning its business, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigation as we deemed appropriate. As part of the engagement, a
representative of Mercer Capital visited with First National management in
Tampa, Florida.
The preparation of a fairness opinion involves determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore, such an opinion is
not readily susceptible to summary description.
Mercer Capital neither compiled nor audited First National's or FBI's financial
statements, nor have we independently verified the information reviewed. We
have assumed and relied upon the accuracy and completeness of the financial and
other information provided to us in arriving at out opinion without independent
verification. We have not made an independent valuation of the loan portfolio,
adequacy of the loan loss reserve or other assets or liabilities of either
institution.
In arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the First National or FBI and have not made nor
obtained any evaluations or appraisals of the assets or the liabilities either
company. In addition, the Board of Directors has not authorized us to solicit,
and we have not solicited, any indications of interest from any third party
with respect to the purchase of all or a part of the Company's business. Our
opinion is necessarily based upon market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
<PAGE> 197
The Board of Directors
c/o Mr. John S. McMullen
June 25, 1998
Page four
This opinion relates only to the adequacy of the purchase consideration at the
closing date. We were not engaged to assess FBI's long-term business plan and
therefore express no opinion regarding FBI's future financial performance and
condition. Our opinion does not constitute a recommendation to any shareholder
as to how the shareholder should vote on the proposed merger; nor have we
expressed any opinion as to the prices at which any security of First National
or FBI might trade in the future. Our opinion expressly does not constitute a
recommendation to existing or prospective shareholders to purchase the equity
securities of FBI in the initial public offering or elsewhere.
We have acted as financial advisor to First National in connection with the
proposed Merger and will receive a fee for our services which is not contingent
upon the consummation of the proposed Merger. In addition, First National has
agreed to indemnify us for certain liabilities arising out of the rendering of
this opinion.
Based upon and subject to the forgoing, we are of the opinion as of the date
hereof that the terms of and the purchase consideration offered in the proposed
Merger of First National Bank of Tampa into Florida Banks, Inc. are fair, from
a financial point of view, to the shareholders of the common stock of First
National Bank of Tampa.
Sincerely yours,
MERCER CAPITAL MANAGEMENT, INC.
/s/ Z. Christopher Mercer, ASA, CFA
Z. Christopher Mercer, ASA, CFA
President
<PAGE> 198
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article X of the Florida Banks Articles provides as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of duty of care
or other duty as a director if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; provided, however, that to
the extent required by applicable law, this Article shall not eliminate or limit
the liability of a director (i) for a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (ii) for any transaction
from which the director derived an improper personal benefit, (iii) for unlawful
distributions to shareholders of the Corporation in violation of Section
607.06401 of the Florida Business Corporation Act, or (iv) for willful
misconduct or a conscious disregard for the best interests of the Corporation in
a proceeding by or in the right of the Corporation to procure judgment in its
favor or in a proceeding by or in the right of a shareholder. If applicable law
is amended to authorize corporate action further eliminating or limiting the
liability of directors, then the liability of each director of the Corporation
shall be eliminated or limited to the fullest extent permitted by applicable
law, as amended. Neither the amendment or repeal of this Article, nor the
adoption of any provision of these Articles of Incorporation inconsistent with
this Article, shall eliminate or reduce the effect of this Article in respect of
any acts or omissions occurring prior to such amendment, repeal or adoption of
an inconsistent provision.
Section 607.0850 of the FBCA provides that a corporation shall (subject to
the provisions described in the second succeeding paragraph of Section 607.850)
have the power to indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that
such person is or was a representative of the corporation, or is or was serving
at the request of the corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such persons in connection with the action or proceeding if such person acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that such person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
reasonable cause to believe that his conduct was unlawful.
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<PAGE> 199
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed with or incorporated by reference in this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of March 30, 1998 by and between Florida Banks,
Inc. and First National Bank of Tampa (included as Appendix A to the Proxy Statement-
Prospectus)
3.1 Amended and Restated Articles of Incorporation of Florida Banks, Inc.(1)
3.2 By-Laws of Florida Banks, Inc.(2)
3.3 Articles of Association of First National Bank of Tampa *
3.4 By-Laws of First National Bank of Tampa *
5.1 Opinion of Smith, Gambrell & Russell, LLP*
8.1 Tax Opinion of Smith, Gambrell & Russell, LLP*
10.1 Form of Employment Agreement between Florida Banks, Inc. and Charles E. Hughes, Jr.(3)
10.2 1998 Stock Option Plan of Florida Banks, Inc. (3)
10.2.1 Form of Incentive Stock Option Agreement (3)
10.2.2 Form of Non-Qualified Stock Option Agreement (3)
10.3 Form of Employment Agreement between Florida Banks and John S. McMullen, T. Edwin
Stinson, Jr., Donald D. Roberts and Richard B. Kensler (3)
10.4 Consulting Agreement dated as of January 20, 1998 between Florida Banks and T. Stephen
Johnson & Associates, Inc. (3)
10.5 Data Processing Services Agreement dated as of June 1, 1996 between M&I Data Services
and First National (3)
10.6 Lease Agreement dated as of June 29, 1995 between Bay Villa Developers, Inc., as
managing agent for Riverside Plaza Associates, Inc. as landlord and First National as tenant,
together with First Amendment of Lease dated as of December 16, 1996 (3)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Smith, Gambrell & Russell, LLP (included in Exhibits 5.1 and 8.1)*
23.3 Consent of Mercer Capital Company, Inc.
24 Power of Attorney (included in original signature page to this Registration Statement)
99.1 Form of Proxy for Special Meeting of Shareholders of First National Bank of Tampa
99.2 Form of Letter of Transmittal for Holders of First National Common Stock
99.3 Opinion of The Mercer Capital Company (included as Appendix C to the Proxy Statement-
Prospectus)
99.4 Provisions of the United States Code regarding rights of dissenting Shareholders of First
National (included as Appendix B to the Proxy Statement-Prospectus)
</TABLE>
- ----------------
(1) Incorporated herein by reference to Exhibit 3.1.1 to the registrant's
Registration Statement on Form S-1 (Reg. No. 333-50867).
(2) Incorporated herein by reference to Exhibit 3.2.1 to the registrant's
Registration Statement on Form S-1 (Reg. No. 333-50867).
(3) Incorporated herein by reference to the exhibit of same number to the
registrant's Registration Statement on Form S-1 (Reg. No. 333-50867).
* Previously filed
II-2
<PAGE> 200
ITEM 22. 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;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 in such information in the
Registration Statement:
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(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) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim
II-3
<PAGE> 201
financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause
to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(d) (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(g) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the Registration Statement when it became
effective.
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 the requirements of filing on Form S-4 and has authorized
this Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Jacksonville, State of
Florida, on the 6th day of July, 1998.
<PAGE> 202
FLORIDA BANKS, INC.
By:/s/ Charles E. Hughes, Jr.
----------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following persons
in the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles E. Hughes, Jr. President and Chief Executive Officer July 6, 1998
- ---------------------------------- (Principal Executive Officer) and Director
Charles E. Hughes, Jr.
/s/ Nancy E. LaFoy Secretary and Treasurer (Principal Financial July 6, 1998
- ---------------------------------- and Accounting Officer) and DirectoR
Nancy E. LaFoy
* Chairman of the Board July 6, 1998
--------------------------------- Director
M.G. Sanchez
* Vice Chairman of the Board July 6, 1998
--------------------------------- Director
T. Stephen Johnson
* Director July 6, 1998
---------------------------------
Clay M. Biddinger
* Director July 6, 1998
---------------------------------
P. Bruce Culpepper
* Director July 6, 1998
---------------------------------
J. Malcolm Jones, Jr.
* Director July 6, 1998
---------------------------------
W. Andrew Krusen, Jr.
* Director July 6, 1998
---------------------------------
Wilford C. Lyon, Jr.
* Director July 6, 1998
David McIntosh
* Director July 6, 1998
---------------------------------
John S. McMullen
*By: /s/ Charles E. Hughes, Jr. July 6, 1998
------------------------------
As Attorney-in-Fact
</TABLE>
<PAGE> 203
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated March 30, 1998 by and between Florida
Banks, Inc. and First National Bank of Tampa (included as Appendix A to the Proxy
Statement-Prospectus)
3.1 Amended and Restated Articles of Incorporation of Florida Banks, Inc. (1)
3.2 By-Laws of Florida Banks, Inc.(2)
3.3 Articles of Association of First National Bank of Tampa *
3.4 By-Laws of First National Bank of Tampa *
5.1 Opinion of Smith, Gambrell & Russell, LLP*
8.1 Tax Opinion of Smith, Gambrell & Russell, LLP*
10.1 Form of Employment Agreement between Florida Banks, Inc. and Charles E.
Hughes, Jr.(3)
10.2 1998 Stock Option Plan of Florida Banks, Inc.(3)
10.2.1 Form of Incentive Stock Option Agreement (3)
10.2.2 Form of Non-Qualified Stock Option Agreement (3)
10.3 Form of Employment Agreement between Florida Banks and John S. McMullen,
T. Edwin Stinson, Jr., Donald D. Roberts and Richard B. Kensler (3)
10.4 Consulting Agreement dated as of January 20, 1998 between Florida Banks and
T. Stephen Johnson & Associates, Inc. (3)
10.5 Data Processing Services Agreement dated as of June 1, 1996 between M&I Data
Services and First National Bank of Tampa (3)
10.6 Lease Agreement dated as of June 29, 1995 between Bay Villa Developers, Inc., as
managing agent for Riverside Plaza Associates, Inc. as landlord and First National
Bank of Tampa as tenant, together with First Amendment of Lease dated as of
December 16, 1996 (3)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Smith, Gambrell & Russell, LLP (included in
Exhibit 8.1)*
23.3 Consent of The Mercer Capital Company
99.1 Form of Proxy for Special Meeting of Shareholders of First National
99.2 Form of Letter of Transmittal for Holders of First National Common Stock
99.3 Opinion of The Mercer Capital Company (included as Appendix C to the Proxy
Statement-Prospectus)
99.4 Provisions of the United States Code regarding rights of dissenting Shareholders
of First National (included as Appendix B to the Proxy Statement-Prospectus)
</TABLE>
- --------------------
(1) Incorporated herein by reference to Exhibit 3.1.1 to the registrant's
Registration Statement on Form S-1 (Reg. No. 333-50867).
(2) Incorporated herein by reference to Exhibit 3.2.1 to the registrant's
Registration Statement on Form S-1 (Reg. No. 333-50867).
(3) Incorporated herein by reference to the registrant's Registration Statement
on Form S-1 (333-50867).
* Previously filed
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
51095 of Florida Banks, Inc. on Form S-4 of our reports dated March 20, 1998
relating to Florida Banks, Inc. and February 27, 1998 relating to First
National Bank of Tampa, appearing in the Proxy Statement-Prospectus, which is
part of this Registration Statement, and to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
July 6, 1998
<PAGE> 1
EXHIBIT 23.3
[MERCER CAPITAL LETTERHEAD]
July 2, 1998
CONSENT OF MERCER CAPITAL MANAGEMENT, INC.
In connection with the proposed merger of Florida Banks, Inc. and First
National Bank of Tampa, the undersigned, acting as independent financial advisor
to the common shareholders of First National Bank of Tampa, hereby consents to
the reference to our firm and our fairness opinion in the form S-4 Registration
Statement and to the inclusion of our fairness opinion as an appendix to the S-4
Registration Statement.
MERCER CAPITAL MANAGEMENT, INC.
/S/ J. Michael Julius, ASA, CFA
---------------------------------------
J. Michael Julius, ASA, CFA
Vice President
<PAGE> 1
EXHIBIT 99.1
FIRST NATIONAL BANK OF TAMPA
PROXY CARD FOR SPECIAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST
NATIONAL BANK OF TAMPA ("FIRST NATIONAL"). THE NON-EMPLOYEE DIRECTORS OF FIRST
NATIONAL WILL SERVE AS THE PROXY COMMITTEE FOR THE JULY 24, 1998 SPECIAL
MEETING OF SHAREHOLDERS ("SPECIAL MEETING").
The undersigned shareholder hereby appoints the Proxy Committee with
the full power of substitution to represent and to vote, as designated below,
all the shares of First National held of record by the undersigned on June 1,
1998, at the Annual Meeting to be held at 11:00 A.M., Local Time, on June 24,
1998, at the corporate offices of First National located at 100 West Kennedy
Boulevard, Tampa, Florida, or at any adjournment thereof.
The undersigned shareholder may revoke this Proxy at any time before
it is voted by either filing with the Corporate Secretary a written notice of
revocation, delivering to First National a duly executed Proxy bearing a later
date, or by attending the Special Meeting and voting in person. The sole
purpose of the Special Meeting is to consider and vote upon the following
Merger proposal:
(1) The Merger. To approve and adopt the Agreement and Plan of Merger
dated as of March 30, 1998, between First National and Florida Banks, Inc.
("Florida Banks") (the "Merger Agreement"), whereby First National will be
merged (the "Merger") with and into a wholly-owned subsidiary of Florida Banks
that will be the survivor of such Merger. Immediately upon consummation of the
Merger, each issued and outstanding share of First National "Common Stock"
(other than shares as to which dissenter's rights are properly exercised) will
be converted into and exchanged for the right to receive $6.6586 worth of
Florida Banks "Common Stock" valued at the price (the "IPO Price") of the
Florida Banks Common Stock in the initial public offering of Florida Banks
Common Stock that is being closed immediately following the closing of the
Merger, rounded to the third nearest decimal point. Assuming an IPO Price of
$11.00 per share (which represents the mid-point of the estimated range), each
share of First National Common Stock outstanding immediately before the Merger
is effected will be convertible into approximately 0.605 shares of Florida
Banks Common Stock ($6.6586 divided by $11.00). Cash will be paid in lieu of
fractional shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
NOTE: THIS PROXY IS REVOCABLE AND WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION
IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL (1) ABOVE.
IMPORTANT:
Please sign your name exactly as it appears on this Proxy Card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, agent, trustee or guardian, please give full title. If
shareholder is a corporation, please sign in full corporate name by the
president or other authorized officer. If shareholder is a partnership, please
sign in partnership name by an authorized person.
The undersigned acknowledges receipt from First National, prior to the
execution of the Proxy, a Notice of the Special Meeting and a Proxy Statement
dated July 10, 1998.
_____________________________________________________
Signature
_____________________________________________________
Signature if held jointly
Date:________________________________________________
Please mark, sign, date and return this Proxy
Card promptly, using the enclosed envelope.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
LETTER OF TRANSMITTAL
FOR SURRENDER OF CERTIFICATES REPRESENTING
SHARES OF THE COMMON STOCK OF
FIRST NATIONAL BANK OF TAMPA
Dear First National Shareholder:
On , 1998, First National Bank of Tampa ("First National") was merged
(the "Merger") with and into a wholly-owned subsidiary of Florida Banks, Inc., a
Florida corporation ("Florida Banks"). The Merger was effected pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 30, 1998
by and between First National and Florida Banks. First National's shareholders
approved the Merger Agreement at a Special Meeting of Shareholders held on
June 24, 1998.
When the Merger was effected, each issued and outstanding share of
First National's outstanding common stock, $1.00 par value per share ("First
National Common Stock"), was converted into and exchanged for the right to
receive _____ shares of Florida Banks's common stock, $.01 par value per share
("Florida Banks Common Stock"). Cash will be issued in lieu of any fractional
share of Florida Banks Common Stock otherwise issuable in exchange for shares of
First National Common Stock ("Shares").
Upon surrender of your Shares according to the terms of the Merger
Agreement and the instructions provided in this Letter of Transmittal, [Insert
Name of Exchange Agent] (the "Exchange Agent") will distribute to you
certificates representing the shares of Florida Banks Common Stock to which you
are entitled ("New Certificates"). When surrendering your Shares, you must
deliver to the Exchange Agent the certificates representing your Shares ("Share
Certificates") accompanied by a duly executed and completed Letter of
Transmittal. You may deliver this Letter of Transmittal and your Share
Certificates either in person or by mail to the following locations:
If By Mail:If By Hand:
[Insert Address][Insert Address]
PLEASE DIRECT ALL INQUIRIES RELATING TO THE SURRENDER OF SHARES TO:
The Exchange Agent:
[Insert Name, Address and Telephone Number]
Delivering this Letter of Transmittal and your Share Certificates to an
address other than the addresses indicated above does not constitute
a valid delivery of your Shares. DO NOT SEND LETTERS OF TRANSMITTAL
OR SHARE CERTIFICATES TO FIRST NATIONAL OR FLORIDA BANKS.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE EXECUTION.
THE EXCHANGE AGENT CAN ASSIST YOU IN COMPLETING THIS FORM AND PROVIDING
ADDITIONAL COPIES OF THE LETTER OF TRANSMITTAL. YOU MUST FOLLOW
THE INSTRUCTIONS TO THE LETTER OF TRANSMITTAL. PLEASE DIRECT
ANY QUESTIONS TO THE EXCHANGE AGENT.
IF ANY SHARE CERTIFICATE HAS BEEN MUTILATED, LOST, STOLEN, OR
DESTROYED, CHECK THE FOLLOWING BOX AND SEE INSTRUCTION 7.
<PAGE> 2
Upon the terms and subject to the conditions of the Merger Agreement,
the undersigned hereby surrenders to the Exchange Agent the number of Shares
indicated below. The undersigned acknowledges receipt of this Letter of
Transmittal and prior receipt of the Proxy Statement-Prospectus dated
July 10, 1998. The undersigned agrees that full execution of this Letter of
Transmittal will constitute surrender of all Shares indicated in this Letter of
Transmittal.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to surrender the Share Certificates enclosed with this
Letter of Transmittal free and clear of all liens, restrictions, charges, and
encumbrances, and that the Share Certificates will not be subject to any adverse
claim. Upon request the undersigned will execute and deliver any additional
documents the Exchange Agent deems necessary to effect the surrender of the
Shares.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the undersigned's attorney-in-fact, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver the Share Certificates for surrender
in exchange for shares of Florida Banks Common Stock; (b) cancel Share
Certificates following their surrender in exchange for certificates representing
shares of Florida Banks Common Stock ("New Certificates"), and to the extent
instructed in this Letter of Transmittal, transfer Share ownership on First
National's books; and (c) receive on behalf of the surrendering holders of
Shares all benefits and otherwise exercise all rights of beneficial ownership of
such Shares, all according to the terms of this Letter of Transmittal.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall survive the undersigned's death or incapacity, and any
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, successors, and assigns.
The undersigned hereby authorizes and instructs the Exchange Agent to
deliver to Florida Banks the Share Certificates surrendered with this Letter of
Transmittal and to distribute to the undersigned, in exchange for every Share,
____ shares of Florida Banks Common Stock according to the terms of the Merger
Agreement. No fractional shares of Florida Banks Common Stock will be issued in
connection with the surrender and exchange of Share Certificates; instead, the
undersigned will be paid cash in lieu of any fractional share of Florida Banks
Common Stock otherwise issuable.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ CAREFULLY THE INSTRUCTIONS TO THIS
LETTER OF TRANSMITTAL
<PAGE> 3
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 2, 4, AND 5) (SEE INSTRUCTIONS 2, 4 AND 5)
<S> <C>
To be completed ONLY if New Certificates are to be To be completed ONLY if New Certificates are
issued in a name other than the name of the registered holder of the Shares. to be sent to someone other than the undersigned,
or sent to the undersigned at an address other than
the address shown in the space indicated under the
box entitled "Description of Surrendered Share
Certificates Tendered."
ISSUE NEW CERTIFICATES TO:
Name
(Please Type or Print) MAIL NEW CERTIFICATES TO:
Address
Name
(Include Zip Code) Address
(Taxpayer ID Or Social Security Number(s)) (Include Zip Code)
- ---------------------------------------------------------------------------- ---------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
=======================================================================================================================
DESCRIPTION OF SURRENDERED SHARE CERTIFICATES
PLEASE FILL IN (SEE INSTRUCTIONS 3 AND 4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Name(s) and address(es) of registered holder(s) (If blank, please SHARE CERTIFICATES NUMBER(S) ENCLOSED (ATTACH
fill in exactly as name(s) appear(s) on Share(s) Certificates ADDITIONAL SIGNED LIST IF NECESSARY)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================================
BY VIRTUE OF THE ABOVE-DESCRIBED SURRENDER, THE UNDERSIGNED HEREBY
SURRENDERS ALL SHARES SPECIFIED IN THIS
LETTER OF TRANSMITTAL.
<S> <C>
X
----------------------------- -------------------------------------------
Dated
X
----------------------------- -------------------------------------------
Signature(s) of Owner(s) or Dated
Authorized Signatory
Name(s):
-----------------------------------------------------------
(Please Type or Print)
-----------------------------------------------------------
(Please Type or Print)
Telephone No.
------------------------------------------------------
Please date and sign your name exactly as it appears on your Share
Certificates. You must follow completely the Instructions included with this
Letter of Transmittal.
=========================================================================================================================
</TABLE>
<PAGE> 5
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of
Transmittal must be guaranteed as set forth in this Instruction 1 IF (i) you
have completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" or (ii) this Letter of Transmittal
is signed by someone other than the registered holder of the Share Certificates
listed. If signatures on this Letter of Transmittal are required to be
guaranteed, the guarantee must be made by a firm or other entity identified in
Rule 17A(d)15 under the Securities Exchange Act of 1934, as amended, including
(as such terms are defined therein) any (i) bank, (ii) broker, dealer, municipal
securities dealer, municipal securities broker, government securities dealer or
governmental securities broker, (iii) credit union, (iv) national securities
exchange, registered securities association or clearing agency, or (v) savings
association (in each case, an "Eligible Institution"), acting according to the
procedures set forth in such Rule. In addition, each such Eligible Institution
must be a participant in a signature medallion guarantee program. See
Instruction 5. IF THE REGISTERED HOLDER(S) OF THE SHARE CERTIFICATE(S) BEING
SURRENDERED HEREBY SIGNS THIS LETTER OF TRANSMITTAL, AND IF THE FLORIDA BANKS
COMMON STOCK IS TO BE ISSUED IN THE NAME OF AND DELIVERED TO THE REGISTERED
HOLDER THEREOF AT THE ADDRESS APPEARING ON PAGE 3 OF THIS LETTER OF TRANSMITTAL,
NO SIGNATURE GUARANTEE IS REQUIRED.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. Holders must use this
Letter of Transmittal to effect the surrender of their Shares. The Share
Certificates, together with a properly completed and duly executed Letter of
Transmittal or facsimile thereof and any other documents required by the Letter
of Transmittal (in a form satisfactory to the Company), should be mailed or
delivered to the Exchange Agent at the appropriate address set forth above in
order to make an effective surrender. Until all necessary steps have been taken
to surrender the Shares, there will be no distribution of New Certificates
representing shares of Florida Banks Common Stock according to the terms of the
Merger Agreement.
Distribution of New Certificates will only be made against proper
surrender of Shares. Unless the Shares being surrendered are deposited with the
Exchange Agent (accompanied by a properly completed Letter of Transmittal), or
surrendered pursuant to the guaranteed delivery procedures, Florida Banks has
the option to reject any surrender.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES,
IS AT THE ELECTION AND RISK OF THE SHAREHOLDER. IF DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED.
3. INADEQUATE SPACE. If the space provided is inadequate, please list
on a separately attached, signed schedule the Share Certificate numbers and/or
the number of shares represented.
4. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.
(a) If the registered holder of the Shares surrendered by the Letter of
Transmittal signs the Letter of Transmittal, the signature must correspond with
the name written on the face of the surrendered Share Certificates without any
change whatsoever.
(b) If the Shares are held of record by two or more joint holders, all
such holders must sign the Letter of Transmittal.
<PAGE> 6
(c) If any Shares are registered in different names on different Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Shares.
(d) When the registered holder of the Shares listed signs and transmits
the Letter of Transmittal, no endorsements of Share Certificates or separate
stock powers are required unless payment is to be made, or the New Certificates
are to be issued, to a person other than the registered holder(s). Signatures on
such Share Certificates must be guaranteed by an Eligible Institution. However,
if a person other than the registered holder of the Shares listed signs the
Letter of Transmittal, the Shares must be endorsed by the registered holder(s)
or accompanied by a written instrument or instruments of transfer or exchange in
form, in either case signed exactly as the name or names of the registered
holder or holders appear on the Share Certificates. Signatures on such Share
Certificates or stock powers must be guaranteed by an Eligible Institution. See
Instruction 1.
(e) If trustees, executors, administrators, guardians,
attorney-in-fact, officers or corporations or others acting in a fiduciary or
representative capacity sign the Letter of Transmittal or any Share Certificates
or stock powers, such persons should so indicate when signing and must submit
proper evidence satisfactory to Florida Banks of their authority to so act.
5. SPECIAL ISSUANCE, PAYMENT AND DELIVERY INSTRUCTIONS. If New
Certificates are to be issued in the name of a person other than the signer of
the Letter of Transmittal, or if New Certificates are to be sent to someone
other than the signer of the Letter of Transmittal or to the signer at a
different address, the appropriate boxes on the Letter of Transmittal should be
completed.
6. VALIDITY OF SURRENDER; IRREGULARITIES. Florida Banks will determine
in its sole and final discretion all questions as to the form of all documents
and the validity (including time of receipt), eligibility, acceptance, and
withdrawal of surrendered Shares. Florida Banks reserves the absolute right to
reject any or all attempted surrenders not in proper form or the acceptance of
which would, in the opinion of Florida Banks's counsel, be unlawful. Florida
Banks also reserves the absolute right, subject to applicable law, to waive any
of the conditions contained in the Letter of Transmittal or any defect or
irregularity in the surrender of any of the Shares without making a public
announcement of such waiver. In addition, Florida Banks reserves the right to
permit the withdrawal of any surrendered Shares pursuant to the Merger Agreement
to the extent required by applicable law. Neither Florida Banks, the Exchange
Agent, nor any other person will be under any duty to give notification. The
Exchange Agent will return to the appropriate surrendering Holder, as soon as
practicable following their receipt, any improperly surrendered Shares received
by the Exchange Agent as to which irregularities have not been cured or waived.
Florida Banks's interpretation of the terms and conditions of the Letter of
Transmittal and these instructions will be final and binding on all parties.
7. MUTILATED, LOST, STOLEN OR DESTROYED SHARE CERTIFICATES. A
registered holder who reports the loss, mutilation, theft, or destruction of
Share Certificates should grant the Exchange Agent an affidavit and any other
showing or representation the Exchange Agent may reasonably require regarding
the circumstances of such loss, mutilation, theft, or destruction in lieu of
surrendering such Share Certificate.
8. REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Requests for
additional copies of the Letter of Transmittal or other assistance should be
made in writing to the Exchange Agent at the address set forth above in the
Letter of Transmittal.
