<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FLORIDA BANKS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 6712 58-2364573
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</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:
<TABLE>
<S> <C>
TERRY FERRARO SCHWARTZ FRANK M. CONNER, III
SMITH, GAMBRELL & RUSSELL, LLP ALSTON & BIRD, LLP
PROMENADE II, SUITE 3100 ONE ATLANTIC CENTER
1230 PEACHTREE STREET, N.E. 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30309-3424
(404) 815-3731 (404) 881-7992
(404) 685-7031 (FAX) (404) 881-7777 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act 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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock $.01 par value.... 4,600,000 shares $12.00 $55,200,000 $16,284
=======================================================================================================================
</TABLE>
(1) Includes 600,000 shares that may be sold by the Company upon exercise of the
Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
---------------------
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.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
4,000,000 SHARES [LOGO]
FLORIDA BANKS, INC.
COMMON STOCK
All of the 4,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), offered hereby are being sold by Florida Banks, Inc., a
Florida corporation (the "Company"). Prior to the offering (the "Offering"),
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $10.00 and $12.00 per
share. See "Underwriting" for information relating to the determination of the
initial public offering price. Application has been made to have the Common
Stock approved for quotation on The Nasdaq National Market under the trading
symbol "FLBK."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER
OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
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<S> <C> <C> <C>
Per Share.......................... $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3)........................... $ $ $
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated to be
$450,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if received and accepted by them,
subject to their right to reject orders, in whole or in part, and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
certificates representing such shares will be made against payment therefor in
immediately available funds at the offices of The Robinson-Humphrey Company, LLC
on or about , 1998.
THE ROBINSON-HUMPHREY COMPANY INTERSTATE/JOHNSON LANE
CORPORATION
, 1998
<PAGE> 3
[MAP OF STATE OF FLORIDA WITH STARS MARKING THE "IDENTIFIED MARKETS"
AS DEFINED IN THIS PROSPECTUS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE
UNDERWRITERS IN THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
GENERAL
Florida Banks, Inc. (the "Company") 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 Offering,
the Company will acquire First National Bank of Tampa (the "Bank") as its entry
into the Tampa/Hillsborough County market area (the "Merger"). The Company
intends to open a community banking office in the Jacksonville market area as
soon as practicable following consummation of the Offering. 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, the Company also intends to
expand into other Florida market areas with demographic characteristics similar
to the Identified Markets. Within each of the Identified Markets, the Company
expects to offer a broad range of traditional banking products and services,
focusing primarily on small and medium-sized businesses. See
"Business -- Strategy of the Company -- Market Expansion" and "-- Products and
Services."
The Company 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, strong community contacts and strong business development
potential in the Identified Markets. Once local management teams are identified,
the Company 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"). The Company will maintain centralized credit
policies and procedures as well as centralized back office functions to support
the Community Banking Offices. Management expects that upon the Company's 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 "Business -- Strategy of the Company -- Model
'Local Community Bank.' "
Management of the Company 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 the Company has a unique
opportunity to attract and maintain its targeted banking customers and
experienced management personnel within the Identified Markets.
Florida is the fourth most populated state in the country with a current
population of approximately 14.4 million. From 1990 to 1997, Florida ranked
second of 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. Financial institutions in Florida have experienced substantial growth in
recent years in the amount of total deposits. As of June 30, 1997, these
deposits totaled approximately $200 billion. Management believes that the major
metropolitan areas in Florida
1
<PAGE> 5
have benefited the most from this economic and population expansion, and thus
has selected the Identified Markets as the focus of its expansion strategy.
The Company has assembled an initial management team which includes
individuals who have significant experience in the banking industry in Florida.
Charles E. Hughes, Jr. is the President and Chief Executive Officer of the
Company. Prior to joining the Company, Mr. Hughes served as Chairman, President
and Chief Executive Officer of SouthTrust Bank of Florida, which as of June 30,
1997 had approximately $5.4 billion in total deposits. The Company's Chief
Credit Officer is Richard B. Kensler who, since 1987, served as a senior credit
officer with Signet Banking Corporation of Richmond, Virginia. The Company has
also hired Donald Roberts to be President of the Jacksonville Market. Mr.
Roberts previously served as President and Chief Executive Officer of Barnett
Bank, N.A., Lake County, Florida. In addition, the Company will continue to have
the resources of current Bank management, including John S. McMullen who will
serve as a Director and President of the Tampa Market and T. Edwin Stinson, Jr.
who will serve as Chief Financial Officer of the Company.
STRATEGY OF THE COMPANY
The Company's business strategy is to create a statewide community banking
system in Florida. The major elements of this strategy are to:
- EXPAND THE BANK'S OPERATIONS IN THE TAMPA MARKET AND, AS SOON AS
PRACTICABLE FOLLOWING THE OFFERING, 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
- OUTSOURCE CORE PROCESSING AND BACK ROOM OPERATIONS TO INCREASE
EFFICIENCIES.
The Company expects to establish Community Banking Offices in each new
market area primarily through the de novo branching of the Bank. Management will
also, however, evaluate opportunities for strategic acquisitions of financial
institutions in markets that are consistent with its business plan. Upon
consummation of the Merger, the Bank will be renamed Florida Bank, N.A.
BANK ACQUISITION
On March 30, 1998, the Company executed a definitive merger agreement with
the Bank, pursuant to which the Company will acquire all of the outstanding
capital stock of the Bank in exchange for shares of Common Stock. The aggregate
purchase price for the Bank 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 the
Bank had acquired the Company, the financial statements of the Bank will become
the historical financial statements of the Company and there will be no goodwill
recorded as a result of the Merger. Consummation of the Merger is subject to
certain regulatory and shareholder approvals. The Merger will be consummated
immediately prior to the Offering. As of December 31, 1997 and for the fiscal
year ended December 31, 1997, the Bank reported total assets of $60.4 million,
total shareholders' equity of $6.3 million and net income of $376,000.
2
<PAGE> 6
CURRENT COMPANY OPERATIONS
The Company will remain in the development stage until the consummation of
the Merger and the completion of the Offering. The Company had no operations for
the year ended December 31, 1997 and had no equity and de minimus assets and
liabilities at December 31, 1997. The Company has funded its start-up and
organization costs through the sale of units in a private placement that was
completed in February 1998. The units, which consist of common stock, preferred
stock and common stock purchase warrants, generated $606,808 in proceeds to the
Company.
The Company's offices are located at 4110 Southpoint Boulevard, Suite 212,
Southpoint Square II, Jacksonville, Florida 32216. The Company's telephone
number is (904) 296-2329. The Company's offices will be relocated upon
consummation of the Merger and the Offering.
THE OFFERING
Common Stock offered by the
Company.................. 4,000,000 shares(1)
Common Stock outstanding
after the Offering and the
Merger................... 5,627,800 shares(2)(3)
Use of Proceeds............ To provide the Bank with additional growth capital,
redeem outstanding Company preferred stock, fund
expansion through branching and the acquisition of
existing banks, and for other general corporate
purposes. See "Use of Proceeds."
- ---------------
(1) Excludes 600,000 shares issuable upon full exercise of the Underwriters'
over-allotment option.
(2) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's 1998 Stock Option Plan. Upon consummation of the Offering, there
will be outstanding options to purchase 465,000 shares of Common Stock with
an exercise price equal to the initial public offering price and outstanding
warrants to purchase 80,800 shares of Common Stock issued in connection with
the initial capital offering to certain foreign investors with an exercise
price equal to the initial public offering price. See "Management -- Stock
Option Plan."
(3) Includes an estimated 1,250,000 shares of Common Stock to be issued to
shareholders of the Bank (assuming all Bank options are exercised and Bank
warrants expire without exercise) in connection with the Merger based on an
assumed initial public offering price of $11.00 per share (the mid-point of
the estimated range). In addition, includes 377,800 shares of Common Stock
outstanding prior to the Offering. See "Description of Bank Acquisition" for
a discussion of the exchange ratio formula to be used in the Merger.
Proposed Nasdaq National
Market Symbol............ "FLBK"
RISK FACTORS
Prior to making an investment decision, prospective purchasers should
consider all of the information set forth in this Prospectus and should evaluate
the statements set forth in "Risk Factors" beginning on page 6. Such factors
include, without limitation, the lack of operating history of the Company;
expansion and management of growth; competition; the operating history of the
Bank; dependence on management; the broad discretion in the use of proceeds;
credit risk and the allowance for loan losses; interest rate risk; the absence
of a public market, the volatility of the stock price and the potential for
fluctuation in quarterly results; certain unpredictable economic conditions; the
limitation on dividends and the reliance on the Bank for receipt of such
dividends; the impact of technological advances and upgrade to the Company's
internal systems; year 2000 compliance; anti-takeover provisions; the issuance
of preferred stock; government regulation; the need for future capital; the
determination of the initial public offering price; dilution to investors;
restrictions on certain shares eligible for future sale; the fact that the
Common Stock is not an insured bank deposit; and the indemnification of
directors and officers.
3
<PAGE> 7
SUMMARY SELECTED FINANCIAL DATA
The following tables set forth the summary selected financial data of the
Bank for the periods indicated. As the Company had no operations during 1997 and
had no equity and de minimus assets and liabilities at December 31, 1997, the
selected financial data of the Company 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 the Bank 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 the Bank, which have been audited by Deloitte &
Touche LLP, independent auditors. The selected financial data of the Bank 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 the Bank, which were audited
by other independent certified public accountants. These selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's financial
statements and notes thereto and the Bank's financial statements and notes
thereto, and financial and other information included elsewhere herein.
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THE BANK
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YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income...................................... $4,302 $3,614 $2,937 $2,075 $ 1,772
Interest expense..................................... 2,296 1,872 1,474 1,005 954
------ ------ ------ ------ -------
Net interest income.................................. 2,006 1,742 1,463 1,070 818
Provision (benefit) for loan losses.................. 60 60 (138) (15) --
------ ------ ------ ------ -------
Net interest income after provision for loan
losses............................................. 1,946 1,682 1,602 1,085 818
Noninterest income................................... 504 519 375 385 542
Noninterest expense.................................. 1,842 1,601 1,621 1,568 2,684
------ ------ ------ ------ -------
Income (loss) before provision for income taxes...... 608 600 356 (99) (1,325)
Provision for income taxes(1)........................ 232 216 -- -- --
------ ------ ------ ------ -------
Net income (loss).................................... $ 376 $ 384 $ 356 $ (99) $(1,325)
====== ====== ====== ====== =======
Earnings (loss) per common share(2):
Basic.............................................. $ .21 $ 21 $ .20 $ (.05) $ (2.69)
Diluted............................................ .20 .20 .19 (.05) (2.69)
</TABLE>
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(1) 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 the Bank's quasi-reorganization) has been reflected as increases to
additional paid-in capital.
(2) The earnings per share amounts are based upon the Bank's historical weighted
average number of shares outstanding and do not reflect any pro forma
adjustments relating to the Offering or the exchange of shares upon
consummation of the Merger.
4
<PAGE> 8
<TABLE>
<CAPTION>
THE BANK
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AT DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities.......................... $10,765 $ 8,551 $ 6,760 $ 7,495 $ 4,590
Loans, net of deferred loan fees............... 33,720 31,627 26,571 20,292 17,041
Earnings assets................................ 54,731 52,588 38,801 32,377 26,481
Total assets................................... 60,396 55,505 41,748 34,959 29,337
Noninterest-bearings deposits.................. 6,442 8,122 5,719 4,660 3,696
Total deposits................................. 45,460 45,526 34,633 31,886 26,093
Other borrowed funds........................... 8,317 6,408 4,212 780 628
Total shareholders' equity..................... 6,314 3,269 2,678 2,143 2,421
PERFORMANCE RATIOS:
Net interest margin(1)......................... 3.89% 4.05% 4.13% 3.77% 3.02%
Efficiency ratio(2)............................ 73.39 70.76 88.16 107.84 197.45
Return on average assets....................... .70 .85 .95 (.32) (4.22)
Return on average equity....................... 10.62 13.18 14.85 (4.14) (68.70)
ASSET QUALITY RATIOS:
Allowance for loan losses to total loans....... 1.42% 1.36% 1.28% 2.27% 2.60%
Non-performing loans to total loans(3)......... -- -- -- .60 .90
Net charge-offs (recoveries) to average
loans........................................ .03 (.11) (.07) (.18) .42
CAPITAL AND LIQUIDITY RATIOS:
Total capital to risk-weighted assets.......... 14.29% 12.26% 12.42% 13.28% 15.41%
Tier 1 capital to risk-weighted assets......... 13.00 11.01 11.17 12.03 14.14
Tier 1 capital to average assets............... 7.42 6.42 6.64 6.3 7.56
Average loans to average deposits.............. 75.77 75.83 67.26 65.11 60.72
Average equity to average total assets......... 6.54 6.45 6.4 7.75 6.15
</TABLE>
- ---------------
(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
(3) The Bank had no non-performing loans at December 31, 1997, 1996 and 1995.
5
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the shares of Common Stock offered hereby. Certain statements included in this
Prospectus concerning the Company's future financial condition and performance
are forward-looking statements, and the factors discussed below, as well as
those discussed elsewhere in this Prospectus, could cause actual results and
developments to differ materially from those expressed in or implied by such
statements.
NO OPERATING HISTORY OF COMPANY
The Company was incorporated on October 15, 1997 and has not engaged in any
operating activities. Accordingly, the Company has no history of operations as a
bank holding company. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of development. To address these risks, the Company must, among
other things, consummate the Merger, expand into new markets, build its customer
base, respond to competitive developments, continue to attract, retain and
motivate qualified management and employees and continue to upgrade its
technologies, products and services. There can be no assurance that the Company
will be successful in addressing such risks. As a result of the substantial
start-up expenditures that must be incurred by the Company in connection with
its organization, acquisition of the Bank and expansion into new markets, the
Company may incur operating losses during its initial years of operations.
EXPANSION AND MANAGEMENT OF GROWTH
The Company intends to pursue an aggressive growth strategy for the
foreseeable future, and future results of operations will be affected by its
ability to, among other things, identify suitable markets and sites for new
Community Banking Offices, build its customer base, attract qualified bank
management, negotiate agreements with acceptable terms in connection with the
acquisition of existing banks and maintain adequate working capital. Failure to
manage growth effectively or to attract and retain qualified personnel could
have a material adverse effect on the Company's business, future prospects,
financial condition or results of operations, and could adversely affect the
Company's ability to implement its business strategy successfully.
There can also be no assurance that the Company will be able to expand its
market presence in the Bank's existing Tampa market or successfully enter new
markets or that any such expansion will not adversely affect the Company. In
entering new markets, the Company will encounter competitors with greater
knowledge of such local markets and greater financial and operational resources.
In addition, although the Company intends to expand primarily through selective
de novo Bank branch openings, the Company intends to regularly evaluate
potential acquisition transactions that would complement or expand the Company's
business. In doing so, the Company expects to compete with other potential
bidders, many of which have greater financial resources than the Company. See
"Business -- Competition."
When entering new geographic markets, the Company will need to establish
relationships with additional well-trained local senior management and other
employees. In order to effect the Company's business strategy, the Company will
be substantially reliant upon local management, and accordingly, it will be
necessary for the Company to give significant local decision-making authority to
its senior officers and managers in any new bank office location. There can be
no assurance that the Company will be able to establish such local affiliations
and attract qualified management personnel.
The process of opening new bank locations and evaluating, negotiating and
integrating acquisition transactions may divert management time and resources.
There can be no assurance that the Company will be able to establish any future
de novo branch office or acquire any additional financial institutions.
Moreover, there can be no assurance that the Company will be able to integrate
successfully or operate profitably any newly established branch office or
acquired financial institution. There can be no assurance that the Company will
not incur disruption and unexpected expenses in integrating newly established
operations. The Company's ability to manage growth as it pursues its expansion
strategy will also be dependent upon, among other factors, its ability to (i)
maintain appropriate policies, procedures and systems to ensure that the
Company's loan
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<PAGE> 10
portfolio maintains an acceptable level of credit risk and loss and (ii) manage
the costs associated with expanding its infrastructure, including systems,
personnel and facilities. The Company's inability to manage growth as it pursues
its expansion strategy could have a material adverse effect on the Company's
business, future prospects, financial condition or results of operations. See
"Business -- Strategy of the Company."
COMPETITION
Competition among financial institutions in Florida and the Identified
Markets is intense. The Company and the Bank 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, larger
branch networks and are able to offer a broader range of products and services
than the Company and the Bank.
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 the Company and the Bank. 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 increase competitive pressures on the Company. The Company's failure to
compete effectively for deposit, loan and other banking customers in its market
areas could have a material adverse effect on the Company's business, future
prospects, financial condition or results of operations. See
"Business -- Strategy of the Company -- Market Expansion."
OPERATING HISTORY OF THE BANK
Unsuccessful operating strategies and tactics employed by the former
management of the Bank, which was incorporated in 1988 under the name
"Enterprise National Bank of Tampa," led to loan losses, poor credit quality,
low net interest margins and high overhead expenses, which resulted in
substantial losses in the years 1988 through 1992. In 1991, the Bank was
required to enter into a Formal Agreement with the OCC pursuant to which the
Bank agreed to take certain remedial actions to improve its condition and
operating performance and to address certain specifically identified
deficiencies (the "Formal Agreement"). In July 1994, after successfully
recapitalizing the Bank in November 1993, restructuring the Board and
management, and significantly improving the Bank's operations and asset quality
of the loan portfolio, the OCC terminated the Formal Agreement.
DEPENDENCE ON MANAGEMENT
The Company is, and for the foreseeable future will be, dependent upon the
services of Charles E. Hughes, Jr., the President and Chief Executive Officer of
the Company, as well as other senior officers and managers retained by the
Company and the Bank. The loss of any of these individuals could have a material
adverse effect on the Company's and the Bank's business, future prospects,
financial condition or results of operations. Neither the Company nor the Bank
maintains key person life insurance with respect to any of its officers. The
future success of the Company also depends on its ability to identify, attract
and retain qualified senior management officers and other employees in each of
the Identified Markets. Moreover, the Company's management team has been
recently assembled. Accordingly, it has not been proven that such persons will
be able to work together effectively. See "Management."
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<PAGE> 11
BROAD DISCRETION IN USE OF PROCEEDS
The Company will have broad discretion in the application of the net
proceeds of the Offering, which are estimated to be $40.5 million (or $46.6
million if the Underwriters' over-allotment is fully exercised). Upon closing of
the Offering, the Company intends to contribute approximately $12.0 million of
the net proceeds to the capital of the Bank to support future growth of the
Bank's business, including the opening of a Community Banking Office in the
Jacksonville market area, and has other specifically identified uses for
approximately $650,000 of the net proceeds. The remainder of the net proceeds
will be applied in the future as needed to implement the Company's expansion
strategy. Such expansion is presently intended to be accomplished primarily
through the opening of additional Community Banking Offices in the Identified
Markets, but could include one or more acquisitions of existing financial
institutions. However, the timing and specific application of the net proceeds
will remain in the discretion of management of the Company, and investors will
not have the opportunity to evaluate the economic, financial and other relevant
information which will be utilized by the Company in determining the application
of such proceeds. See "Use of Proceeds."
CREDIT RISK; ALLOWANCE FOR LOAN LOSSES
There are risks inherent in making any loan, including risks with respect
to the period of time over which the loan may be repaid, risks resulting from
changes in economic and industry conditions including those in the Identified
Markets, risks inherent in dealing with individual borrowers and risks resulting
from uncertainties as to the future value of collateral. The risk of nonpayment
of loans is inherent in commercial banking. Moreover, the Bank expects to focus
on loans to small and medium-sized businesses, which may result in a large
concentration by the Bank of loans to such businesses. Management will attempt
to minimize the Bank's credit exposure by carefully monitoring the concentration
of its loans within specific industries and through prudent loan application
approval procedures, but there can be no assurance that such monitoring and
procedures will reduce such lending risks. Moreover, as the Company expands into
new geographic markets, the Company's credit administration and loan
underwriting policies will be required to adapt to the local lending and
economic environments of these new markets. There is no assurance that the
Company's credit administration personnel, policies and procedures will
adequately adapt to such new geographic markets.
At December 31, 1997, real estate loans, which included residential
mortgages and construction and commercial loans secured by real estate,
comprised 55.0% of the Bank's total loan portfolio, net of deferred loan fees.
The Bank presently generates all of its real estate mortgage loans in Florida.
Therefore, conditions of the Florida real estate market could strongly influence
the level of the Bank's non-performing mortgage loans and the results of
operations and financial condition of the Company and the Bank. Real estate
values and the demand for mortgages and construction loans are affected by,
among other things, changes in general or local economic conditions, changes in
governmental rules or policies, and the availability of loans to potential
purchasers. In addition, Florida historically has been vulnerable to certain
natural disaster risks, such as floods, hurricanes and tornadoes, which are not
typically covered by the standard hazard insurance policies maintained by
borrowers. Uninsured disasters may adversely impact the ability of borrowers to
repay loans made by the Bank. The existence of adverse economic conditions,
declines in real estate values or the occurrence of such natural disasters in
Florida could have a material adverse effect on the Company's business, future
prospects, financial condition or results of operations. In addition, loans
secured by real estate subject the Company to risks associated with
environmental regulation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Strategy of the Company."
The Bank's allowance for loan losses is and will continue to be established
after consideration of a wide variety of factors and will be maintained at a
level considered adequate by management to absorb anticipated loan losses. The
amount of future losses is susceptible to changes in economic, operating and
other conditions, including changes in interest rates, that may be beyond the
Company's control, and such losses may exceed current estimates. Although
management of the Bank believes that the allowance for loan losses is currently
adequate to absorb losses on any existing loans that may become uncollectible,
there can be no assurance that the allowance will prove sufficient to cover
actual loan losses in the future.
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<PAGE> 12
The failure by the Company to adapt its credit policies and procedures on
an adequate and timely basis to new markets or to provide sufficient oversight
to its lending activities could result in an increase in nonperforming assets,
thereby causing operating losses, impairing liquidity and eroding capital, and
could have a material adverse effect on the Company's business, future
prospects, financial condition or results of operations.
INTEREST RATE RISK
The Company's results of operations are directly affected by levels of and
fluctuations in interest rates. Changes in interest rates may (i) negatively
affect the Company's net interest income by impairing the Company's ability to
earn a spread between the interest received on its loans and other earning
assets and the cost of deposits and other borrowings, (ii) reduce gains from
loan sales, (iii) result in higher loan losses and (iv) reduce loan originations
and corresponding loan servicing income. A substantial and/or sustained increase
in interest rates could adversely affect the Bank's ability to originate or sell
loans with returns consistent with past practices, and adversely impact the
ability of borrowers with variable rate loans to meet scheduled debt service
requirements. From time to time, as a result of an imbalance in the maturities
of assets and liabilities and the mix of adjustable and fixed rate loans, a
rapid increase or decrease in interest rates could have a material adverse
effect on the Company's net interest margin, future prospects, financial
condition or results of operations.
Interest rates are highly sensitive to many factors which are beyond the
Company's control, including general economic conditions and the policies of
various government and regulatory authorities. Increases in the discount rate by
the Federal Reserve Board usually lead to rising interest rates, which affect
the Company's interest income, interest expense and investment portfolio. Also,
governmental policies such as the creation of a tax deduction for individual
retirement accounts can alter the rate of savings and affect the cost of funds.
The nature, timing and effect of any future changes in federal monetary and
fiscal policies on the Company and its results of operations are not
predictable. Such changes could have a material adverse effect on the Company's
business, future prospects, financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Interest Rate Sensitivity and Liquidity
Management."
ABSENCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE; POTENTIAL FLUCTUATION IN
QUARTERLY RESULTS
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained for the Common Stock upon completion of the Offering. Subsequent
to the Offering, prices for the Common Stock will be determined by the market
and may be influenced by a number of factors, including depth and liquidity of
the market for the Common Stock, investor perceptions of the Company, changes in
conditions or trends in the banking industry or in the industries of the
Company's significant customers, publicly traded comparable companies and
general economic, political and other conditions. In addition, the trading price
of the Common Stock could be subject to significant fluctuations in response to
quarterly variations in the Company's actual or anticipated operating results,
changes in general market conditions and other factors. In particular, the
Company's and the Bank's quarterly revenues are difficult to forecast and the
Company's expense levels are based in part on its expansion plans in
anticipation of loan growth and corresponding revenues generated from new branch
locations. If revenue levels are below expectations, the Company may be unable
or unwilling to reduce expenses proportionately and operating results would
likely be adversely affected. As a result, prior to the full implementation of
the Company's business strategy, the Company believes that period to period
comparisons of its results may not necessarily be meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is possible that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the market price of the Common Stock would likely be materially
adversely affected. In recent years, significant price and volume fluctuations
have occurred in the stock prices of companies that often have been unrelated or
disproportionate to their operating performance. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.
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<PAGE> 13
UNPREDICTABLE ECONOMIC CONDITIONS
Commercial banks and other financial institutions are affected by economic
and political conditions, both domestic and international, and by governmental
monetary policies. Conditions such as inflation, recession, unemployment, high
interest rates, restricted money supply, scarce natural resources, international
disorders and other factors beyond the control of the Company and the Bank may
adversely affect their profitability. See "Business -- Monetary Policies."
The Company's success will significantly depend upon general economic
conditions in Florida, the Identified Markets, and the other market areas into
which the Company may expand. A prolonged economic dislocation or recession,
whether in Florida generally or in any or all of the Identified Markets, could
cause the Company's non-performing assets to increase, thereby causing operating
losses, impaired liquidity and the erosion of capital. Such an economic
dislocation or recession could result from a variety of causes, including
natural disasters such as hurricanes, floods or tornadoes, or a prolonged
downturn in various industries upon which the economies of Florida and/or
particular Identified Markets depend. Future adverse changes in the Florida
economy or the local economies of the Identified Markets could have a material
adverse effect on the Company's business, future prospects, financial condition
or results of operations.
LIMITATION ON DIVIDENDS; RELIANCE ON THE BANK
It is not anticipated that the Company will distribute any cash dividends
to its shareholders in the foreseeable future. Earnings of the Bank, if any, are
expected to be retained by the Bank to enhance its capital structure or
distributed to the Company to pay its operating costs. As the Company has no
independent sources of revenue, the Company's principal source of funds to pay
dividends on the Common Stock and its other securities, to service indebtedness
and to fund operations will be cash dividends and other payments that the
Company receives from the Bank. The payment of dividends by the Bank to the
Company is subject to certain restrictions imposed by federal banking laws,
regulations and authorities. See "Dividend Policy" and "Supervision and
Regulation."
IMPACT OF TECHNOLOGICAL ADVANCES; UPGRADE TO COMPANY'S INTERNAL SYSTEMS
The banking industry is undergoing, and management believes will continue
to undergo, technological changes with frequent introductions of new
technology-driven products and services. In addition to improving customer
services, the effective use of technology increases efficiency and enables
financial institutions to reduce costs. The Company's future success will
depend, in part, on its ability to address the needs of its customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as to enhance efficiencies in the Company's operations.
Management believes that keeping pace with technological advances is important
for the Company, as long as its emphasis on personalized services is not
adversely impacted. Many of the Company's competitors will have substantially
greater resources than the Company to invest in technological and infrastructure
improvements. There can be no assurance that the Bank will be able to implement
new technology-driven products and services effectively or to market
successfully such products and services to its clients. Furthermore, the Company
and the Bank outsource many of their core technology-related systems. The Bank's
failure to acquire, implement or market new technology could have a material
adverse effect on the Company's business, future prospects, financial condition
or results of operations. The Company therefore is dependent upon these outside
vendors to provide many of its technology-related products and services. See
"Use of Proceeds" and "Business -- Strategy of the Company."
YEAR 2000 COMPLIANCE
As the year 2000 ("Year 2000") approaches, an important business issue has
emerged regarding existing application software programs and operating systems.
Many existing application software products, including the Bank's, were designed
to accommodate a two-digit year. For example, "98" is stored on the system and
represents 1998 and "00" represents 1900. The Bank primarily utilizes M&I Data
Services, Inc. ("M&I"), a third-party vendor, to provide its primary banking
applications, including core processing systems. In addition,
10
<PAGE> 14
the Bank also uses M&I's software for certain ancillary computer applications.
M&I is in the process of modifying, upgrading or replacing its computer
applications to ensure timely Year 2000 compliance. In addition, the Company and
the Bank have implemented a Year 2000 compliance program whereby the Bank is
reviewing the Year 2000 issues that may be faced by its other third-party
vendors and loan and deposit customers. Under such program, the Company will
examine the need for modifications or replacement of all non-Year 2000 compliant
pieces of software. The Company does not currently expect that the cost of its
and the Bank's Year 2000 compliance program will be material to its financial
condition and expects that it will satisfy such compliance program without
material disruption of its operations. Management of the Company has evaluated
the potential effect on M&I's data processing systems resulting from Year 2000
issues. M&I has represented to the Bank that M&I's core processing systems will
be fully Year 2000 compliant prior to December 31, 1998. In the event that the
Company, the Bank, M&I or its other significant vendors or loan customers do not
successfully and timely achieve Year 2000 compliance, the Bank's business,
future prospects, financial condition or results of operations could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation") contain provisions requiring supermajority shareholder
approval to effect certain extraordinary corporate transactions with Interested
Persons, which are defined in the Articles of Incorporation as those persons who
own greater than 5% or more of the shares of the Company's stock entitled to
vote in election of directors, unless that transaction is approved by three
quarters of the Board of Directors (the "Board of Directors" or "Board"). This
approval is in addition to any other required approval of the Board of Directors
or shareholders. In addition, the Articles of Incorporation provide for the
Board of Directors to be classified into three classes, as nearly equal in
number as possible. Directors initially classified as "Class I" Directors were
originally elected for a term expiring at the annual meeting of shareholders to
be held in 1999, directors initially classified as "Class II" Directors were
originally elected for a term expiring at the annual meeting of shareholders to
be held in 2000, and Directors initially classified as "Class III" Directors
were originally elected for a term expiring at the annual meeting of
shareholders to be held in 2001. Directors will thereafter be elected to serve
for three year terms. Furthermore, the Company has adopted in the Articles of
Incorporation Florida's statutory provisions relating to business combinations
with so-called "interested shareholders," which are defined as those
shareholders who own greater than ten percent of the outstanding voting shares
of the Company. The Company's By-Laws (the "By-Laws") also contain provisions
which (i) authorize the Board to determine the precise number of members of the
Board and authorize either the Board or the shareholders to fill vacancies on
the Board, (ii) authorize any action required or permitted to be taken by the
Company's shareholders to be effected by consent in writing; and (iii) establish
certain advance notice procedures for nomination of candidates for election as
directors and for shareholder proposals to be considered at an annual or special
meeting of shareholders. The issuance of preferred stock by the Company could
also have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, a controlling interest in the
Company and could adversely affect the voting power or other rights of
shareholders of the Common Stock. These provisions may have the effect of
impeding the acquisition of control of the Company by means of a tender offer, a
proxy fight, open-market purchases or otherwise, without approval of such
acquisition by the Board of Directors. Certain of these provisions also make it
more difficult to remove the Company's current Board of Directors and
management. See "Description of Capital Stock."
ISSUANCE OF PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock, $.01 par
value per share (the "Preferred Stock"), of which 600,000 shares have been
designated as the Series A Preferred Stock. Of these 600,000 shares designated
as Series A Preferred Stock, 60,600 are presently outstanding. The designation
of the Series A Preferred Stock and the issuance of additional series of
Preferred Stock could affect the holders of Common Stock in a number of
respects, including the following: the issuance of additional shares of
Preferred Stock may subordinate the Common Stock in terms of dividend and
liquidation rights, because
11
<PAGE> 15
preferred stock typically entitles its holder to satisfaction in full of
specified dividend and liquidation rights before any payment of dividends or
distribution of assets or liquidation is made on shares of common stock; if
voting or conversion rights are granted to the holders of Preferred Stock, the
voting power of the Common Stock (including stock held by any persons who may be
seeking to obtain control of the Company) will be diluted; the issuance of
Preferred Stock may result in a dilution of earnings per share of the Common
Stock; and certain fundamental matters requiring shareholder approval (such as
mergers, consolidations, sales of assets and future amendments to the Articles
of Incorporation) may require prior approval by the separate vote of each class,
including the Preferred Stock (or in some cases each series of Preferred Stock),
even if holders of such Preferred Stock may not otherwise be entitled to voting
rights. The Series A Preferred Stock which is currently outstanding provides for
a liquidation preference of $10.00 per share but does not provide for any voting
rights. The Company intends to redeem the Series A Preferred Stock at a
redemption price of $10.00 per share upon consummation of the Offering. See "Use
of Proceeds." The Board of Directors may authorize the issuance of additional
series of Preferred Stock from time to time without shareholder action. See
"Description of Capital Stock."
FUTURE CAPITAL NEEDS
The Board of Directors may determine from time to time a need to obtain
additional capital through the issuance of additional shares of Common Stock or
other securities. There can be no assurance that such shares can be issued at
prices or on terms better than or equal to the initial public offering price and
terms of the Offering. In addition, such issuance would dilute the ownership
interests in the Company of the investors in the Offering.
GOVERNMENT REGULATION
The Company and the Bank operate in a highly regulated environment and are
subject to supervision and regulation by several governmental regulatory
agencies, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the Office of the Comptroller of the Currency (the
"OCC"), the Federal Deposit Insurance Corporation (the "FDIC"), the Florida
Department of Banking and Finance (the "Florida Banking Department") and the
Securities and Exchange Commission (the "Commission"). These regulations are
generally intended to provide protection for depositors and customers rather
than for the benefit of shareholders. The Company and the Bank are subject to
future legislation and government policy, including bank deregulation and
interstate expansion, which could materially adversely affect the banking
industry as a whole, including the operations of the Company and the Bank. The
establishment of branches or the acquisitions of banks in the Identified Markets
and other market areas is subject to the prior receipt of certain regulatory
approvals. Failure to obtain such regulatory approvals could have a material
adverse effect on the Company's business, future prospects, financial condition
or results of operations. See "Supervision and Regulation."
DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
The initial public offering price of the Common Stock will be determined by
negotiations among the Company and The Robinson-Humphrey Company, LLC and
Interstate/Johnson Lane Corporation, as representatives ("Representatives") of
the Underwriters. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, are the history of, and prospects for, the industry in which the
Bank operates, the price to earnings and price to book value multiples of
publicly traded common stock of comparable companies, the cash flow and earnings
of the Bank and comparable companies in recent periods and the Bank's business
potential and cash flow and earnings prospects. See "Underwriting."
DILUTION
Investors in the Offering will incur an immediate and substantial dilution
in the net tangible book value of the Common Stock from the initial public
offering price. Without taking into account any changes in net tangible book
value after December 31, 1997, other than to give effect to the assumed proceeds
of $240,000
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<PAGE> 16
upon the exercise of the Bank's stock options, the issuance of an estimated
1,250,000 shares in the Merger, the issuance of 377,800 shares of Common Stock
by the Company in February 1998 at $.01 per share and the sale by the Company of
4,000,000 shares of Common Stock in the Offering, based upon an assumed initial
public offering price of $11.00 per share (the mid-point of the estimated range)
and after deducting the underwriting discounts and commissions and the estimated
offering expenses, the net tangible book value of the Company at December 31,
1997 would have been approximately $47.0 million or $8.35 per share. This
represents an immediate increase in net tangible book value of $4.34 per share
to the existing shareholders and an immediate net tangible book value dilution
of $2.65 per share, or 24.1% to purchasers in the Offering. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Merger, the Company will have
5,627,800 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option), outstanding options to purchase 465,000
shares of Common Stock and outstanding warrants to purchase 80,800 shares of
Common Stock. Of these shares outstanding, the 4,000,000 shares offered hereby
and the 1,250,000 shares estimated to be issued in the Merger (assuming an
initial public offering price of Common Stock of $11.00 per share, the mid-point
of the estimated range), will be eligible for sale in the open market without
restriction (except for any such shares purchased by or issued to "affiliates"
of the Company and the Bank). The remaining 377,800 shares of Common Stock will
be "restricted securities" as that term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
and will become eligible for sale under Rule 144 after February 3, 1999. The
Company, its officers and directors and certain of its existing shareholders
have agreed, for a period of 180 days from the date of purchase, not to sell or
otherwise dispose, directly or indirectly, of any Common Stock without prior
written consent of The Robinson-Humphrey Company, LLC. Following the expiration
of the 180-day lock-up period, approximately 424,515 additional shares will be
eligible for sale in the public market subject to compliance with certain volume
limitations and other conditions of Rule 144. The market price of the Common
Stock could be materially adversely affected by the sale or availability for
sale of shares now held by the existing shareholders of the Company or of shares
which may be issued under the Company's 1998 Stock Option Plan. See
"Management," "Shares Eligible for Future Sale" and "Underwriting."
COMMON STOCK IS NOT AN INSURED BANK DEPOSIT
The shares of Common Stock offered in the Offering are not deposits,
savings accounts or other obligations of the Company, the Bank or any other
depository institution, are not guaranteed by the Company or any other entity,
will not be insured by the FDIC or any other governmental agency and may not be
used as collateral to secure a loan from the Company, the Bank or any of their
affiliates.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation and By-Laws provide for the indemnification
of the Company's officers and directors and insulate such officers and directors
from liability for certain breaches of the duty of care. The Bank's By-Laws
contain similar provisions. It is possible that the indemnification obligations
imposed under these provisions could result in a charge against the Company's
earnings and thereby affect the availability of funds for payment of dividends
to the Company's shareholders. See "Description of Capital Stock -- Certain
Provisions of the Articles of Incorporation and By-Laws" and
"-- Indemnification."
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<PAGE> 17
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including with
respect to the Company's operations, industry, financial condition and
liquidity. These forward-looking statements are subject to risks and
uncertainties, many of which are beyond the Company's control, which could cause
actual results to differ materially from those contemplated in such
forward-looking statements, including in particular the risks and uncertainties
described under "Risk Factors." Prospective investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to update publicly or revise
any of these forward-looking statements, whether as a result of new information,
future events or circumstances or otherwise. There can be no assurance that the
events described in these forward-looking statements will occur.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company, at an assumed initial public offering price
of $11.00 per share, are estimated to be approximately $40.5 million (or $46.6
million if the Underwriters' over-allotment option is fully exercised), after
deducting the estimated underwriting discounts and commissions and Offering
expenses payable by the Company.
The Company anticipates that of the net proceeds received by the Company in
the Offering (i) approximately $12 million will be used immediately to provide
the Bank with additional growth capital; (ii) approximately $606,000 will be
used by the Company to redeem the outstanding 60,600 shares of the Company's
Series A Preferred Stock; and (iii) $137,500 will be paid to an affiliate in
connection with the acquisition of the Bank. The remaining net proceeds will be
retained by the Company to fund its expansion primarily through branching and
the acquisition of existing banks throughout the Florida market and for other
general corporate purposes. Pending such uses, the net proceeds of the Offering
will be invested in short-term, interest-bearing investment grade securities,
certificates of deposits or guaranteed obligations of the United States. See
"Certain Transactions."
The Series A Preferred Stock was issued in February 1998 to investors to
provide capital to the Company primarily to support start-up costs. Directors
and officers of the Company, the Bank and their affiliates do not own any shares
of the Series A Preferred Stock. The Company intends to redeem the Series A
Preferred Stock at a redemption price of $10.00 per share upon the consummation
of the Offering. In addition, the Company intends to pay a $137,500 finder's fee
in connection with the acquisition of the Bank (1.00% of the aggregate purchase
price), which will be paid from the proceeds of the Offering. See "Description
of Capital Stock -- Preferred Stock" and "Certain Transactions."
Other than the acquisition of the Bank, the Company has no understandings
or agreements with respect to any acquisition. See "Description of Bank
Acquisition."
DIVIDEND POLICY
The Company has not declared or distributed any dividends to the holders of
Common Stock since the Company's organization, and it is not likely that any
cash dividends on the Common Stock will be declared for the foreseeable future.
The Board of Directors intends, for the foreseeable future, to follow a policy
of retaining any earnings of the Company to provide funds to operate and expand
the business of the Company and the Bank.
The Bank is restricted in its ability to pay dividends under the national
banking laws and by regulations of the OCC. Pursuant to 12 U.S.C. sec. 56, a
national bank may not pay dividends from its capital. All dividends must be paid
out of net profits then on hand, after deducting losses and bad debts. Payments
of dividends out of net profits is further limited by 12 U.S.C. sec. 60(a),
which prohibits a bank from declaring a dividend on its shares of common stock
until its surplus equals its stated capital, unless there has been transferred
to surplus not less than one-tenth of the bank's net profits of the preceding
two consecutive half year periods (in the case of an annual dividend). Pursuant
to 12 U.S.C. sec. 60(b), the approval of the OCC is required if the total of all
dividends declared by the bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1997 and as adjusted to reflect the assumed proceeds of $240,000
upon the exercise of the Bank's stock options, the issuance of an estimated
1,250,000 shares in connection with the Merger, the issuance of 377,800 shares
of Common Stock by the Company in February 1998 at $.01 per share and the sale
by the Company of 4,000,000 shares of Common Stock offered hereby (assuming an
initial offering price of the Common Stock of $11.00 per share, the mid-point of
the estimated range) and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds." The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
AS ADJUSTED
AS ADJUSTED FOR MERGER
THE COMPANY FOR MERGER AND OFFERING
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Preferred Stock, 1,000,000 shares authorized; 60,600,
60,600 and 0 shares issued and outstanding............ $606 $ 606 $ --
Common Stock, $.01 par value per share; 9,000,000 shares
authorized; 377,800, 1,627,800 and 5,627,800 shares
issued and outstanding(1)(2).......................... 4 16 56
Additional paid-in capital............................... -- 5,778 46,208
Warrants to acquire 80,800 shares of Common Stock at the
initial public offering price......................... -- -- --
Retained earnings........................................ -- 760 760
Unrealized gain (loss) on available for sale investment
securities, net of tax................................ -- 3 3
---- ------ -------
Total capitalization............................. $610 $7,163 $47,027
==== ====== =======
</TABLE>
- ---------------
(1) Excludes 345,000 shares issuable upon the exercise of options to be granted
under the 1998 Plan simultaneously with the closing of the Offering.
(2) Before issuance of 600,000 shares pursuant to the Underwriters'
over-allotment option.
15
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company at December 31, 1997
was approximately $6.5 million or $4.01 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's total
assets less intangible assets and total liabilities, divided by the total number
of shares of Common Stock outstanding. After giving effect to (i) the sale by
the Company of shares of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share, (ii) the issuance of an estimated
1,250,000 shares in connection with the Merger, (iii) the receipt of proceeds of
$240,000 upon the exercise of the Bank's stock options, (iv) the issuance of
377,800 shares of Common Stock by the Company in February 1998 at $.01 per
share, and (iv) the application of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company at December 31, 1997 would have
been $47.0 million or $8.35 per share of Common Stock. This represents an
immediate increase in such pro forma net tangible book value of $4.34 per share
to shareholders and an immediate dilution in the pro forma net tangible book
value of $2.65 per share to investors purchasing shares of Common Stock in the
Offering. The following table illustrates the resulting per share dilution to
new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $11.00
Net tangible book value per share at December 31, 1997.... $4.01
Increase per share attributable to new investors(2)....... 4.34
-----
Pro forma net tangible book value per share after the
Offering.................................................. 8.35
------
Dilution per share to new investors(3)...................... $ 2.65
======
</TABLE>
- ---------------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) After deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(3) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's 1998 Stock Option Plan.
The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company and the
total consideration paid, and the average per share consideration paid to the
Company by existing shareholders and by new investors purchasing the shares of
Common Stock offered hereby, assuming an initial public offering price of the
Common Stock of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 1,627,800 28.9% $ 6,530,971 12.8% $ 4.01
New investors.................... 4,000,000 71.1 44,470,000 87.2 11.00
--------- ----- ----------- -----
Total.................. 5,627,800 100.0% $51,000,971 100.0%
========= ===== =========== =====
</TABLE>
16
<PAGE> 20
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Bank for the
periods indicated. As the Company had no operations during 1997 and had no
equity and de minimis assets and liabilities at December 31, 1997, the selected
financial data of the Company 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 the Bank 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 the Bank, which have been audited by Deloitte & Touche
LLP, independent auditors. The selected financial data of the Bank as of
December 31, 1993, 1994 and 1995 and for the years ended December 31, 1993 and
1994 are derived from the financial statements of the Bank which were audited by
other independent certified public accountants. These selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's financial
statements and notes thereto, the Bank's financial statements and notes thereto,
and financial and other information included elsewhere herein.
<TABLE>
<CAPTION>
THE BANK
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income.................................... $4,302 $3,614 $2,937 $2,075 $ 1,772
Interest expense................................... 2,296 1,872 1,474 1,005 954
------ ------ ------ ------ -------
Net interest income................................ 2,006 1,742 1,463 1,070 818
Provision (benefit) for loan losses................ 60 60 (138) (15) --
------ ------ ------ ------ -------
Net interest income after provision for loan
losses.......................................... 1,946 1,682 1,602 1,085 818
Noninterest income................................. 504 519 375 385 542
Noninterest expense................................ 1,842 1,601 1,621 1,568 2,684
------ ------ ------ ------ -------
Income (loss) before provision for income taxes.... 608 600 356 (99) (1,325)
Provision for income taxes(1)...................... 232 216 -- -- --
------ ------ ------ ------ -------
Net income (loss).................................. $ 376 $ 384 $ 356 $ (99) $(1,325)
====== ====== ====== ====== =======
Earnings (loss) per common share(2):
Basic........................................... $ .21 $ .21 $ .20 $ (.05) $ (2.69)
Diluted......................................... .20 .20 .19 (.05) (2.69)
</TABLE>
- ---------------
(1) The provisions for income taxes for 1997 and 1996 are comprised solely of
deferred income taxes. The benefit of the utilization of net operating loss
carryforwards for 1997 and 1996 (periods subsequent to the effective date of
the Bank's quasi-reorganization) have been reflected as increases to
additional paid-in capital.
(2) The earnings per share amounts are based upon the Bank'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.
17
<PAGE> 21
<TABLE>
<CAPTION>
THE BANK
-----------------------------------------------
AT DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities.......................... $10,765 $ 8,551 $ 6,760 $ 7,495 $ 4,590
Loans, net of deferred loan fees............... 33,720 31,627 26,571 20,292 17,041
Earnings assets................................ 54,731 52,588 38,801 32,377 26,481
Total assets................................... 60,396 55,505 41,748 34,959 29,337
Noninterest-bearings deposits.................. 6,442 8,122 5,719 4,660 3,696
Total deposits................................. 45,460 45,526 34,633 31,886 26,093
Other borrowed funds........................... 8,317 6,408 4,212 780 628
Total shareholders' equity..................... 6,314 3,269 2,678 2,143 2,421
PERFORMANCE RATIOS:
Net interest margin(1)......................... 3.89% 4.05% 4.13% 3.77% 3.02%
Efficiency ratio(2)............................ 73.39 70.76 88.16 107.84 197.45
Return on average assets....................... .70 .85 .95 (.32) (4.22)
Return on average equity....................... 10.62 13.18 14.85 (4.14) (68.70)
ASSET QUALITY RATIOS:
Allowance for loan losses to total loans....... 1.42% 1.36% 1.28% 2.27% 2.60%
Non-performing loans to total loans(3)......... -- -- -- .60% .90%
Net charge-offs (recoveries) to average
loans....................................... .03 (.11) (.07) (.18) .42
CAPITAL AND LIQUIDITY RATIOS:
Total capital to risk-weighted assets.......... 14.29% 12.26% 12.42% 13.28% 15.41%
Tier 1 capital to risk-weighted assets......... 13.00 11.01 11.17 12.03 14.14
Tier 1 capital to average assets............... 7.42 6.42 6.64 6.30 7.56
Average loans to average deposits.............. 75.77 75.83 67.26 65.11 60.72
Average equity to average total assets......... 6.54 6.45 6.40 7.75 6.15
</TABLE>
- ---------------
(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
(3) The Bank had no non-performing loans at December 31, 1997, 1996 and 1995.
18
<PAGE> 22
PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data set forth below assume that the
Company was formed on January 1, 1997 and gives effect to the acquisition of the
Bank 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 Offering. The
pro forma financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Financial Statements and Notes thereto, the Bank'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 the Bank occurred
on January 1, 1997, or of future operations.
<TABLE>
<CAPTION>
THE COMPANY THE BANK THE COMPANY
------------------- ----------------- ------------
PERIOD FROM
OCTOBER 15, 1997 TO YEAR ENDED PRO FORMA
DECEMBER 31, 1997 DECEMBER 31, 1997 CONSOLIDATED
------------------- ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income.................................. $-- $ 4,302 $ 4,302
Interest expense................................. -- 2,296 2,296
--- ------- -------
Net interest income.............................. -- 2,006 2,006
Provision for loan losses........................ -- 60 60
--- ------- -------
Net interest income after provision for income
taxes.......................................... 1,946 1,946
Noninterest income............................... -- 504 504
Noninterest expense.............................. -- 1,842 1,842
--- ------- -------
Income before provision for income taxes......... -- 608 608
Provision for income taxes....................... -- 232 232
--- ------- -------
Net income....................................... $-- $ 376 $ 376
=== ======= =======
Pro forma earnings per share..................... $ .30(1) $ .23(2)
======= =======
SUMMARY BALANCE SHEET DATA:
Investment securities............................ $-- $10,765 $10,765
Loans, net of deferred loan fees................. -- 33,720 33,720
Earning assets................................... -- 54,731 54,731
Total assets..................................... 26 60,396 60,442
Noninterest-bearing deposits..................... -- 6,442 6,442
Total deposits................................... -- 45,460 45,460
Other borrowed funds............................. -- 8,317 8,317
Total shareholders' equity....................... -- 6,314 6,314
</TABLE>
- ---------------
(1) Pro forma earnings per share for the Bank have been computed based on an
estimated 1,250,000 shares of Common Stock to be issued to the shareholders
of the Bank (assuming all Bank options are exercised and Bank warrants
expire without exercise) in connection with the Merger based on an assumed
initial public offering price of $11.00 per share (the mid-point of the
estimated range).
(2) Pro forma earnings per share for the Company have been computed based on an
estimated 1,627,800 shares of Common Stock outstanding, which includes
1,250,000 shares of Common Stock to be issued to the shareholders of the
Bank in connection with the Merger and 377,800 shares of Common Stock issued
by the Company in February 1998.
19
<PAGE> 23
BUSINESS
GENERAL
Florida Banks, Inc. (the "Company") 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 Offering,
the Company will acquire First National Bank of Tampa (the "Bank") as its entry
into the Tampa/Hillsborough County market area. The Company intends to open a
community banking office in the Jacksonville market area as soon as practicable
following consummation of the Offering. 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, the Company also intends to expand into other Florida market areas with
demographic characteristics similar to the Identified Markets. Within each of
the Identified Markets, the Company expects to offer a broad range of
traditional banking products and services, focusing primarily on small and
medium-sized businesses. See "-- Strategy of the Company -- Market Expansion"
and "-- Products and Services."
The Company 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, strong community contacts and strong business development
potential in the Identified Markets. Once local management teams are identified,
the Company 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"). The Company will maintain centralized credit
policies and procedures as well as centralized back office functions to support
the Community Banking Offices. Management expects that upon the Company's 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 "-- Model 'Local Community Bank."'
Management of the Company 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 the Company 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 the Company's main offices located in
Jacksonville and the Bank and its operations center in Tampa, the Company will
provide a variety of support services to each of the 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 the Company 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.
The Company expects to establish Community Banking Offices in each new
market area, primarily through the de novo branching of the Bank. Management
will also, however, evaluate opportunities for strategic acquisitions of
financial institutions in markets that are consistent with its business plan.
20
<PAGE> 24
INDUSTRY AND DEMOGRAPHIC OVERVIEW
Management of the Company 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 Federal Deposit Insurance
Corporation ("FDIC"), as of December 31, 1987, 560 depository institutions were
located in Florida. By December 31, 1997, there were a total of 313 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 the Company believes that the Company's
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 the Company 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 current population of approximately 14.4
million makes it the fourth most populated state in the country. From 1990 to
1997, Florida ranked second 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 Bureau of Labor Statistics,
during 1996, nonagricultural employment in Florida increased by 3.1% which was
substantially above the national rate of 2.2%. 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 THE COMPANY
The concept for the Company was developed in late 1997 by T. Stephen
Johnson & Associates, Inc., a financial services consulting firm ("TSJ&A"). The
Company 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 the Bank as an independent financial
institution capable of providing a platform to implement the Company's business
plan. The Company and the Bank 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, the Company
sought a chief executive officer who possessed the experience, leadership skills
and management ability to accomplish the Company's objectives. In January 1998,
the Company hired Charles E. Hughes, Jr. to be the President and Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Hughes served as
Chairman, 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.
The Company 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 the Company
to implement its business strategy.
On March 30, 1998, the Company executed a definitive merger agreement with
the Bank, pursuant to which the Company will acquire all of the outstanding
capital stock of the Bank in exchange for shares of Common Stock. The aggregate
purchase price for the Bank 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 the
Bank had acquired the Company, the financial statements of the Bank will become
the historical financial statements of the Company 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, the Bank reported total assets of $60.4 million,
total shareholders' equity of $6.3 million
21
<PAGE> 25
and net income of $376,000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Bank
Acquisition."
STRATEGY OF THE COMPANY
General
The Company's business strategy is to create a statewide community banking
system in Florida. The major elements of this strategy are to:
- EXPAND THE BANK'S OPERATIONS IN THE TAMPA MARKET AND, AS SOON AS
PRACTICABLE FOLLOWING THE OFFERING, 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
- OUTSOURCE CORE PROCESSING AND BACK ROOM OPERATIONS TO INCREASE
EFFICIENCIES.
Model "Local Community Bank"
In order to achieve its expansion strategy, the Company initially intends
to establish a Community Banking Office within each Identified Market through
the branching of the Bank. The Company 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 the Bank, the Company's 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 the Company 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. The Company 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 the Company 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
Board of Directors of the Bank and of the Company. These directors will act as
ambassadors of the Bank within the community and will be expected to promote the
business development of each Community Banking Office.
The Company 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.
22
<PAGE> 26
Management expects that upon the Company's 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.
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. The Company 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 goals will be reevaluated on a quarterly basis and paid
as a percentage of base salary. Management of the Company 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 the Company 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 the Company to avoid
investing significant amounts of capital in property and facilities.
Market Expansion
The Company intends to expand into the largest and fastest growing
communities in Florida. Once the Company has assembled a local management team
and local advisory board of directors for a particular market area, the Company
intends to establish one or more Community Banking Offices in that market. Upon
the consummation of the Merger, the Company will have an established Community
Banking Office in the Tampa market area. In addition, the Company has assembled
a management team in Jacksonville and, as soon as practicable following the
completion of the Offering, will open a Community Banking Office in the
Jacksonville market area. The Bank received OCC approval to establish a branch
location in Jacksonville on . The other markets into which the
Company 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.
23
<PAGE> 27
Certain demographic 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 five years. In 1997, the median age in Tampa
was 34.3 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 financial institutions (including the Bank) represented in the
Tampa Market with aggregate deposits of $7.4 billion. Deposits in the Tampa
Market increased $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 financial institutions
represented in the Jacksonville Market with aggregate deposits of $7.6 billion.
Deposits in the Jacksonville Market increased $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 financial institutions
represented in the Ft. Lauderdale Market with aggregate deposits of $22.0
billion. Deposits in the Ft. Lauderdale Market increased $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 financial institutions represented in the Orlando Market with aggregate
deposits of $7.2 billion. Deposits in the Orlando Market increased $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
unemployment rate
24
<PAGE> 28
of 4.9% for the same period. As of June 30, 1997, there were 53 financial
institutions represented in the Palm Beach Market with aggregate deposits of
$20.0 billion. Deposits in the Palm Beach Market increased $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 the Company 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. The Company 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 the Company 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, the Company 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 the Company 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 the Company's 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
The Company intends to offer and the Bank currently offers a broad array of
traditional banking products and services to its customers. The proceeds from
the Offering will enable the Company to infuse additional capital into the Bank
which will enable the Bank to open Community Banking Offices in new markets and
to expand its existing lines of products and services. The Bank currently
provides products and services that are substantially similar to those set forth
below. For additional information with respect to the Bank's current operations,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Loans. The Company intends to offer a wide range of short to long-term
commercial and consumer loans.
Commercial. The Company expects that its commercial lending will
consist primarily of commercial and industrial loans for the financing of
accounts receivable, inventory, property, plant and equipment. The Company
also expects to offer Small Business Administration guaranteed loans ("SBA
loans") and factoring arrangements to certain of its customers. In making
these loans, the Company 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. The Company anticipates that it will also
offer commercial real estate loans to developers of both commercial and
residential properties. In making these loans, the Company intends to
manage its credit risk by actively monitoring such measures as advance
rate, cash flow, collateral value and other appropriate credit factors. See
"-- Operations of the Holding Company -- Credit Administration."
Residential Mortgage. The Company 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
25
<PAGE> 29
secured by first and second mortgages on the residences of borrowers for
home improvements, education and other personal expenditures. Management
expects that the Company will make mortgage loans with a variety of terms,
including fixed and floating to variable rates and a variety of maturities.
These loans will be made consistent with the Company's 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 the
Company's asset/liability mix policies will be sold in the secondary
markets.
Consumer Loans. The Company expects that its consumer loans will
consist primarily of installment loans to individuals for personal, family
and household purposes. In evaluating these loans, the Company 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, the
Company will require that its banking officers maintain an appropriate
margin between the loan amount and collateral value. The Company 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. The Company also expects to issue credit
cards to certain of its customers. In determining to whom it will issue
credit cards, the Company intends to evaluate the borrower's level and
stability of income, past credit history and other factors. Finally, the
Company expects to make additional loans which may not be classified in one
of the above categories. In making such loans, the Company will attempt to
ensure that the borrower meets the Company's credit quality standards.
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, the Company expects to implement a service charge fee
schedule, similar to the one currently in place at the Bank, 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. The Company expects to offer courier services to its
customers. Courier services, which the Company may either provide directly or
through a third party, permit the Company to provide the convenience and
personalized service its customers require by scheduling pick-ups of deposits.
The Company intends to offer courier services to its business customers. The
Bank 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. The Company 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 the Company 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
26
<PAGE> 30
relationships 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. The Company 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
The Company will remain in the development stage until the consummation of
the Merger and the Offering. The Company's corporate offices will be relocated
to the Jacksonville Community Banking Office, when opened. The Company presently
has four employees, including Mr. Hughes, Richard B. Kensler, the Chief Credit
Officer, Donald Roberts, President of the Jacksonville Market, and an
administrative assistant, all of whom work on a full-time basis for the Company.
The Company 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, the Company
expects to hire a Human Resources Officer as well as a Chief Lending Officer.
Until that time, Mr. Hughes will serve as the Company's Chief Lending Officer,
and a human resources officer at the Bank will provide human resources support
for the Company.
The Company intends to use the Bank's facilities for its data processing,
operational and back office support activities. The Community Banking Offices
will utilize the operational support provided by the Bank to perform account
processing, loan accounting, loan support, network administration and other
functions. The Bank 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 the Bank.
Management believes that the Bank's existing operations and support management
will be capable of providing continuing operational support for all of the
Community Banking Offices.
Outsourcing. Management of the Company 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.
The Bank is currently utilizing M&I to provide its core data processing and
certain customer products, and the Company expects to assume this contract upon
consummation of the Merger. In addition to account level processing for loans
and deposits, the Bank 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
"-- Data Processing."
Credit Administration. The Company will oversee all credit operations
while still granting local authority to each Community Banking Office. The Chief
Credit Officer of the Company is Richard B. Kensler who, since 1994, has served
as a senior credit officer with Signet Banking Corporation. 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. The Company's 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 the Company's desired risk profile. Credit
quality will be controlled through uniform compliance to credit policy.
27
<PAGE> 31
The Company's 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.
The Company's 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 Board of
Directors. Risk management will require active involvement with the Company's
customers and active management of the Company's portfolio. The Chief Credit
Officer will review the Company's 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 Board of Directors. 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 the Company. The Chief Credit Officer
will also generally require all individuals charged with risk management to
reaffirm their familiarity with the credit policy annually.
CURRENT OPERATIONS OF FIRST NATIONAL BANK OF TAMPA
The Bank commenced operations in July 1988 under the name Enterprise
National Bank of Tampa, as a full service commercial bank in Tampa, Florida. In
1993, the Bank changed its name to First National Bank of Tampa. The Bank leases
its facilities in the First National Plaza, located in downtown Tampa.
The Bank offers a variety of loan products, including commercial loans,
real estate loans, home equity loans, consumer/installment loans, SBA loans and
credit cards. The Bank 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, the
Bank 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 "-- Strategy of the
Company -- Products and Services."
History of First National Bank of Tampa
The Bank 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 the Bank's early years. In 1991, the OCC
informed the Board of Directors and management of the Bank that the Bank's
condition had deteriorated significantly. The OCC observed that the Bank's loan
portfolio evidenced deterioration in quality, with increasing levels of
delinquent and non-performing loans. Moreover, in the opinion of the OCC, the
Bank's lending practices evidenced poor underwriting and ineffective loan
administration. In addition, the OCC reported that the Bank'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, the Bank was required to
enter into a Formal Agreement with the OCC dated December 18, 1991, pursuant to
which the Bank 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 the Bank's substantially improved condition.
The provisions of the Formal Agreement were contained in 16 substantive
articles which prescribed the corrective actions and remedial measures deemed
necessary by the OCC to correct deficiencies and regulatory violations in the
Bank 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 Board of Directors of the Bank, as a result of the Bank's
financial difficulties, effected a substantial reorganization of the key
management positions through the hiring of John S. McMullen as President and
Chief Executive Officer and T. Edwin Stinson, Jr. as acting Chief Financial
Officer. Since the reorganization, the Bank's management team has remained
relatively unchanged.
28
<PAGE> 32
The Bank suffered significant loan problems in the years 1988 through 1992.
Net charge-offs due to nonperforming loans exceeded $2.7 million. Lending
policies and procedures were revised in 1992 as part of the reorganization and
the addition of the new management team. The Bank's lending activities were
refocused on the small business sector while avoiding speculative real estate
and other higher risk credits. The Bank's current portfolio primarily consists
of commercial and commercial real estate loans including SBA loans. Currently,
problem loans represent a negligible portion of the Bank's total loans.
In 1993, as required by the Formal Agreement, the Bank 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. In spite of this infusion of
additional capital, the Bank's growth since the 1993 Offering has been limited
by its capital, and Bank management has primarily focused on increasing its
capital. On July 18, 1994, after successfully recapitalizing the Bank in
November 1993, restructuring the Board and management and significantly
improving the Bank's performance and asset quality of the loan portfolio, the
Board was notified by the OCC that the Formal Agreement was terminated.
The Bank engages in a broad array of lending activities, including
commercial/industrial, SBA guaranteed loans, consumer and real estate loans. As
of December 31, 1997, the Bank had a legal lending limit for loans of up to
$655,000 to any one person. See "Supervision and Regulation"; and "-- Strategy
of the Company -- Products and Services."
ASSET/LIABILITY MANAGEMENT
The objective of the Company and Bank is to manage assets and liabilities
to provide a satisfactory level of consistent operating profitability within the
framework of established liquidity, loan, investment, borrowing and capital
policies. The Chief Operating Officer of the Bank 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. The overall philosophy of management is to support asset growth
primarily through growth of core deposits. Management intends to continue to
invest the largest portion of the Bank's earning assets in commercial,
industrial and commercial real estate loans.
The Bank's asset/liability mix is monitored on a daily basis, with monthly
reports presented to the Bank's Board of Directors. 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 the Bank's earnings.
Management of the Company intends to maintain an asset/liability mix policy
similar to the Bank'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. The Company and the Bank 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, larger
branch networks and are able to offer a broader range of products and services
than the Company and the Bank.
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 the Company and the Bank. There can be no assurance
that the United States Congress or the Florida Legislature or the applicable
bank regulatory agencies will not enact legislation
29
<PAGE> 33
or promulgate rules that may further increase competitive pressures on the
Company. The Company's failure to compete effectively for deposit, loan and
other banking customers in its market areas could have a material adverse effect
on the Company's business, future prospects, financial condition or results of
operations. See "-- Strategy of the Company -- Market Expansion."
DATA PROCESSING
The Bank currently has an agreement with M&I to provide its core processing
and certain customer products, and the Company expects to assume this contract
upon consummation of the Merger. The Company 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 the Company's future growth. The Company
believes the M&I contract to be adequate for its business expansion plans. See
"Risk Factors -- Impact of Technological Advances; Upgrade to Company's Internal
Systems," "-- Year 2000" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FACILITIES
The Company's offices are located at 4110 Southpoint Boulevard, Suite 212,
Southpoint Square II, Jacksonville, Florida 32216. The Company's offices will be
relocated to the Jacksonville Community Banking Office, when opened. Initially,
it is expected that the bulk of the Company's operations will be conducted from
the Bank's offices in Tampa, utilizing the Bank's existing personnel.
The Bank's offices are located at 100 West Kennedy Boulevard, Tampa,
Florida 33602. The Bank occupies approximately 8,400 square feet in the
building. Should the Bank require additional space for expansion, the Bank also
has options for additional space at a pre-determined lease rate.
EMPLOYEES
The Company presently employs four persons on a full-time basis. The
Company will hire additional persons as needed to support its growth.
The Bank presently employs 21 persons on a full-time basis and three
persons on a part-time basis, including ten officers. The Bank will hire
additional persons as needed, including additional tellers and financial service
representatives.
LEGAL PROCEEDINGS
From time to time, the Company and the Bank may be involved in litigation
relating to claims arising out of operations in the normal course of business.
As of the date of this Prospectus, neither the Company nor the Bank is engaged
in any legal proceedings that are expected, individually or in the aggregate, to
have a material effect on the Company or the Bank.
30
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
The Company was incorporated on October 15, 1997 to acquire or establish a
bank in Florida. Prior to the consummation of the Merger, the Company will have
no operating activities. The Merger will be consummated immediately prior to the
closing of the Offering. Upon consummation of the Merger, the Bank's
shareholders will own greater than 50% of the outstanding Common Stock of the
Company, excluding the issuance of the shares in connection with the Offering.
Accordingly, the Merger will be accounted for as if the Bank had acquired the
Company, the financial statements of the Bank will become the historical
financial statements of the Company and no goodwill will be recorded as a result
of the Merger.
The Company has funded its start-up and organization costs through the sale
of units, consisting of Common Stock, Preferred Stock and warrants to purchase
shares of Common Stock. As the Company 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 the Company as of December 31, 1997 and for the period then ended,
is not relevant and therefore is not included herein.
THE BANK
Management believes that the acquisition of the Bank will enable the
Company 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 the Bank 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 Prospectus.
SUMMARY
The Bank'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 the Bank's historical weighted
average number of shares outstanding and do not reflect any pro forma
adjustments relating to the Offering 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%.
As a result of poor operating performance from the Bank's inception in 1988
through 1994, the Bank generated approximately $8.5 million in net operating
loss carryforwards. As of December 31, 1997, the Bank 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, 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 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 "-- 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,
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<PAGE> 35
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 the Bank 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. The Bank'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.
RESULTS OF OPERATIONS
Net Interest Income
The following table sets forth, for the periods indicated, certain
information related to the Bank'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
------- ------ ------- ------
</TABLE>
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<PAGE> 36
<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>
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.
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. The Bank 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.
33
<PAGE> 37
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 the Bank 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, the Bank adjusts the rates and terms of
its interest-bearing liabilities in response to general market rate changes and
the competitive environment. The Bank 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. The Bank 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>
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
34
<PAGE> 38
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 the Bank'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, the Bank 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, the Bank 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.
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>
35
<PAGE> 39
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 the Bank'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 the Bank'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 $424,000 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 the Bank'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 the Bank'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 associated with the Bank'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 $ 872 $ 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.................................... 494 424 479 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.
The Bank 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 the Bank's deferred tax assets, net of deferred tax
liabilities and the valuation allowance. The Bank's deferred income tax assets
consist
36
<PAGE> 40
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.
The Bank reported losses from operations each year from the Bank's
inception in 1988 through 1994. These losses primarily resulted from loan losses
and high overhead costs. Management of the Bank 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, the Bank became
profitable in 1995. In order to reflect this fresh start, the Bank 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, the Bank 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 the Bank's results of operations subsequent to the quasi-reorganization.
As of December 31, 1997, the Bank 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 the Bank.
Prior to 1997, because of the uncertain nature of the Bank's earnings, the
Bank recorded a valuation allowance equal to the full amount of the deferred tax
assets. 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 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 the Bank'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, the
Bank recognized the full benefit of the deferred tax assets at December 31,
1997. Accordingly, the Bank 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, the Bank's operating results
will be included in the Company's consolidated income tax returns. As a result
of the Merger, the Company will have the use of the Bank's net operating loss
carryforwards. However, the portion of the Bank's net operating loss
carryforwards which will be usable each year by the Company 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 the
37
<PAGE> 41
Bank 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, the Bank will produce sufficient taxable income to
allow the Company to fully utilize the Bank's net operating loss carryforwards
prior to their expiration.
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. Return on Average Equity decreased 256 basis points to 10.62% in
1997 from 13.18% 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. Return on Average Equity decreased 167 basis points to 13.18% in
1996 from 14.85% 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 securities needed
to pledge against the increase in repurchase agreements. The Bank 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
The Bank'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. The Bank 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.
38
<PAGE> 42
The following table presents various categories of loans contained in the
Bank'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 % OF
BALANCE 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. 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. At December 31, 1997, commercial loans represented 38.9% of
outstanding loan balances, compared to 39.2% at December 31, 1996.
Residential Mortgage. The Bank's residential mortgage loans consist of
first and second mortgage loans and construction loans. 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. The Bank's consumer loans consist primarily of installment loans
to individuals for personal, family and household purposes, education and other
personal expenditures. 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. At
December 31, 1997 and 1996, credit card and other loans represented 2.6% of
outstanding loan balances.
The Bank's only area of credit concentration is commercial and commercial
real estate loans. The Bank 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,
the Bank 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 the Bank, see "Business."
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the borrowers, risk of loss may also increase due to factors
beyond the Bank'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 the
39
<PAGE> 43
Bank's real estate portfolio. Of the Bank'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 the Bank has originated certain loans
which, because they exceeded the Bank's legal lending limit, were sold to other
banks. As a result of the Offering, the Bank expects to have an increased
lending limit. Accordingly, the Bank may, at its discretion, repurchase certain
loan participations, thereby increasing earning assets. Loan participation
agreements allow the Bank to repurchase loans at the outstanding principal
balance plus accrued interest, if any, at the Bank's discretion.
The Bank also purchases participations from other banks. When the Bank
purchases these participations, such loans are subjected to the Bank's
underwriting standards as if the loan was originated by the Bank. Accordingly,
management of the Bank does not believe that loan participations purchased from
other banks pose any greater risk of loss than loans that the Bank originates.
The repayment of loans in the loan portfolio as they mature is a source of
liquidity for the Bank. The following table sets forth the maturity of the
Bank'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 1,293 878 3,270
Consumer................................... 471 750 -- 1,221
Credit card and other...................... 252 -- 617 869
------- ------- ------ -------
Total............................ $13,169 $12,330 $8,300 $33,799
======= ======= ====== =======
</TABLE>
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 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."
The Bank started an SBA lending program in August 1994. Under this program,
the Bank 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 the Bank sells in the secondary market. The majority of the
Bank's SBA loans provide a servicing fee of 1.00% of the outstanding principal
balance. Certain SBA loans provide servicing fees of up to
40
<PAGE> 44
2.32% of the outstanding principal balance. The Bank records the premium
received upon the sale of the guaranteed portion of SBA loans as gain on sale of
loans. The Bank 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 the Bank'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.
The Bank 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 the Bank'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 the Bank 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, the Bank has the option of
charging-off the non-SBA guaranteed portion of the loan retained by the Bank and
requesting payment of the SBA guaranteed portion. In such cases, the Bank will
have determined that insufficient collateral exists, or the cost of liquidating
the business exceeds the anticipated proceeds to the Bank. In all liquidations,
the Bank seeks the advice of the SBA and submits a liquidation plan for approval
prior to the commencement of liquidation proceedings. The payment of any
guarantee by the SBA is dependent upon the Bank 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 the Bank'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.
41
<PAGE> 45
An analysis of the Bank'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>
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
44.8x 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 the Bank, 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. The Bank
adopted SFAS 114 on January 1, 1995. At December 31, 1997, the Bank 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.
42
<PAGE> 46
A portion of these impaired loans have also been classified by the Bank 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.
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 the Bank'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 the Bank'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. The Bank 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 the Bank'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.
A credit review of the loan portfolio by an independent firm is conducted
semi-annually. 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 the Bank. In
addition to the above credit review, the Bank'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 Board and management of the Bank.
Information provided from the above two independent sources, together with
information provided by the management of the Bank and other information known
to members of the Board, are utilized by the Board to monitor the loan portfolio
and the allowance for loan losses. Specifically, the Board attempts to identify
risks inherent in the loan portfolio (e.g., problem loans, potential problem
loans and loans to be charged off), assess the overall quality and
collectibility of the loan portfolio, and determine
43
<PAGE> 47
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, the Bank restructured three
commercial loans to one borrower that was experiencing financial difficulties.
These loans were temporarily placed on an interest-only basis where the Bank 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 the Bank has provided a specific reserve of $63,000
representing the Bank'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.
The Bank has policies, procedures and underwriting guidelines intended to
assist in maintaining the overall quality of its loan portfolio. The Bank
monitors its delinquency levels for any adverse trends. Nonperforming 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.
The Bank'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.
The Bank 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, the Bank 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 the Bank 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 the Bank 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
44
<PAGE> 48
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, the Bank 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 the Bank's investment securities, including mortgage-backed
securities.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1997 1996
-------------------- --------------------
INVESTMENT CATEGORY BALANCE % OF TOTAL BALANCE % OF TOTAL
- ------------------- ------- ---------- ------- ----------
(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>
The Bank 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"), the Bank 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 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 the Bank. 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.
45
<PAGE> 49
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)
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AVAILABLE FOR SALE:
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) The Company 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
The Bank'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
the Bank during 1997. The increase in average deposit balances more
appropriately reflects the trend of increasing deposits.
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 the Bank'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 the Bank. 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 the Bank's loan growth.
46
<PAGE> 50
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
DEPOSIT CATEGORY BALANCE RATE BALANCE RATE
- ---------------- ------- ------- ------- -------
(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 the Bank. 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.
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
----------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<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 the Bank 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. The Bank 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.
47
<PAGE> 51
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)
<S> <C> <C> <C> <C> <C>
1997
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>
Capital Resources
Shareholders' equity increased 93.1% to $6.3 million in 1997 from $3.3
million in 1996. Adjustment to the Bank'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.
<TABLE>
<CAPTION>
REGULATORY CAPITAL CALCULATION
-------------------------------------
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
48
<PAGE> 52
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 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.
The Bank's Tier 1 (to risk-weighted assets) capital ratio increased to
13.00% in 1997 from 11.01% in 1996. The Bank'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.
The Bank 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 "Business" and "Supervision and
Regulation."
No new shares of common stock were issued by the Bank 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 the Bank'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 the Bank to meet the needs of its customer base,
but to maintain an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities so that the Bank 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
the Bank'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. Interest rate sensitivity
49
<PAGE> 53
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------------
ONE ONE- FOUR-
MONTH THREE TWELVE ONE-FIVE OVER FIVE NONINTEREST
OR LESS MONTHS MONTHS YEARS YEARS SENSITIVE TOTAL
------- ------- ------- -------- --------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning 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
======= ======= ======= ======= ======= ======= =======
LIABILITIES
Interest-bearing
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 sensitive assets
to rate sensitive
liabilities.......... 1.35x 1.18x 1.07x 1.00x 1.21x
</TABLE>
50
<PAGE> 54
In the current interest rate environment, the liquidity and maturity
structure of the Bank's assets and liabilities are important to the maintenance
of acceptable performance levels. A decreasing rate environment negatively
impacts earnings as the Bank's rate-sensitive assets generally reprice faster
than its rate-sensitive liabilities. Conversely, in an increasing rate
environment, earnings are positively impacted. 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, the Bank 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 the
Bank'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 the Bank's net interest margin. Because of these factors and in a static
test, interest sensitivity gap reports may not provide a complete assessment of
the Bank's exposure to changes in interest rates. Management utilizes
computerized interest rate simulation analysis to determine the Bank's interest
rate sensitivity. The table above indicates the Bank 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 the Bank's
net interest margin. The Bank 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. The Bank'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 the Bank'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 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.
51
<PAGE> 55
Generally, the Bank's commercial and commercial real estate loans are
indexed to the prime rate. A portion of the Bank'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 the Bank's interest
income. The majority of the Bank'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. The Bank adjusts the rates and terms of its loans and
interest-bearing liabilities in response to changes in the interest rate
environment.
The Bank 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. The Bank'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.
The Bank's average loan-to-deposit ratio remained constant at 75.8% during
1997 and 1996. The Bank'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 the Bank's total deposits at December 31, 1996. Management attempts to
manage the Bank's loan-to-deposit ratio on an average basis, as opposed to on a
daily basis.
The Bank 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, the Bank 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 the Company will find it necessary to raise
additional funds to meet expenditures required to operate the business of the
Company and the Bank over the next twelve months. All anticipated material
expenditures for such period have been identified and provided for out of the
proceeds of the Offering. See "Use of Proceeds."
YEAR 2000
The Company 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." The Company
believes that its critical systems are currently or will be Year 2000 compliant
by
52
<PAGE> 56
December 31, 1998 and does not believe that material expenditures will be
necessary to implement any further modifications. Management of the Company 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
the Company's 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 the Company's 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 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 the Banks' 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 the Bank 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 the Company or the Bank.
53
<PAGE> 57
SUPERVISION AND REGULATION
GENERAL
The Company and the Bank will operate in a highly regulated environment,
and the business activities of the Company and the Bank will be supervised by a
number of federal regulatory agencies, including the Federal Reserve Board, the
OCC, the Florida Banking Department and the FDIC.
The Company will be regulated by the Federal Reserve Board under the
federal Bank Holding Company Act of 1956, which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, or before merging or consolidating with another
bank holding company. The Federal Reserve Board (pursuant to regulation and
published policy statements) has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy, the Company may be required to provide
financial support to its subsidiary bank at a time when, absent such Federal
Reserve Board policy, the Company would not deem it advisable to provide such
assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, which became effective in November 1994, the restrictions on interstate
acquisitions of banks by bank holding companies were repealed as of September
29, 1995, such that the Company and any other bank holding company located in
Florida is able to acquire a bank located in any other state, and a bank holding
company located outside Florida can acquire any Florida-based bank, in either
case subject to certain deposit percentage and other restrictions. Beginning on
June 1, 1997, the legislation provides that unless an individual state has
elected to prohibit out-of-state banks from operating interstate branches within
its territory, adequately capitalized and managed bank holding companies will be
able to consolidate their multi-state bank operations into a single bank
subsidiary and to branch on an interstate basis. De novo branching by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. Florida does not permit de novo branching by an
out-of-state bank. Therefore, the only method by which an out-of-state bank or
bank holding company may enter Florida is through an acquisition. The authority
of a bank to establish and operate branches within a state will continue to be
subject to applicable state branching laws.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies. Effective April 21, 1997, the Federal
Reserve Board revised and expanded the list of permissible non-banking
activities, which now includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to subsidiaries and
certain outside companies; leasing personal and real property or acting as a
broker with respect thereto; providing management and employee benefits
consulting and career counseling services to nonaffiliated banks and nonbank
depository institutions; operating certain nonbank depository institutions;
performing certain trust company functions; providing certain agency
transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to certain limited
types of insurance; performing real estate appraisals; arranging commercial real
estate equity financing; providing check-guaranty, collection agency and credit
bureau services; engaging in asset management, servicing and collection
activities; providing real estate settlement services; acquiring certain debt
which is in default; underwriting and dealing in obligations of the United
States, the states and their political subdivisions; engaging as a principal in
foreign exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as to
be permissible for bank holding companies, the Federal Reserve Board is required
to consider whether the performance of such activities by a bank holding company
or its subsidiaries can reasonably be expected to produce benefits to the public
such as greater convenience, increased competition and gains in efficiency that
outweigh the possible adverse effects
54
<PAGE> 58
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices. Generally, bank holding
companies are required to obtain the prior approval of the Federal Reserve Board
to engage in any new activity not previously approved by the Federal Reserve
Board.
The Company is also regulated by the Florida Banking Department under the
Florida Financial Institutions Code, which requires every bank holding company
to obtain the prior approval of the Florida Commissioner of Banking before
acquiring more than 5% of the voting shares of any Florida bank or all or
substantially all of the assets of a Florida bank, or before merging or
consolidating with any Florida bank holding company. A bank holding company is
generally prohibited from acquiring ownership or control of 5% or more of the
voting shares of any Florida bank or Florida bank holding company unless the
Florida bank or all subsidiaries of the Florida bank holding company to be
acquired have been in existence and continuously operating, on the date of such
acquisition, for a period of three years or more. However, approval of the
Florida Banking Department is not required if the bank to be acquired or all
bank subsidiaries of the Florida bank holding company to be acquired are
national banks.
The Bank, as a subsidiary of the Company, is subject to restrictions under
federal law in dealing with the Company and other affiliates, if any. These
restrictions apply to extensions of credit to an affiliate, investments in the
securities of an affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to a
single person in an amount up to 10% of its unimpaired capital and surplus,
provided that the transactions are fully secured by readily marketable
collateral having a market value determined by reliable and continuously
available price quotations, at least equal to the amount of funds outstanding.
This 10% limitation is separate from, and in addition to, the 15% limitation for
unsecured loans. Loans and extensions of credit may exceed the general lending
limit if they qualify under one of several exceptions. Such exceptions include
certain loans or extensions of credit arising from the discount of commercial or
business paper, the purchase of bankers' acceptances, loans secured by documents
of title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government.
CAPITAL ADEQUACY REQUIREMENTS
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC. The Federal
Reserve Board and the OCC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies on a consolidated basis. The OCC's risk capital
guidelines apply directly to national banks regardless of whether they are
subsidiaries of a bank holding company. Both agencies' requirements (which are
substantially similar), provide that banking organizations must have capital
equivalent to 8% of weighted risk assets. The risk weights assigned to assets
are based primarily on credit risks. Both the Federal Reserve Board and the OCC
have also implemented new minimum capital leverage ratios to be used in tandem
with the risk-based guidelines in assessing the overall capital adequacy of
banks and bank holding companies. Under these rules, banking institutions are
required to maintain a ratio of 3% "Tier 1" capital to total assets (net of
goodwill). Tier 1 capital includes common shareholders equity, noncumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain intangible assets.
The OCC's guidelines provide that intangible assets are generally deducted
from Tier 1 capital in calculating a bank's risk-based capital ratio. However,
certain intangible assets which meet specified criteria ("qualifying
intangibles") such as mortgage servicing rights are retained as a part of Tier 1
capital. The OCC currently maintains that only mortgage servicing rights and
purchased credit card relationships meet the criteria to be considered
qualifying intangibles. The OCC's guidelines formerly provided that the amount
of such qualifying intangibles that may be included in Tier 1 capital was
strictly limited to a maximum of 25% of
55
<PAGE> 59
total Tier 1 capital. The OCC has amended its guidelines to increase the
limitation on such qualifying intangibles from 25% to 50% of Tier 1 capital and
further to permit the inclusion of purchased credit card relationships as a
qualifying intangible asset.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation and Federal Farm Credit Bank
programs. The rules clarify that even though those transactions are treated as
asset sales for bank Call Report purposes, those assets will still be subject to
a capital charge under the risk-based capital guidelines.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well diversified risk,
high asset quality, high liquidity, good earnings and in general, have to be
considered strong banking organizations rated composite 1 under the CAMEL rating
system for banks. Institutions with lower ratings and institutions with high
levels of risk or experiencing or anticipating significant growth would be
expected to maintain ratios 100 to 200 basis points above the stated minimums.
The OCC, the Federal Reserve Board and the FDIC have adopted regulations
revising their risk-based capital guidelines to ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse effect
that changes in market interest rates may have on a bank's financial condition
and is inherent to the business of banking. Under the new regulations, when
evaluating a bank's capital adequacy, the agency's capital standards now
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a bank's economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts. Concurrently, the agencies issued a
joint policy statement, effective June 26, 1996, to provide guidance on sound
practices for managing interest rate risk. In the policy statement, the agencies
emphasize the necessity of adequate oversight by a bank's Board of Directors and
senior management and of a comprehensive risk management process. The policy
statement also describes the critical factors affecting the agencies'
evaluations of a bank's interest rate risk when making a determination of
capital adequacy. The agencies' risk assessment approach used to evaluate a
bank's capital adequacy for interest rate risk relies on a combination of
quantitative and qualitative factors. Banks that are found to have high levels
of exposure and/or weak management practices will be directed by the agencies to
take corrective action. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt corrective action on the part of
banking regulators with regard to certain classes of undercapitalized
institutions. While the FDICIA does not change any of the minimum capital
requirements, it directs each of the federal banking agencies to issue
regulations putting the monitoring plan into effect. The FDICIA creates five
"capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in the FDICIA and which will be used to
determine the severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of undercapitalization. For
example, an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, any entity controlling a bank (i.e., holding companies) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or the
amount which is necessary to bring the institution into compliance with all
capital standards. In addition, "undercapitalized" institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business.
56
<PAGE> 60
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
In order to comply with the FDICIA, the Federal Reserve Board, the OCC and
the FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting criteria,
interest rate exposure, asset growth, and compensation, fees and benefits.
In response to the directive issued under the FDICIA, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the FDICIA.
The following table reflects the capital thresholds:
<TABLE>
<CAPTION>
TOTAL RISK- TIER 1 RISK- TIER 1
BASED CAPITAL BASED CAPITAL LEVERAGE
RATIO RATIO RATIO
------------- ------------- --------
<S> <C> <C> <C>
Well capitalized(1)................................. >=10% >=6% >=5%
Adequately Capitalized(1)........................... >=8 >=4 >=4(2)
Undercapitalized(4)................................. <8 <4 <4(3)
Significantly Undercapitalized(4)................... <6 <3 <3
Critically Undercapitalized......................... -- -- <=2(5)
</TABLE>
- ---------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) l3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified capital
level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The scope of regulation and permissible activities of the Company and the
Bank is subject to change by future federal and state legislation. In addition,
regulators sometimes require higher capital levels on a case-by-case basis based
on such factors as the risk characteristics or management of a particular
institution. The Company and the Bank are not aware of any attributes of their
operating plan that would cause regulators to impose higher requirements.
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DESCRIPTION OF BANK ACQUISITION
GENERAL
On March 30, 1998, the Company and the Bank entered into an agreement (the
"Merger Agreement") whereby the Bank will be merged with and into Florida
Interim Bank No. 1, N.A. ("Interim"), a national bank. Interim will be the
surviving entity in the Merger, and, immediately upon consummation of the
Merger, will change its name to "Florida Bank, N.A."
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will be immediately prior to the closing of the Offering, at a time,
place and date specified by the parties. The Merger and other transactions
contemplated by the Merger Agreement will become effective on the date and at
the time certification of the Merger is received from the OCC (the "Effective
Time").
The aggregate purchase price for the Bank will be $13.75 million. At the
Effective Time, each outstanding share of the Bank's capital stock ("Bank
Stock")(other than shares held by holders who perfect and do not withdraw their
dissenters' rights) will be converted into and exchanged for the right to
receive that number of shares of Common Stock equal to the quotient obtained by
dividing 6.6586 by the initial public offering price of the Common Stock offered
hereby, rounded to the nearest third decimal point (the "Exchange Ratio"). The
value of the consideration to be paid to Bank shareholders in the Merger was
arrived at as a result of the Company's due diligence review of the Bank's
financial condition and negotiations between management of the Company and the
Bank. At an assumed initial public offering price of $11.00 for the Common Stock
(the mid-point of the estimated range) and assuming an aggregate of 2,065,000
shares of Bank Stock issued and outstanding as of the Effective Time (assuming
the exercise of all outstanding options), each share of Bank Stock would be
convertible into .605 shares of Common Stock, and an aggregate of 1,250,000
shares of Common Stock would be issuable upon conversion and exchange of all
shares of Bank Stock. Cash will be paid in lieu of fractional shares. If the
Company changes the number of shares of Common Stock issued and outstanding
prior to the Effective Time as a result of a stock split, stock dividend,
recapitalization, reclassification, or similar transaction and the record date
or the effective date thereof will be prior to the Effective Time, the Exchange
Ratio will be proportionately adjusted.
The aggregate purchase price of $13.75 million corresponds to 209.8% of the
Bank's reported shareholders' equity (plus assumed proceeds on the exercise of
the Bank's 240,000 outstanding options) of $6.6 million as of December 31, 1997
and 36.6 times its reported net income for 1997 of $376,000. Shareholders'
equity as of December 31, 1997 includes a one-time, non-recurring increase in
additional paid-in capital of approximately $2.4 million due to the elimination
of the valuation allowance on the Bank's net deferred tax assets.
CONDITIONS TO THE MERGER
Consummation of the Merger, which has been approved by the boards of
directors of both the Company and the Bank, is subject to the satisfaction or
waiver of certain conditions including, among others, (i) approval of the Merger
by the requisite vote of at least two-thirds of the outstanding Bank Stock at a
special meeting of the Bank's shareholders to be held on , 1998, (ii)
the Registration Statement of which this Prospectus is a part being declared
effective under the Securities Act, (iii) receipt of the opinion of Mercer
Capital as to the fairness from a financial point of view of the Merger to Bank
shareholders, (iv) approval of appropriate regulatory agencies and (v) execution
of a definitive underwriting agreement for the purchase and sale of at least $30
million of Company Common Stock. Approval of the Merger Agreement by the
Company's shareholders is not required to effect the Merger.
REPRESENTATIONS AND WARRANTIES; CONDUCT OF BUSINESS PENDING THE CONSUMMATION OF
THE MERGER
The Merger Agreement contains various customary representations and
warranties including, without limitation, representations and warranties by the
Company and the Bank as to their organization, existence and good standing,
capitalization, authority and power to carry out the transactions contemplated
by the Merger Agreement, compliance with all regulatory filing requirements,
compliance with laws, possession of required consents and approvals, absence of
undisclosed liabilities, absence of pending litigation, payment of
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taxes, possession of good and marketable title with respect to each party's
assets, compliance with environmental laws, compliance with the Employee
Retirement Income Security Act of 1974, as amended, absence of default in
Material Contracts (as defined in the Merger Agreement) and absence of certain
events, changes or occurrences which, individually or in the aggregate would,
with respect to the Company or the Bank: (i) in the aggregate result in an
adverse impact of at least $200,000 on the financial position or results of
operations of either the Company or the Bank or (ii) impair the ability of
either the Company or the Bank to perform its respective obligations under the
Merger Agreement or to consummate the Merger or the other transactions
contemplated by the Merger Agreement (collectively, a "Material Adverse
Effect"), provided that a Material Adverse Effect will 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 principals generally applicable to banks and their
holding companies, (c) actions and omissions of any of the Company, the Bank or
any of their respective subsidiaries taken with the prior informed consent of
the other party in contemplation of the transactions contemplated by the Merger
Agreement, (d) circumstances affecting regional bank holding companies generally
and (e) the Merger and compliance with the provisions of the Merger Agreement on
the operating performance of the Company and the Bank.
The Bank has agreed, during the period from the date of the Merger
Agreement to the earlier of the Effective Time or termination of the Merger
Agreement, to (a) operate its business only in the usual, regular, and ordinary
course, (b) use its reasonable best efforts to preserve its business
organization and assets and maintain its rights and franchises, (c) use its
reasonable best efforts to maintain its current employee relationships, and (d)
take no action which would materially adversely affect the ability of any party
to obtain any consents of regulatory authorities required for the transactions
contemplated by the Merger Agreement. In addition, the Company has agreed during
such time period to (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 its Common Stock and the business prospects of its companies
and (ii) take no action which would (x) materially adversely affect the ability
of any party to obtain any consents required for the transactions contemplated
by the Merger Agreement or (y) materially adversely affect the ability of any
party to perform its covenants and agreements under the Merger Agreement. In
addition, the Company and the Bank have agreed that they will not, without the
other party's prior approval, and unless otherwise expressly permitted by the
Merger Agreement, take certain specified actions that would have the effect of
changing such party's capital or ownership structure, loan portfolio, or balance
sheet.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time; (a) by mutual written consent of the boards of
directors of the Company and the Bank; (b) by the board of directors of either
the Bank or the Company: (i) in the event of the inaccuracy of any
representation or warranty of the other party contained in the Merger Agreement
which cannot or has not been cured within 30 days after providing written notice
of such inaccuracy and which inaccuracy would provide the terminating party the
ability to refuse to consummate the Merger, provided that the terminating party
is not then in breach of any representation or warranty, or in material breach
of any covenant or agreement, contained in the Merger Agreement; (ii) if the
other party has materially breached any covenant, agreement or obligation under
the Merger Agreement, and such breach cannot or will not be cured within 30 days
after giving written notice to the breaching party of the breach; (iii) if any
application for necessary regulatory approval consent is denied by final
nonappealable action; (iv) if the Bank's shareholders fail to approve the Merger
Agreement; (v) the Merger has not been consummated by September 30, 1998; or
(vi) any of the conditions precedent to the party's obligations to consummate
the Merger cannot be satisfied, or cannot be satisfied or fulfilled by September
30, 1998; (c) by the Company if (i) dissenters' rights are claimed by persons
owning in the aggregate more than 10% of the issued and outstanding Bank Stock
or (ii) the Bank does not receive an opinion from Deloitte & Touche LLP, dated
as of the Effective Time and with contents acceptable to the Company in its sole
discretion, to the effect that no ownership change (as defined in Section 382(g)
of the Code), of the Bank has occurred during or after any taxable period in
which the Bank incurred a net operating loss that carries over to any taxable
period ending after December 31, 1996 or (d) by the Bank, if any time
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prior to the Effective Time, (i) Mercer Capital withdraws its fairness opinion
or (ii) a third-party makes a bona fide Acquisition Proposal that the Bank's
Board of Directors determines in its good faith and in the exercise of its
fiduciary duties, is more favorable to the Bank's shareholders than the Merger
Agreement and that the failure to terminate the Merger Agreement and accept such
alternative would be inconsistent with the proper exercise of such fiduciary
duties.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the Company's
executive officers, directors and significant employees upon completion of the
Offering 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 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 Board of Directors of the Company is divided into three classes,
designated Class I, Class II and Class III. See "-- Board of Directors."
(2) Upon completion of the Offering and the Merger, Mr. Stinson will become
Chief Financial Officer, Secretary and Treasurer of the Company.
Accordingly, Ms. LaFoy will resign as Secretary and Treasurer of the
Company, but will remain a member of the Board of Directors.
(3) Upon completion of the Offering and the Merger, Mr. McMullen will be the
President of the Tampa Market and a Director.
(4) Upon completion of the Offering and the Merger, Mr. Krusen will be a
Director of the Company.
M. G. Sanchez, age 63, has served as Chairman of the Board and a Class II
Director of the Company since February 1998. Prior to his service with the
Company, 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 Florida.
Upon completion of the Offering and the Merger, Mr. Sanchez will serve as
Chairman of the Board of the Directors of the Bank.
Charles E. Hughes, Jr., age 54, has served as President, Chief Executive
Officer and a Class III Director of the Company 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,
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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 the Bank.
T. Edwin Stinson, Jr., age 45, has served as Executive Vice President,
Chief Operating Officer and as a Director of the Bank since 1993. Prior to his
service with the Bank, 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 Offering and the
Merger, Mr. Stinson will serve as the Secretary, Treasurer, and Chief Financial
Officer of the Company and Secretary and Chief Financial Officer of the Bank.
Nancy E. LaFoy, age 42, has served as a Class I Director of the Company
since its inception and as Secretary and Treasurer of the Company 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 Offering and the Merger, Ms. LaFoy will
resign from her position as Secretary and Treasurer of the Company, but will
remain a Director of the Company.
Richard B. Kensler, age 48, has served as the Chief Credit Officer of the
Company since April 1998. Prior to his service with the Company, Mr. Kensler
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 the Bank 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 Offering and the Merger, Mr. McMullen
will become a Director of the Company and the Bank and President of the Tampa
Market.
Donald Roberts, age 49, has served as President of the Jacksonville Market
since April 1998. Prior to his service with the Company, 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 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 the Company
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 the Company
since April 1998. Mr. Biddinger has also served as President, Chief Executive
Officer and Director of Sun Financial Group, Inc., Tampa, Florida ("Sun") since
its founding in 1981. In October 1995, Sun was sold to GATX Corporation, a
publicly traded corporation. Since 1991, Mr. Biddinger has also served as
Chairman of the Board and sole shareholder of CMB Holdings, Inc. 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
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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
various charitable organizations.
P. Bruce Culpepper, age 56, has served as a Class III Director of the
Company 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 the
Company 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 FloridaBank, 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 the Company
upon the completion of the Offering and the Merger.
Wilford C. Lyon, Jr., age 62, has served as a Class II Director of the
Company since April 1998. Prior to his service with the Company, 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 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 the Company
since April 1998. Prior to his service with the Company, 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, Florida, 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.
BOARD OF DIRECTORS
The number of directors of the Company is currently fixed at nine. The
Articles of Incorporation and the By-Laws provide for the Board of Directors 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 Board of Directors. 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 Board of Directors. The term
of the Company's initial Class I Directors expires at the Company's annual
meeting of shareholders in 1999; the term of the Company's initial Class II
Directors expires at the Company's annual meeting of shareholders in 2000; and
the term of the Company's initial Class III Directors expires at the Company's
annual meeting of
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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, and any additional director
of any class elected to fill a vacancy resulting from an increase in such class
will hold office for a term that will expire at the next annual meeting, 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 due to resignation,
removal or death will have the same remaining term as that of his predecessor.
In the case of the removal of a director from office, the resulting vacancy on
the Board of Directors be filled by the vote of at least seventy-five percent
(75%) of the outstanding shares of Common Stock. Any other vacancy on the Board
of Directors will 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 Board of Directors is to make it more
difficult for a person, entity or group to effect a change in control of the
Company through the acquisition of a large block of the Company's voting stock.
The executive officers of the Company serve at the pleasure of the Board of
Directors.
The Board of Directors has an Executive Committee, an Audit Committee and a
Compensation Committee. The Executive Committee, which is currently comprised of
, exercises the authority of the Board of Directors in accordance with
the By-Laws of the Company between regular meetings of the Board of Directors.
The Audit Committee, which is currently comprised of , reviews and
makes recommendations to the Board of Directors on the Company's audit
procedures and independent auditors' report to management and recommends to the
Board of Directors the appointment of the independent auditors for the Company.
The Compensation Committee, currently comprised of , reviews and makes
recommendations to the Board of Directors with respect to the compensation of
officers of the Company and will assist the Board in the administration of the
Company's 1998 Stock Option Plan.
EXECUTIVE COMPENSATION
For the fiscal year ended December 31, 1997, the Company was in a
development stage and no one served as the Chief Executive Officer of the
Company during that period. Charles E. Hughes, Jr. entered into an employment
agreement with the Company 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
The Company 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 the Company and as President and
Chief Executive Officer of the Bank upon completion of the Merger and the
Offering. Mr. Hughes also serves as a member of the Board of Directors and will
serve on the Bank's board of directors after the closing of the Offering. The
Employment Agreement has a three-year term and provides for a minimum annual
base salary of $220,000 until the closing of the Offering and an annual base
salary of $250,000 subsequent to the completion of the Merger and the Offering.
In addition, the Board will issue an option to Mr. Hughes to purchase 80,000
shares of Common Stock at the initial public offering price of the Common Stock
sold in the Offering. This option will be exercisable for a period of ten years.
After the closing of the Offering, in the event of a "change in control" of
the Company (as defined in the Employment Agreement), Mr. Hughes will be
entitled to give written notice to the Company 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 addition, if Mr. Hughes elects to terminate the
Employment Agreement pursuant to a change in control, Mr. Hughes will further be
entitled, in lieu of shares of Common Stock issuable upon the exercise of
options to which Mr. Hughes is entitled, an amount in cash or Common Stock equal
to the excess of the fair market value of the Common Stock as of the date of
closing of the transaction effecting the change of control over the
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per share exercise price of the options held by Mr. Hughes, times the number of
shares of Common Stock subject to such options.
In the event that the Board of Directors determines in its sole discretion
that the Company is unable to close the Offering, then the Employment Agreement
may be terminated by the Board of Directors at any time during the term of the
Employment Agreement 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 Board of Directors 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, the Bank 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 the Company. Likewise, Mr. Hughes may upon thirty days' written
notice to the Company terminate the Employment Agreement without Cause. In the
event of termination by Mr. Hughes, the Company will have no further obligation
than for monies paid and the Company shall be entitled to enforcement of the
non-compete and non-solicitation provisions. After the closing of the Offering,
in the event of Mr. Hughes' death, the Company 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 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 twelve months after such termination date, Mr. Hughes shall not, without the
prior written consent of the Company, within Duval County, Florida either
directly or indirectly, serve as an executive officer of any bank, bank holding
company or other financial institution. The Employment Agreement further
obligates Mr. Hughes to protect the confidentiality of the Company's information
following termination of his employment.
The Company will enter 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 Offering. 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 Common Stock at the first Board of Directors meeting subsequent
to the closing of the Offering. In addition, Mr. McMullen's employment agreement
provides that his title following the Merger and the Offering 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
Common Stock at the first Board of Directors meeting subsequent to the closing
of the Offering. Upon the consummation of the Offering, Mr. Stinson's title will
be Chief Financial Officer of the Company. The options to be granted under both
Mr. McMullen's and Mr. Stinson's employment agreements will be exercisable at
the initial public offering price. In the event of a "change in control" (as
defined in their respective agreements) of the Company, both agreements provide
that Mr. Stinson and Mr. McMullen may elect to give written notice to the
Company 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 certain non-compete
and non-solicitation provisions which are similar to those described in the
employment agreement of Mr. Hughes discussed above.
STOCK OPTION PLAN
In March 1998, the Board of Directors adopted the Florida Banks, Inc. 1998
Stock Option Plan (the "1998 Plan") to promote the Company's growth and
financial success. Options may be granted under the 1998 Plan to the Company's
directors, officers and employees, as well as certain consultants and advisors.
The 1998 Plan contemplates the grant of nonqualified stock options and incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). 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 Common Stock, subject to
adjustment under certain circumstances (the "Option Shares"). The 1998 Plan will
expire upon the earlier to occur of: (i) the date on which all Option Shares
have been
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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 Board of Directors or by a Stock Option Committee appointed
by the Board and consisting of least two non-employee Board members. The
exercise price of options granted under the 1998 Plan will be determined by the
Board of Directors, but will in no event be less than 100% of the Market Price
(as defined in the 1998 Plan) of one share of Common Stock on the option grant
date; provided, however, that nonqualified stock options may be granted at an
exercise price of no less than 75% of the Market Price of the 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. If an
optionee during his or her lifetime ceases to be an officer, director, employee,
consultant or advisor of the Company or any subsidiary of the Company 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 ninety (90) days following the date the optionee ceases
to be an officer, director or employee of the Company or of a subsidiary of the
Company, 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 the Company or of a subsidiary of the Company,
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. 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 Board of Directors may at any
time terminate, modify or amend the 1998 Plan in any respect, except that
without shareholder approval the Board of Directors 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
must be approved by the Company's shareholders within twelve months from the
adoption of the 1998 Plan by the Board of Directors.
COMPENSATION OF DIRECTORS
Directors of the Company and the Bank will not receive any compensation
based on their attendance at board meetings until the Bank becomes cumulatively
profitable. Upon consummation of the Offering, directors of the Company will be
entitled to receive stock option awards under the 1998 Plan. In addition,
members of the Board of Directors 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 Board of Directors of the Bank. Such compensation may be
incentive-based and include cash and options to purchase Common Stock.
CERTAIN TRANSACTIONS
TSJ&A has provided consulting services during the organization and
formation of the Company. T. Stephen Johnson, Vice-Chairman of the Company, is
the President of TSJ&A and Nancy E. LaFoy, Secretary and Treasurer of the
Company, is the Senior Vice President of TSJ&A. In addition, from time to time,
M. G. Sanchez has performed consulting work for TSJ&A. Specific responsibilities
undertaken by TSJ&A include assisting management of the Company in formulating
the Company's business plan, conducting a feasibility analysis, drafting
proposed administrative and operational procedures, and preparing the necessary
regulatory filings for approval of the formation of the Company and the
acquisition of the Bank. As compensation for its services, TSJ&A will be paid a
monthly fee of $15,000 for six months. In addition, TSJ&A will receive a
finder's fee in connection with the acquisition of the Bank of $137,500 (one
percent of the aggregate purchase price), which finder's fee shall be paid from
the proceeds of the Offering. Furthermore, the Company temporarily operated from
the corporate offices of TSJ&A which are located at 9755 Dogwood Road, Suite
310, Roswell, Georgia 30075.
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<PAGE> 70
Mr. Robin Kelton, who beneficially owns greater than five percent of the
outstanding shares of Common Stock (prior to the issuance of the shares in
connection with the Offering), serves as Chairman of the Board of Directors of
Kelton International Ltd. Kelton International Ltd. received a fee of $45,450
for its services as placement agent for 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. The Units were issued
in a private placement in reliance upon the exemption from the registration
provisions of the Securities Act, pursuant to the provisions of Rule 506
promulgated thereunder.
As of March 31, 1998, Mr. W. Andrew Krusen, Jr., who serves as Chairman of
the Board of the Bank, and his related interests are currently indebted to the
Bank 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.
Once the Bank becomes a wholly-owned subsidiary of the Company, the Bank
may extend loans from time to time to certain of the Company's directors, their
associates and members of the immediate families of the directors and executive
officers of the Company. 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 the Company or the Bank, and will not involve
more than the normal risk of collectibility or present other unfavorable
features.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of the Common Stock as of April 16, 1998, and as adjusted to
reflect the sale of the shares offered hereby and the shares offered in
connection with the Merger, with respect to (i) each director of the Company;
(ii) each person, including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934, who is known by the Company to own
beneficially more than 5.0% of the outstanding shares of the Common Stock and
(iii) all directors and executive officers of the Company 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 OFFERING AND THE OFFERING
--------------------- ------------------------
COMMON COMMON
NAME OF BENEFICIAL OWNER STOCK(1) PERCENT STOCK(1) 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
Nancy E. LaFoy...................................... 10,000 2.6 20,000(7) *
Wilford C. Lyon, Jr. ............................... -- * -- *
David McIntosh...................................... -- * -- *
John S. McMullen.................................... -- * 242,933(8) 4.3
M.G. Sanchez........................................ 70,000 18.5 140,000(9) 2.5
T. Edwin Stinson, Jr. .............................. -- * 94,506(10) 1.7
Robin Kelton........................................ 22,500 6.0 45,000(11) *
All executive officers and directors as a group
(12 persons)...................................... 253,750 67.2% 961,765(12) 16.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Pursuant to the rules of the Commission, the determinations of "beneficial
ownership" of Common Stock 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
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<PAGE> 71
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 of Common Stock 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 Common
Stock issued and outstanding as of March 31, 1998, as adjusted to reflect
the 4,000,000 shares issuable pursuant to the Offering (assuming no
exercise of the Underwriters' overallotment option) and the 1,250,000
shares issuable pursuant to the Merger (assuming an $11.00 initial public
offering price of the Common Stock in the Offering, the mid-point of the
estimated range, and the exchange of 2,065,000 shares of the Bank'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
Offering.
(4) Includes 13,500 shares which are owned by Mr. Johnson's wife, 10,000 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
Offering and 13,500 shares issuable upon the exercise of immediately
exercisable options to be granted to Mr. Johnson's wife simultaneously with
the closing of the Offering.
(6) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
Offering and 87,076 shares issuable upon conversion and exchange of shares
of the Bank's 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
Offering.
(8) Comprised of shares issuable upon conversion and exchange of shares of the
Bank's common stock pursuant to the Merger.
(9) Includes 70,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
Offering.
(10) Comprised of shares issuable upon conversion and exchange of shares of the
Bank's common stock pursuant to the Merger.
(11) Includes 22,500 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
Offering.
(12) Includes 283,500 shares upon the exercise of immediately exercisable
options to be granted simultaneously with the Closing of the Offering and
424,514 shares upon conversion and exchange of shares of the Bank's common
stock pursuant to the Merger.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 9,000,000 shares of Common Stock, $.01
par value per share, and 1,000,000 shares of Preferred Stock, $.01 par value per
share, of which 600,000 shares of Preferred Stock have been designated as the
Series A Preferred Stock. As of the date hereof, 377,800 shares of Common Stock
and 60,600 shares of Series A Preferred Stock are issued and outstanding, held
by 28 shareholders of record.
The following summary of the Common Stock and Preferred Stock is qualified
in its entirety by reference to the Articles of Incorporation, the By-Laws, and
the Florida Business Corporation Act, as amended (the "FBCA").
COMMON STOCK
Subject to such preferential rights as may be granted by the Board of
Directors in connection with any issuances of Preferred Stock, holders of shares
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors in its discretion from funds legally available therefor. At
this time, the Board of Directors intends to retain all earnings to support
anticipated growth in the current operations of the Company and the Bank and to
finance future expansion. Additional restrictions on the payment of cash
dividends may be imposed in connection with future issuances of Preferred Stock
and indebtedness by the Company. Further declarations and payments of cash
dividends, if any, will also be determined in light of then-current conditions,
including the Company's earnings, operations, capital requirements, liquidity,
financial condition, restrictions in financing agreements and other factors
deemed relevant by the Board of Directors. Upon the liquidation, dissolution or
winding up of the Company, after payment of creditors, the remaining net assets
of the Company will be distributed pro rata to the holders of Common Stock,
subject to any liquidation preference of the holders of Preferred Stock. See
"-- Preferred Stock." There are no preemptive rights, conversion rights, or
redemption or sinking fund provisions with respect to the shares of Common
Stock. All of the outstanding shares of Common Stock are, and the shares to be
outstanding upon completion of the Offering will be, duly and validly authorized
and issued, fully paid and nonassessable.
Holders of Common Stock are entitled to one vote per share of Common Stock
held of record on all such matters submitted to a vote of the shareholders.
Holders of Common Stock do not have cumulative voting rights. As a result, the
holders of a majority of the outstanding shares of Common Stock voting for the
election of directors can elect all the directors, and, in such event, the
holders of the remaining shares of Common Stock will not be able to elect any
persons to the Board of Directors.
PREFERRED STOCK
The Board of Directors may, without approval of the Company's shareholders,
from time to time authorize the issuance of Preferred Stock in one or more
series for such consideration and, within certain limits, with such relative
rights, preferences and limitations as the Board of Directors may determine. The
relative rights, preferences and limitations that the Board of Directors has the
authority to determine as to any such series of Preferred Stock include, among
other things, dividend rights, voting rights, conversion rights, redemption
rights and liquidation preferences. Because the Board of Directors has the power
to establish the relative rights, preferences and limitations of each series of
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 Common Stock.
Although the Board of Directors has no intention at the present time of doing
so, it could cause the issuance of 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 Common Stock over the
market price of such shares.
The Company presently has 60,600 shares of 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 the Company in
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<PAGE> 73
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 terms of the Series A
Preferred Stock may be redeemed, at the option of the Company, at a price of
$10.00 per share. The Company intends to redeem the outstanding shares of Series
A Preferred Stock with the proceeds of the Offering. See "Use of Proceeds."
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS
The Company's Articles of Incorporation contain provisions requiring
supermajority shareholder approval to effect certain extraordinary corporate
transactions which are not approved by three-quarters of the Board of Directors.
The Articles of Incorporation require, in addition to any other approval or
consent required under 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 the Company
or any subsidiary of the Company with or into any Interested Person (as
defined), regardless of the identity of the surviving corporation, 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 the
Company) of the assets of the Company or any subsidiary of the Company to any
Interested Person for cash, real or personal property, including securities, or
any combination thereof, issuance or delivery of securities of the Company or a
subsidiary of the Company to any Interested Person in consideration for or in
exchange of any securities or other property (including cash), or liquidation of
the Company ("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 the Company entitled to
vote in elections of directors ("Interested Person") is a party to the
transaction, unless three-fourths (75%) of the entire Board of Directors 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 Articles of Incorporation require, in addition to any approval or
consent required under Florida law, any other provision in the Articles of
Incorporation or otherwise, the separate approval by the holders of a majority
of the shares of each class of stock of the Company 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
the Company ("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 the Company meets
certain minimal levels determined by a formula under the Articles of
Incorporation (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 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 Company's Articles of Incorporation, as well as the Article
establishing a classified Board of Directors, 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 the Company through the
acquisition of a large block of the Company's voting stock.
INDEMNIFICATION
The Articles of Incorporation and By-Laws require the Company to indemnify
the directors and officers of the Company to the fullest extent permitted by
law. In addition, as permitted by the FBCA, the Articles of Incorporation and
By-Laws provide that no director of the Company shall be personally liable to
the Company 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
Company 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
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<PAGE> 74
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 Company in violation of
Section 607.06401 of the FBCA, or (iv) for willful misconduct or a conscious
disregard for the best interests of the Company in a proceeding by or in the
right of the Company to procure judgment in its favor or in a proceeding by or
in the right of a shareholder. This provision of the Articles of Incorporation
will limit the remedies available to a shareholder who is dissatisfied with a
decision of the Board of Directors 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 Board of Directors. 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 Board of Directors in respect of such
transaction or event.
TRANSFER AGENT AND REGISTRAR
SunTrust Bank, Atlanta will be the Transfer Agent and Registrar for the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Merger, the Company will have
5,627,800 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option), outstanding options to purchase 465,000
shares of Common Stock and outstanding warrants to purchase 80,800 shares of
Common Stock. Of these shares, the 4,000,000 shares offered hereby and the
1,250,000 shares estimated to be issued in the Merger (assuming an initial
public offering price of Common Stock of $11.00 per share, the mid-point of the
estimated range), will be eligible for sale in the open market without
restriction (except for any such shares purchased by or issued to "affiliates"
of the Company and the Bank). The remaining 377,800 shares of Common Stock will
be "restricted securities" as that term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
and will become eligible for sale under Rule 144 after February 3, 1999. Such
shares must be held for one year from the date of acquisition before they may be
resold pursuant to Rule 144, unless the resale of such shares is made pursuant
to an effective registration statement under the Securities Act or another
exemption from registration is available.
Generally, Rule 144 provides that beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned "restricted" securities for a least one year, including a
person who may be deemed an "affiliate" of the Company, as the term "affiliate"
is defined under the Securities Act, is entitled to sell in "broker's
transactions" or in transactions directly with a "market marker," within any
three-month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on any national securities exchange and/or
over-the-counter market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company would be entitled to sell such shares under Rule 144 without regard to
the volume, public information, manner of sale or notice provisions and
limitations described above, once a period of at least two years had elapsed
since the later of the date the shares were acquired from the Company or from an
"affiliate" of the Company.
Upon completion of the Offering, options to purchase 465,000 shares of
Common Stock will be granted to certain officers and directors of the Company
pursuant to the Company's 1998 Plan. After the Offering, the Company intends to
file a registration statement on Form S-8 under the Securities Act to register
the shares of Common Stock issuable upon exercise of such options. Accordingly,
such shares will be freely tradeable by holders who are not affiliates of the
Company and, subject to the volume and manner of sale limitations of Rule 144,
by holders who are affiliates of the Company.
The Company, its officers and directors and certain of its existing
shareholders have agreed, for a period of 180 days from the date of this
Prospectus, not to sell or otherwise dispose, directly or indirectly, of any
shares without prior written consent of the Representatives. Upon consummation
of the Merger and the
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<PAGE> 75
Offering, the Company's officers and directors and certain of its shareholders
of the Company will beneficially own an aggregate of 1,006,765 shares. The
restricted 377,800 shares of Common Stock will be eligible for sale pursuant to
Rule 144 in the public market 365 days from the date of their purchase from the
Company and upon expiration of the 180-day lockup period, approximately 424,515
additional shares will be eligible for sale in the public market subject to
compliance with certain volume limitations and other conditions of Rule 144.
Warrants to purchase 80,800 shares of Common Stock were granted to certain
foreign investors in February 1998. The exercise price for such warrants will be
the initial public offering price of the Common Stock, and the warrants will be
exercisable for a seven-year period commencing on the date of the Offering is
completed. The shares underlying the warrants will be "restricted securities,"
within the meaning of Rule 144 and must therefore be held for one year following
the date of acquisition before they may be resold pursuant to Rule 144, unless
the resale of such shares is made pursuant to an effective registration
statement under the Securities Act or another exemption from registration is
available.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
future sales of shares or the availability of shares for sale will have on the
market price for Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market, or the perception of the
availability of shares for sale, could adversely affect the prevailing market of
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities. See "Risk Factors -- Shares Eligible for
Future Sale" and "-- Absence of Public Market; Volatility of Stock Price;
Potential Fluctuation in Quarterly Results."
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<PAGE> 76
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among the
Company and the Underwriters named below (the "Underwriting Agreement"), the
Underwriters for whom The Robinson-Humphrey Company, LLC and Interstate/Johnson
Lane Corporation are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Company has agreed to sell
to the Underwriters, the number of shares of Common Stock set forth opposite
their respective names.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ----------- -------
<S> <C>
The Robinson-Humphrey Company, LLC..........................
Interstate/Johnson Lane Corporation.........................
-------
Total.............................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters propose to offer part of the shares of the Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at such price less
a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
in sales to certain other dealers. After the initial public offering of the
shares to the public, the public offering price, such concessions and other
selling terms may be changed by the Underwriters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of any shares of Common Stock to any accounts over which
they exercise discretionary authority.
In connection with the Offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock, and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the shares sold in the Offering may be reclaimed by the syndicate if such shares
of Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise prevail in
the open market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
in the Nasdaq National Market, in the over-the-counter market or otherwise. The
Representatives intend to make a market in the Common Stock after completion of
the Offering.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 600,000 additional
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus less the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares of
Common Stock offered hereby. To the extent such option is exercised, the
Underwriters will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock set forth opposite such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock listed in
such table.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock has been determined by negotiations among the
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<PAGE> 77
Company and the Representatives and was not based upon any independent appraisal
or valuation of the Company. Among the factors considered in determining such
price were the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for growth of the Company's revenues and
earnings, the current state of the economy in the United States and the current
level of economic activity in the industry in which the Company competes and in
related or comparable industries, currently prevailing conditions in the
securities markets, including current market valuations of publicly trade
companies which are comparable to the Company and other factors deemed relevant.
Upon consummation of the Merger and the Offering (assuming no exercise of
the Underwriter's over-allotment option), the Company, the Company's officers
and directors, and certain shareholders of the Company, who will beneficially
own in the aggregate approximately 1,006,765 shares of Common Stock
(approximately 17.9% of the outstanding Common Stock), will enter into lock-up
agreements with the Representatives pursuant to which they will agree not to,
directly or indirectly, sell, offer to sell, contract to sell, solicit an offer
to buy, grant any option for the purchase or sale of, assign, pledge, distribute
or otherwise transfer, dispose of or encumber(or make any announcement with
respect to any of the foregoing) any shares of Common Stock or any options,
rights, warrants or other securities convertible into or exercisable or
exchangeable for Common Stock or evidencing any right to purchase or subscribe
for shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of The Robinson-Humphrey Company,
LLC.
From time to time in the ordinary course of their respective businesses,
The Robinson-Humphrey Company, LLC may in the future provide investment banking
or other services to the Company.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market.
The Company has agreed to indemnify the Underwriters against and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Offering are being passed upon
for the Company by Smith, Gambrell & Russell, LLP, Suite 3100, 1230 Peachtree
Street, N.E., Atlanta, Georgia 30309, counsel to the Company. Certain legal
matters in connection with the Offering are being passed upon for the
Underwriters by Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree
Street, Atlanta, Georgia 30309.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the public
reference facilities of the Commission maintained by the Commission at its
principal office located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, the New York Regional Office located at Seven World Trade Center,
New York,
74
<PAGE> 78
New York 10048 and the Chicago Regional Office located at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. 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.
Statements made in this 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.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
75
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS FOR FLORIDA BANKS, INC.
Independent Auditors' Report.............................. F-2
Balance Sheet as of December 31, 1997..................... F-3
Notes to Financial Statement.............................. F-4
FINANCIAL STATEMENTS FOR FIRST NATIONAL BANK OF TAMPA
Independent Auditors' Report.............................. F-6
Balance Sheets as of December 31, 1997 and 1996........... F-7
Statements of Income for the Years Ended December 31,
1997, 1996 and 1995.................................... F-8
Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995....................... F-9
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................... F-10
Notes to Financial Statements............................. F-11
</TABLE>
F-1
<PAGE> 80
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> 81
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-------
<S> <C>
ASSETS
ORGANIZATIONAL COSTS........................................ $26,442
-------
TOTAL............................................. $26,442
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCRUED EXPENSES............................................ $26,442
-------
Total liabilities................................. 26,442
-------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 9,000,000 shares authorized;
none issued or outstanding.............................
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued or outstanding.................
-------
Total shareholders' equity........................
-------
TOTAL............................................. $26,442
=======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 82
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENT
AS OF DECEMBER 31, 1997
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 -- Incurred organizational costs (consisting
principally of legal, regulatory, consulting and incorporation fees) are
deferred and will be amortized over the Company's initial sixty months of
operations.
2. SUBSEQUENT EVENTS
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. Under the
terms of the agreement, upon closing of the offering the President will be
granted a stock award of 80,000 shares of common stock which will vest in
accordance with the following schedule: 40,000 immediately upon the grant;
20,000 will vest one year from the date of the grant; and 20,000 will vest two
years from the date of the grant. 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 qualified foreign
investors. Each Unit was comprised of (i) 600 shares of Preferred Stock, (ii)
800 shares of Common Stock, and (iii) Warrants to purchase 800 shares of Common
Stock, at the price of $6,008 per Unit. The net proceeds to the Company from
this private placement was approximately $600,000. The Preferred Stock was
valued at the liquidation value of $10 per share, the Common Stock was valued at
$.01 per share and no value was assigned to the Warrants. The Preferred Stock is
non-voting, and at the option of the Company, the Preferred Stock may be
redeemed at any time in whole or in part at a cash redemption price of $10 per
share. 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, which was considered
to be the fair market value of such stock on the date of issuance. 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").
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
F-4
<PAGE> 83
FLORIDA BANKS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENT -- (CONTINUED)
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 Ltd. which received a fee of $45,450 in
connection with the offering of Units to foreign investors.
F-5
<PAGE> 84
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-6
<PAGE> 85
FIRST NATIONAL BANK OF TAMPA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS..................................... $ 2,788,211 $ 2,488,784
FEDERAL FUNDS SOLD.......................................... 10,245,000 12,410,000
----------- -----------
Total cash and cash equivalents................... 13,033,211 14,898,784
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $10,445,885 and
$8,289,420 at December 31, 1997 and 1996).............. 10,452,185 8,279,765
Other investments......................................... 313,050 270,850
LOANS:
Commercial real estate.................................... 15,281,442 13,078,357
Commercial................................................ 13,157,905 12,412,325
Residential mortgage...................................... 3,268,704 3,952,731
Consumer.................................................. 1,222,045 1,423,161
Credit card and other loans............................... 869,031 838,108
----------- -----------
Total loans....................................... 33,799,127 31,704,681
Allowance for loan losses................................. (481,462) (432,238)
Net deferred loan fees.................................... (78,765) (77,621)
----------- -----------
Net loans......................................... 33,238,900 31,194,822
PREMISES AND EQUIPMENT, NET................................. 511,503 488,077
ACCRUED INTEREST RECEIVABLE................................. 332,031 285,420
DEFERRED INCOME TAXES, NET.................................. 2,420,271
OTHER ASSETS................................................ 94,628 87,391
----------- -----------
TOTAL ASSETS................................................ $60,395,779 $55,505,109
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand................................ $ 6,441,785 $ 8,121,621
Interest-bearing demand................................... 3,073,535 3,917,819
Regular savings........................................... 5,874,911 2,712,877
Money market accounts..................................... 1,348,431 1,386,291
Time $100,000 and over.................................... 10,214,403 9,666,810
Other time................................................ 18,507,107 19,720,653
----------- -----------
Total deposits.................................... 45,460,172 45,526,071
REPURCHASE AGREEMENTS....................................... 5,911,513 5,389,440
OTHER BORROWED FUNDS........................................ 2,405,604 1,018,636
ACCRUED INTEREST PAYABLE.................................... 198,817 178,828
ACCOUNTS PAYABLE AND ACCRUED EXPENSES....................... 106,038 122,692
----------- -----------
Total liabilities................................. 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
Additional paid-in capital................................ 3,725,148 1,070,359
Retained earnings......................................... 759,707 383,738
Unrealized gain (loss) on available for sale investment
securities, net of tax................................. 3,780 (9,655)
----------- -----------
Total shareholders' equity........................ 6,313,635 3,269,442
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $60,395,779 $55,505,109
=========== ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 86
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees.................................... $3,352,741 $2,890,204 $2,187,558
Investment securities.................................... 583,590 460,321 436,973
Federal funds sold....................................... 365,658 263,552 312,512
---------- ---------- ----------
Total interest income............................ 4,301,989 3,614,077 2,937,043
---------- ---------- ----------
INTEREST EXPENSE:
Deposits................................................. 2,075,429 1,744,407 1,380,650
Repurchase agreements.................................... 178,200 108,357 68,494
Borrowed funds........................................... 42,099 18,878 24,414
---------- ---------- ----------
Total interest expense........................... 2,295,728 1,871,642 1,473,558
---------- ---------- ----------
NET INTEREST INCOME........................................ 2,006,261 1,742,435 1,463,485
PROVISION (BENEFIT) FOR LOAN LOSSES........................ 60,000 60,000 (138,394)
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION (BENEFIT) FOR LOAN
LOSSES................................................... 1,946,261 1,682,435 1,601,879
---------- ---------- ----------
NONINTEREST INCOME:
Service fees............................................. 324,693 331,421 245,942
Gain on sale of loans.................................... 94,805 137,655 41,767
Gain (loss) on sale of available for sale investment
securities............................................ 7,635 (2,446) 12,868
Gain on sale of other real estate owned.................. 10,546
Other noninterest income................................. 76,596 50,005 64,058
---------- ---------- ----------
503,729 516,635 375,181
---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and benefits.................................... 999,382 872,643 784,517
Occupancy and equipment.................................. 256,160 226,965 295,562
Data processing.......................................... 92,633 75,366 62,068
Other.................................................... 493,848 423,462 478,742
---------- ---------- ----------
1,842,023 1,598,436 1,620,889
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................... 607,967 600,634 356,171
PROVISION FOR INCOME TAX EXPENSES.......................... 231,998 216,896
---------- ---------- ----------
NET INCOME................................................. $ 375,969 $ 383,738 $ 356,171
========== ========== ==========
EARNINGS PER SHARE:
Basic.................................................... $ 0.21 $ 0.21 $ 0.20
========== ========== ==========
Diluted.................................................. $ 0.19 $ 0.20 $ 0.19
========== ========== ==========
</TABLE>
See notes to financial statements.
F-8
<PAGE> 87
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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
========= ========== =========== =========== ========= ==========
</TABLE>
See notes to financial statements.
F-9
<PAGE> 88
FIRST NATIONAL BANK OF TAMPA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................... $ 375,969 $ 383,738 $ 356,171
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 109,595 87,056 111,726
Deferred income taxes............................. 231,998 216,896
Loss on disposition of furniture and equipment.... 57,253
Gain on sale of securities........................ (7,635) (12,868)
Gain on disposal of other real estate owned....... (10,546)
Amortization of premiums on investments, net...... 6,072 4,824
Provision (benefit) for loan losses............... 60,000 60,000 (138,394)
Increase in accrued interest receivable........... (46,611) (60,350) (42,245)
Increase in accrued interest payable.............. 19,989 41,779 17,503
Decrease (increase) in other assets............... (7,237) (42,797) 247,374
Increase (decrease) in other liabilities.......... (16,654) 35,288 57,405
------------ ----------- -----------
Net cash provided by operating activities.... 725,486 721,610 648,203
------------ ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities of
investment securities:
Available for sale................................ 13,543,810 3,884,442 4,415,664
Purchases of investment securities:
Available for sale................................ (15,698,714) (5,683,851) (3,494,601)
Other investments................................. (42,200)
Net increase in loans................................ (2,104,078) (5,023,344) (6,352,596)
Purchases of premises and equipment.................. (133,020) (33,709) (424,905)
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........ (4,434,202) (6,811,462) (5,320,868)
------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase in demand deposits, money market
accounts and savings accounts..................... 600,054 3,436,405 1,328,694
Net increase (decrease) in time deposits............. (665,952) 7,456,862 1,417,852
Increase in repurchase agreements.................... 522,073 1,780,682 3,608,758
Increase (decrease) in other borrowed funds.......... 1,386,968 415,002 (176,354)
------------ ----------- -----------
Net cash provided by financing activities.... 1,843,143 13,088,951 6,178,950
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (1,865,573) 6,999,099 1,506,285
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 14,898,784 7,899,685 6,393,400
------------ ----------- -----------
End of year.......................................... $ 13,033,211 $14,898,784 $ 7,899,685
============ =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE> 89
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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-11
<PAGE> 90
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 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-12
<PAGE> 91
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 -- 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 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. Management has not determined the
effect of this statement on its financial statements disclosure.
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.
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
F-13
<PAGE> 92
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-14
<PAGE> 93
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-15
<PAGE> 94
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
F-16
<PAGE> 95
FIRST NATIONAL BANK OF TAMPA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-17
<PAGE> 96
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-18
<PAGE> 97
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-19
<PAGE> 98
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding -- Basic...................................... 1,825,000 1,825,000 1,825,000
Incremental shares from the assumed conversion of stock
options................................................... 129,010 82,570 50,919
--------- --------- ---------
Total -- Diluted.................................. 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-20
<PAGE> 99
======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER OR SOLICITATION IS
UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Pro Forma Financial Data.............. 19
Business.............................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Supervision and Regulation............ 54
Description of Bank Acquisition....... 58
Management............................ 61
Certain Transactions.................. 66
Security Ownership of Certain
Beneficial Owners and Management.... 67
Description of Capital Stock.......... 69
Shares Eligible for Future Sale....... 71
Underwriting.......................... 73
Legal Matters......................... 74
Experts............................... 74
Additional Information................ 74
Index to Financial Statements......... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
4,000,000 SHARES
FLORIDA BANKS, INC.
COMMON STOCK
[LOGO]
-------------------------
PROSPECTUS
-------------------------
THE ROBINSON-HUMPHREY
COMPANY
INTERSTATE/JOHNSON LANE
CORPORATION
, 1998
======================================================
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 16,284
Blue Sky Fees and Expenses.................................. 0
Printing and Engraving Expenses............................. 125,000*
Legal Fees and Expenses..................................... 150,000*
Accounting Fees and Expenses................................ 130,000*
Miscellaneous............................................... 28,716*
--------
Total............................................. $450,000
========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As provided under Florida law, the Company's Articles of Incorporation
provide that a director shall not be personally liable to the Company or its
shareholders for monetary damages for breach of duty of care or any other duty
owed to the Company 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 Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful; except that such provision 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 Company in
violation of Section 607.06401 of the FBCA, or (iv) for willful misconduct or a
conscious disregard for the best interests of the Company in a proceeding by or
in the right of the Company to procure judgment in its favor or in a proceeding
by or in the right of a shareholder.
Article VI of the By-Laws provides that the Company shall indemnify a
director, officer, employee or agent who has been successful on the merits or
otherwise in the defense of any action, suit or proceeding to which he was a
party or in defense of any claim, issue or matter therein because he is or was a
director of the Company, against reasonable expenses incurred by him in
connection with such defense.
The By-Laws also provide that the Company is required to indemnify any
director, officer, employee or agent made a party to a proceeding because he is
or was a director, employee or agent against liability incurred in the
proceeding if he acted in a manner he believed in good faith or to be in or not
opposed to the best interests of the Company and, in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Determination concerning whether or not the applicable standard of conduct has
been met can be made by (a) a majority vote of a quorum of the Board of
Directors consisting of disinterested directors, (b) a majority of a committee
of disinterested directors, (c) independent legal counsel, or (d) an affirmative
vote of a majority of a quorum of shares held by disinterested stockholders. No
indemnification may be made to or on behalf of a director, officer, employee or
agent in connection with a proceeding by or in the right of the Company in which
such person was adjudged liable to the Company unless the court in which the
action, suit or proceeding was brought, upon application, determines
indemnification is fair and reasonable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 3, 1998, the Company sold 101 equity units ("Units"), whereby
each Unit was comprised of 800 shares of Common Stock, 600 shares of the Series
A Preferred Stock, and a warrant to purchase 800
II-1
<PAGE> 101
shares of Common Stock. The Units were sold to eight foreign investors at a
purchase price of $6,008 per Unit, for a total consideration of $606,808. The
Units were sold with the assistance of Kelton International, Ltd. The fees paid
to Kelton International, Ltd. ($45,450 total) were paid by the foreign investors
directly to Kelton International, Ltd., over and above the purchase price of the
Units. The Units were issued in reliance upon an exemption from the registration
requirements of the Securities Act, pursuant to the provisions of Rule 506
promulgated thereunder.
On February 11, 1998, the Company sold 297,000 shares of Common Stock to
certain founding officers and directors of the Company for a purchase price of
$.01 per share. These shares were issued in reliance upon an exemption from the
registration requirements of the Securities Act, pursuant to the provisions of
Rule 506 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement*
2 -- Agreement and Plan of Merger, dated as of March 30, 1998 by
and between Florida Banks, Inc. and First National Bank of
Tampa.
3.1 -- Articles of Incorporation of the Company, as amended.
3.2 -- By-Laws of the Company.
4.1 -- Specimen Common Stock Certificate.*
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended, and By-Laws of the Company
defining rights of the holders of the Common Stock of the
Company.
5 -- Opinion of Smith, Gambrell & Russell, LLP.*
10.1 -- Form of Employment Agreement between the Company and Charles
E. Hughes, Jr.
10.2 -- The Company's 1998 Stock Option Plan.
23.1 -- Consent of Smith, Gambrell & Russell, LLP (contained in
their opinion at Exhibit 5).
23.2 -- Consent of Deloitte & Touche LLP.
24 -- Power of Attorney (included in original signature page to
this Registration Statement).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-2
<PAGE> 102
(f) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-3
<PAGE> 103
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-1 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Jacksonville, State of Florida, on the 22nd day of April, 1998.
FLORIDA BANKS, INC.
By: /s/ CHARLES E. HUGHES, JR.
------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Hughes, Jr. and Nancy E. LaFoy and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
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
--------- ----- ----
<C> <S> <C>
/s/ CHARLES E. HUGHES, JR. President and Chief Executive April 22, 1998
- ----------------------------------------------------- Officer (Principal Executive
Charles E. Hughes, Jr. Officer) and Director
/s/ NANCY E. LAFOY Secretary, Treasurer (Principal April 22, 1998
- ----------------------------------------------------- Financial and Accounting
Nancy E. LaFoy Officer) and Director
/s/ M.G. SANCHEZ Chairman of the Board Director April 22, 1998
- -----------------------------------------------------
M.G. Sanchez
/s/ T. STEPHEN JOHNSON Vice-Chairman of the Board April 22, 1998
- -----------------------------------------------------
T. Stephen Johnson
/s/ CLAY M. BIDDINGER Director April 22, 1998
- -----------------------------------------------------
Clay M. Biddinger
/s/ P. BRUCE CULPEPPER Director April 22, 1998
- -----------------------------------------------------
P. Bruce Culpepper
/s/ J. MALCOLM JONES, JR. Director April 22, 1998
- -----------------------------------------------------
J. Malcolm Jones, Jr.
</TABLE>
II-4
<PAGE> 104
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ W. ANDREW KRUSEN, JR. Director April 22, 1998
- -----------------------------------------------------
W. Andrew Krusen, Jr.
/s/ WILFORD C. LYON, JR. Director April 21, 1998
- -----------------------------------------------------
Wilford C. Lyon, Jr.
/s/ DAVID MCINTOSH Director April 21, 1998
- -----------------------------------------------------
David McIntosh
/s/ JOHN S. MCMULLEN Director April 21, 1998
- -----------------------------------------------------
John S. McMullen
</TABLE>
II-5
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement*
2 -- Agreement and Plan of Merger, dated as of March 30, 1998 by
and between Florida Banks, Inc. and First National Bank of
Tampa.
3.1 -- Articles of Incorporation of the Company, as amended.
3.2 -- By-Laws of the Company.
4.1 -- Specimen Common Stock Certificate.*
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended, and By-Laws of the Company
defining rights of the holders of the Common Stock of the
Company.
5 -- Opinion of Smith, Gambrell & Russell, LLP.*
10.1 -- Form of Employment Agreement between the Company and Charles
E. Hughes, Jr.
10.2 -- The Company's 1998 Stock Option Plan.
23.1 -- Consent of Smith, Gambrell & Russell, LLP (contained in
their opinion at Exhibit 5).
23.2 -- Consent of Deloitte & Touche LLP.
24 -- Power of Attorney (included in original signature page to
this Registration Statement).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
II-6
<PAGE> 1
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FLORIDA BANKS, INC.
AND
FIRST NATIONAL BANK OF TAMPA
DATED AS OF MARCH 30, 1998
<PAGE> 2
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>
i
<PAGE> 3
<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>
ii
<PAGE> 4
<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
------ -----------
<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>
iii
<PAGE> 5
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.
1
<PAGE> 6
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)
2
<PAGE> 7
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.
3
<PAGE> 8
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
4
<PAGE> 9
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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<PAGE> 38
"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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<PAGE> 39
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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<PAGE> 40
"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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<PAGE> 41
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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<PAGE> 42
"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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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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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> 45
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> 46
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]
42
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FLORIDA BANKS, INC.
Pursuant to Section 607.1007 of the Florida Code these Amended and
Restated Articles of Incorporation were approved by the Board of Directors of
the Corporation on January 27, 1998.
I.
The corporate name that satisfies the requirements of 607.0401 is
Florida Banks, Inc.
II.
The Corporation is organized for the following purpose or purposes:
To act as a bank holding company and, to the extent permitted under
applicable federal and state laws, now or hereafter existing, to engage in such
business as related to banks and to bank holding companies and their activities;
To acquire, own, hold, sell, exchange, assign, transfer, create security
interests in, pledge or otherwise dispose of shares, or voting trust
certificates or depository receipts for shares, or capital stock of, or any
bonds, notes debentures or other evidence of indebtedness, options, warrants or
other securities issued by any other business of any lawful character,
including, but not limited to, banks and other businesses providing goods or
services related to banking;
To acquire and hold other investment assets and to engage in any lawful
activities related thereto;
To acquire, own interest in and otherwise participate in and exercise
ownership rights in joint ventures, partnerships, limited partnerships, trusts,
corporations, unincorporated associations and other entities for the furtherance
of all corporate activities; to borrow and to lend money and to buy, sell,
guarantee and otherwise deal in the obligations of others and conduct financing,
brokerage, and discount and factoring businesses in connection with the
foregoing or otherwise;
In general, to carry on any other lawful business whatsoever, and to
have, enjoy and exercise all the rights, powers and privileges which are now or
which may hereafter be conferred upon corporations organized under the Florida
Business Corporation Act.
III.
The corporation shall have authority to issue 10,000,000 shares of
capital stock, which shall be divided into classes and shall have the following
designations, preferences, limitations and relative rights;
A. Common Stock. One class shall consist of 9,000,000 shares of
common stock of $.01 par value, designated "Common Stock." The holders of Common
Stock shall be entitled to elect all
<PAGE> 2
of the members of the Board of Directors of the Corporation, and such holders
shall be entitled to vote as a class on all matters required or permitted to be
submitted to the shareholders of the Corporation.
B. Preferred Stock. One class shall consist of 1,000,000 shares
of preferred stock of $.01 par value, designated "Preferred Stock." The Board of
Directors of the Corporation shall be empowered to divide any and all shares of
the Preferred Stock into series and to fix and determine the relative rights and
preferences of the shares of any series so established in accordance with
Section 607.062 of the Florida Business Corporation Act, including (i) the
distinctive designation of such series and the number of shares which shall
constitute such series; (ii) the annual rate of dividends payable on shares of
such series, whether dividends shall be cumulative and conditions upon which and
the date when such dividends shall be accumulated on all shares of such series
issued prior to the record date for the first dividend of such series; (iii) the
time or times when and the price or prices at which shares of such series shall
be redeemable at the option of the holder or of the Corporation and the sinking
fund provisions, if any, for the purchase or redemption of such shares; (iv) the
amount payable on shares of such series in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether all or a
portion is paid before any amount is paid on the Common Stock; (v) the rights,
if any, of the holders of shares of such series to convert such shares into, or
exchange such shares for, shares of Common Stock or shares of any other series
of Preferred Stock and the terms and conditions of such conversion or exchange;
and (vi) whether the shares of such series have voting rights and the extent of
such voting rights, if any.
The Board of Directors shall have the power to reclassify any unissued
shares of any series of Preferred Stock from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption, including but not limited to, but subject to the limitations
described in, the above provisions.
Any action by the Board of Directors in authorizing the issuance of
Preferred Stock and fixing and determining the provisions thereof is hereby
ratified and approved.
IV.
The street address of the registered office of the Corporation is c/o CT
Corporation System, 1200 South Pine Island Road, City of Planation, Florida
33324, and the name of its initial registered agent at such address is CT
Corporation System.
V.
The street address and mailing address of the initial principal office
of the Corporation is c/o Smith, Gambrell & Russell, LLP, 1230 Peachtree Street,
N.E., Suite 3100, Atlanta, Georgia 30309.
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<PAGE> 3
VI.
A. The number of directors of the Corporation shall be fixed from
time to time by resolution of the Board of Directors; provided, however that the
number of directors fixed by the Board of Directors shall not be less than two
(2) or more than twenty-five (25).
B. Concurrent with the adoption of these Articles of
Incorporation, the Board of Directors, other than those who may be elected by
the holders of preferred stock or any class or series of stock having a
preference over the common stock as to dividends or upon liquidation or any
resolution or resolutions providing for the issue of such class or series of
stock adopted by the Board, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible: (i) one class ("Class I") of directors to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 1999, (ii)
another class of directors ("Class II") to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2000, and (iii)
another class of directors ("Class III") to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2001, with each
member of each class to hold office, until his successors are elected and
qualified. At each annual meeting of the stockholders of the Corporation the
date of which shall be fixed by or pursuant to the Bylaws of the Corporation,
the successors of the class of directors whose terms expire at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
C. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, if any vacancy shall occur in the membership
of the Board by reason of newly created directorships or resulting from the
resignation, disqualification, retirement or death of a director, the remaining
directors shall continue to act, and such vacancies may be filled by the
affirmative vote of the majority of the directors then in office, although less
than a quorum of the Board, and if not therefore filled by action of the
directors, may be filled by the shareholders at any meeting held during the
existence of such vacancy. If any vacancy shall occur among the directors by
reason of the removal from office of a director, such vacancy shall be filled by
the vote of three-fourths (3/4) of the outstanding shares of each class of stock
entitled to vote in elections of directors. A director elected to fill a vacancy
shall be elected for a term of office to expire at the next annual meeting of
shareholders. No decrease in the number of directors constituting the Board
shall shorten the term of any incumbent director. Any increase or decrease in
the number of directors shall be so apportioned among the classes of directors
as to make all classes as nearly equal in number as possible.
D. Notwithstanding the foregoing provisions of this Article VI,
any director whose term of office has expired shall continue to hold office
until his successor shall be elected and qualify.
E. Notwithstanding any other provisions of these Articles of
Incorporation or the By-laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, these Articles of
Incorporation or the By-laws of the Corporation), the affirmative vote of the
holders of at least three-fourths (3/4) of the total number of votes entitled to
be cast by the holders of all of the shares of capital stock of the Corporation
then entitled to vote generally in the election of directors shall be required
to amend, alter, change or repeal, or to adopt any provision as part of
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<PAGE> 4
these Articles of Incorporation inconsistent with, this Article VI. The holder
of each share of capital stock entitled to vote thereon shall be entitled to
cast the same number of votes as the holder of such shares is entitled to cast
generally in the election of each director.
VII.
In addition to any approval of the Board of Directors or any shareholder
vote or consent required by the laws of the State of Florida or any other
provision of these Articles of Incorporation or otherwise, the affirmative vote
or consent of the holders of not less than two-thirds (2/3) of the shares of
each class of stock of the Corporation entitled to vote in elections of
directors shall be required to authorize, adopt or approve a Covered
Transaction; however, the provisions of this Article VII shall not apply to any
Covered Transaction referred to in this Article VII with any Interested Person
if the Covered Transaction is approved by three-fourths (3/4) of the entire
membership of the Board of Directors of the Corporation, in which event the
affirmative vote of not less than a majority of the holders of each class of
stock of the Corporation entitled to vote in elections of directors shall be
required.
For the purpose of this Article VII:
1. "Affiliate" and "associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended, as in effect on the date hereof.
2. A person shall be the "beneficial owner" and "beneficially
owns" shares of stock of the Corporation (other than shares of
the Corporation's stock held in its treasury) (a) which such
person and its affiliates and associates beneficially own,
directly or indirectly, whether of record or not, (b) which
such person or any of its affiliates or associates has the
right to acquire, pursuant to any agreement upon the exercise
of conversion rights, warrants or options, or otherwise, (c)
which such person or any of its affiliates or associates has
the right to sell or vote pursuant to any agreement, or (d)
which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of
its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of securities of the Corporation.
3. "Covered Transaction" is:
(a) any merger or consolidation of the Corporation or any
subsidiary of the Corporation with or into any
Interested Person (regardless of the identity of the
surviving corporation);
(b) 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 the Corporation) of the assets of the
Corporation or any subsidiary of the Corporation to
any Interested Person for cash, real or personal
property, including securities, or any combination
thereof;
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<PAGE> 5
(c) any issuance or delivery of securities of the
Corporation or a subsidiary of the Corporation (which
the beneficial owner shall have the right to vote, or
to vote upon exercise, conversion or by contract) to
an Interested Person in consideration for or in
exchange of any securities or other property
(including cash); or
(d) the liquidation of the Corporation.
4. "Interested Person" is any person which, as of the record date
for the determination of shareholders entitled to notice of
any Covered Transaction and to vote thereon or consent
thereto, or as of the date of any such vote or consent, or
immediately prior to the consummation of any Covered
Transaction, beneficially owns, directly or indirectly, five
percent (5%) or more of the shares of stock of the Corporation
entitled to vote in elections of directors.
5. "Person" is any individual, partnership, corporation or other
entity.
6. "Subsidiary of the Corporation" is any corporation of which
fifty percent (50%) or more of any class of stock is
beneficially owned, directly or indirectly, by the
Corporation.
No amendment to these Articles of Incorporation shall amend, alter, change
or repeal any of the provisions of this Article VII, unless such amendment, in
addition to receiving any shareholder vote or consent required by the laws of
the State of Florida in effect at the time, shall receive the affirmative vote
or consent of the holders of three-fourths (3/4) of the outstanding shares of
each class of stock of the Corporation entitled to vote in elections of
directors.
VIII.
A. In addition to any approval of the Board of Directors or any
shareholder vote or consent required by the laws of the State of Florida or any
other provision of these Articles of Incorporation or otherwise, there shall be
required for the approval, adoption or authorization of a Business Combination
with an Interested Person the affirmative vote or consent of the holders of a
majority of the shares of each class of stock of the Corporation entitled to
vote in elections of directors considered separately for the purposes of this
Article VIII, which are not beneficially owned, directly or indirectly, by such
Interested Person; provided, however, that said majority voting requirements
shall not be applicable if all of the conditions specified in subparagraphs (1),
(2) and (3) below are met:
1. The consideration to be received per share for each
class of stock in such Business Combination by holders of the stock of the
Corporation is payable in cash or Acceptable Securities, or a combination of
both, and such consideration has a fair market value per share with respect to
each class of the Corporation's stock of not less than either:
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<PAGE> 6
(a) the highest price (including the highest per
share brokerage commissions, transfer tax and soliciting dealers fees) paid by
said Interested Person in acquiring any of the Corporation's stock of that
class; or
(b) a price per share obtained by multiplying
the aggregate earnings per share of stock of the Corporation (appropriately
adjusted for any subdivision of shares, stock dividend or combination of shares
during the period) for the four full consecutive fiscal quarters immediately
preceding the record date for solicitation of votes or consents on such Business
Combination by the figure obtained by dividing the highest per share price
(including the highest per share brokerage commissions, transfer tax and
soliciting dealers fees) paid by such Interested Person in acquiring any of the
Corporation's stock by the aggregate earnings per share of the Corporation for
the four full consecutive fiscal quarters immediately preceding the time when
the Interested Person shall have become the beneficial owner of five percent
(5%) or more of the outstanding stock of the Corporation entitled to vote in
elections of directors.
If any securities were issued by an Interested Person in
exchange for stock of the Corporation prior to the proposed Business
Combination, the fair market value of said securities at the time of issue shall
be used in determining the per share price paid for said stock.
2. After the Interested Person has become the beneficial
owner of five percent (5%) or more of the stock of the Corporation entitled to
vote in the election of directors and prior to the consummation of such Business
Combination, there shall have been no reduction in the rate of dividends payable
on the Corporation's stock which would result in a quarterly dividend rate per
share which is less than the average quarterly dividend rate per share for the
four full consecutive fiscal quarters immediately preceding the time when the
Interested Person shall have become the beneficial owner of said five percent
(5%) or more of the stock of the Corporation, unless such reduction in the rate
of dividends has been approved by three-fourths (3/4) of the entire membership
of the Board of Directors of the Corporation. For the purposes of this
paragraph, "quarterly dividend rate per share" for any quarterly dividend shall
be equal to the percentage said quarterly dividend per share bears to the
earnings per share for the four full fiscal quarters immediately preceding the
declaration of said quarterly dividend.
3. The consideration to be received by shareholders who
are not Interested Persons shall be in cash or in the same form as the
Interested Person has previously paid for shares of such class of stock; if the
Interested Person has paid for shares of any class of any stock with varying
forms of consideration, the form of consideration for such class of stock shall
be either cash or the form used to acquire the largest number of shares of such
class of stock previously acquired by it.
B. For the purposes of this Article VIII:
1. "Acceptable Securities" shall mean (a) securities of
the same class or series, with the same rights, powers and benefits and of the
same denomination, term and interest, or dividend, if any, as the securities
issued and delivered by the Interested Person in exchange for the majority of
the stock of the corporation acquired by the Interested Person, or (b) the class
of common stock of the Interested Person which is beneficially owned by most
persons.
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<PAGE> 7
2. "Affiliate" and "associate" shall have the respective
meanings given those terms in Rule l2b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, as in effect on the date
hereof.
3. A person shall be the "beneficial owner" and
"beneficially own" shares of stock of the Corporation (other than shares of the
Corporation's stock held in its treasury) (a) which such person and its
affiliates or associates beneficially own, directly or indirectly, whether of
record or not, (b) which such person or any of its affiliates or associates has
the right to acquire, pursuant to any agreement upon the exercise of conversion
rights, warrants, or options, or otherwise, (c) which such person or any of its
affiliates or associates has the right to sell or vote pursuant to any
agreement, or (d) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting or disposing of securities of the Corporation.
4. "Business Combination" is:
a. any merger or consolidation of the
Corporation or any subsidiary of the Corporation with or into any Interested
Person (regardless of the identity of the surviving corporation);
b. any sale, lease or other disposition of all
or any substantial part (assets having a fair market value of twenty-five
percent (25%) of the total assets of the Corporation) of the assets of the
Corporation or any subsidiary of the Corporation to any Interested Person for
cash, real or personal property, including securities, or any combination
thereof; or
c. any issuance or delivery of securities of
the Corporation or a subsidiary of the Corporation (which the beneficial owner
shall have the right to vote, or to vote upon exercise, conversion or by
contract) to an Interested Person in consideration of or in exchange for any
securities or other property (including cash).
5. "Interested Person" is any person which, as of the
record date for the determination of shareholders entitled to notice of any
Business Combination and to vote thereon or consent thereto, or as of the date
of any such vote or consent, immediately prior to the consummation of any
Business Combination, beneficially owns, directly or indirectly, five percent
(5%) or more of the shares of stock of the Corporation entitled to vote in
elections of directors.
6. "Person" is an individual, partnership, corporation
or other entity.
7. "Subsidiary of the Corporation" is any corporation of
which fifty percent (50%) or more of any class of stock is beneficially owned,
directly or indirectly, by the Corporation.
C. No amendment to these Articles of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article VIII, unless such
amendment, in addition to receiving any shareholder vote or consent required by
the laws of the State of Florida in effect at the time, shall
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<PAGE> 8
receive the affirmative vote or consent of the holders of three-fourths (3/4) of
the outstanding shares of each class of stock of the Corporation entitled to
vote in elections of directors.
IX.
A. The Board of Directors of the Corporation, when evaluating any
offer of another individual, firm, corporation or other entity ("Person") (a) to
make a tender or exchange offer for any equity security of the Corporation, (b)
to merge or consolidate the Corporation with such other Person, or (c) to
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation (such offers individually referred to as an
"Acquisition Proposal"), shall, in connection with the exercise of its business
judgment in determining what is in the best interest of the Corporation and its
Shareholders, give due consideration to all relevant factors, including without
limitation, the consideration being offered in the Acquisition Proposal in
relation to the then-current market price of the Corporation's stock, but also
in relation to the then-current value of the Corporation in a freely negotiated
transaction and in relation to the Board of Directors' then-estimate of the
future value of the Corporation as an independent entity, the social and
economic effects on the employees, customers, suppliers, and other constituents
of the Corporation and on the communities in which the Corporation operates or
is located and the desirability of maintaining independence from any other
business or business entity; provided, however, that this Article shall be
deemed solely to grant discretionary authority to the directors and shall not be
deemed to provide any constituency any right to be considered.
B. No amendment to these Articles of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article IX, unless such
amendment, in addition to receiving any shareholder vote or consent required by
the laws of the State of Florida in effect at the time, shall receive the
affirmative vote or consent of the holders of three-fourths (3/4) of the
outstanding shares of each class of stock of the Corporation entitled to vote in
elections of directors.
X.
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
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<PAGE> 9
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.
XI.
Except as otherwise specifically provided herein, these Articles of
Incorporation may be amended, altered, changed or repealed only by the
affirmative vote or consent of the holders of at least one-half (1/2) of the
shares of each class of stock of the Corporation entitled to vote in elections
of directors.
Signed this 28th day of January, 1998
FLORIDA BANKS, INC.
By: /s/ Nancy E. LaFoy
---------------------------------------
Nancy E. LaFoy
Secretary and Treasurer
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
FLORIDA BANK HOLDINGS, INC.
<PAGE> 2
BY-LAWS
OF
FLORIDA BANK HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. - -DEFINITIONS ...................................................................................-1-
ARTICLE II. - -GENERAL PROVISIONS REGARDING NOTICES..........................................................-2-
Section 1. NOTICES.....................................................................................-2-
Section 2. WAIVER OF NOTICE............................................................................-2-
ARTICLE III. - SHAREHOLDERS' MEETINGS........................................................................-4-
Section 1. PLACE OF MEETING............................................................................-4-
Section 2. ANNUAL MEETING..............................................................................-4-
Section 3. SPECIAL MEETINGS............................................................................-4-
Section 4. NOTICE TO SHAREHOLDERS......................................................................-4-
Section 5. FIXING OF RECORD DATE.......................................................................-5-
Section 6. QUORUM AND VOTING REQUIREMENTS..............................................................-6-
Section 7. PROXIES.....................................................................................-7-
Section 8. ACTION OF SHAREHOLDERS WITHOUT A MEETING....................................................-7-
ARTICLE IV. - DIRECTORS.....................................................................................-7-
Section 1. GENERAL POWERS..............................................................................-7-
Section 2. NUMBER, TENURE, QUALIFICATIONS..............................................................-7-
Section 3. VACANCIES, HOW FILLED.......................................................................-8-
Section 4. PLACE OF MEETING............................................................................-8-
Section 5. COMPENSATION................................................................................-8-
Section 6. REGULAR MEETINGS............................................................................-8-
Section 7. SPECIAL MEETINGS............................................................................-8-
Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER..............................................-8-
Section 9. QUORUM......................................................................................-9-
Section 10. MANNER OF ACTING...........................................................................-9-
Section 11. COMMITTEES.................................................................................-9-
Section 12. ACTION WITHOUT FORMAL MEETING.............................................................-10-
Section 13. CONFERENCE CALL MEETINGS..................................................................-10-
ARTICLE V. - OFFICERS......................................................................................-10-
Section 1. GENERALLY..................................................................................-10-
Section 2. COMPENSATION...............................................................................-11-
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 3. VACANCIES...................................................................................-11-
Section 4. CHAIRMAN OF THE BOARD.......................................................................-11-
Section 5. VICE-CHAIRMAN OF THE BOARD..................................................................-11-
Section 6. CHIEF EXECUTIVE OFFICER.....................................................................-12-
Section 7. SECRETARY...................................................................................-12-
Section 8. THE CHIEF FINANCIAL OFFICER.................................................................-12-
Section 9. DEPUTY OFFICERS.............................................................................-13-
Section 10. ASSISTANT OFFICERS..........................................................................-13-
ARTICLE VI. - INDEMNIFICATION................................................................................-13-
Section 1. ACTION BY PERSONS OTHER THAN THE CORPORATION................................................-13-
Section 2. ACTIONS BY OR IN THE NAME OF THE CORPORATION................................................-14-
Section 3. SUCCESSFUL DEFENSE..........................................................................-14-
Section 4. AUTHORIZATION OF INDEMNIFICATION............................................................-14-
Section 5. REASONABLENESS OF EXPENSES..................................................................-15-
Section 6. PREPAYMENT OF EXPENSES......................................................................-15-
Section 7. NON-EXCLUSIVE RIGHT.........................................................................-15-
Section 8. SUCCESSORS..................................................................................-16-
Section 9. JUDICIAL DETERMINATION......................................................................-16-
Section 10. INSURANCE..................................................................................-16-
Section 11. INFORMATION TO SHAREHOLDERS................................................................-17-
ARTICLE VII. - FISCAL YEAR...................................................................................-17-
ARTICLE VIII. - ANNUAL STATEMENTS............................................................................-17-
ARTICLE IX. - CAPITAL STOCK..................................................................................-18-
Section 1. FORM........................................................................................-18-
Section 2. TRANSFER....................................................................................-18-
Section 3. RIGHTS OF HOLDER............................................................................-19-
Section 4. LOST OR DESTROYED CERTIFICATES..............................................................-19-
ARTICLE X. - SEAL............................................................................................-19-
ARTICLE XI. - REGISTERED OFFICE AND REGISTERED AGENT.........................................................-19-
ARTICLE XII. - AMENDMENTS ...................................................................................-19-
Section 1. AMENDMENTS GENERALLY........................................................................-19-
Section 2. BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS.............................................-20-
</TABLE>
(ii)
<PAGE> 4
BY-LAWS
OF
FLORIDA BANK HOLDINGS, INC.
(ADOPTED: DECEMBER 15, 1997)
ARTICLE I.
DEFINITIONS
As used in these By-Laws, the terms set forth below shall have the
meanings indicated, as follows:
"Act" shall mean the Florida Business Corporation Act, as amended from
time to time.
"Articles of Incorporation" means the Articles of Incorporation of the
Corporation, as amended from time to time.
"Board" shall mean the Board of Directors of the Corporation.
"Chairman of the Board" shall mean the Chairman of the Board of
Directors, or such other officer as shall be designated by the Board as having
the duties of the Chairman of the Board, as described in Section 4 of Article V
of these By-Laws.
"Chief Executive Officer" shall mean the President of the Corporation,
or such other officer as shall be designated by the Board as having the duties
of the Chief Executive Officer, as described in Section 5 of Article V of these
By-Laws.
"Corporation" shall mean Florida Bank Holdings, Inc., a Florida
corporation.
"Secretary" shall mean the Secretary of the Corporation, or such other
officer as shall be designated by the Board as having the duties of the
corporate Secretary as described in Section 6 of Article V of these By-Laws.
"Secretary of State" shall mean the Secretary of State of Florida.
"Voting group" shall have the meaning set forth in subsection (a) of
Section 6 of Article III of these By-Laws.
<PAGE> 5
ARTICLE II.
GENERAL PROVISIONS REGARDING NOTICES
Section 1. NOTICES. Except as otherwise provided in the Articles of
Incorporation or these By-Laws, or as otherwise required by applicable law:
(a) Any notice required by these By-Laws or by law shall be in
writing unless oral notice is reasonable under the circumstances.
(b) Notice may be communicated in person; by telephone, telegraph,
teletype, or other form of electronic communication; or by mail.
(c) Written notice by the Corporation to any shareholder is
effective when deposited in the mail, if mailed with first-class postage prepaid
and correctly addressed to the shareholder's address shown in the Corporation's
current stock transfer books; provided that it may utilize a class of mail other
than first class if the notice of the meeting is mailed, with adequate postage
prepaid, not less than 30 days before the date of the meeting.
(d) Written notice to the Corporation may be addressed to its
registered agent at its registered office or to the Corporation or its Secretary
at its principal office shown in its most recent annual registration with the
Secretary of State.
(e) Except as provided in subsection (c) of this Section 1, written
notice, if in a comprehensible form, is effective at the earliest of the
following:
(1) When received;
(2) Five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and
correctly addressed; or
(3) On the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee.
(f) Oral notice is effective when communicated if communicated
directly to the person to be notified in a comprehensible manner.
(g) In calculating time periods for notice under these By-Laws,
when a period of time measured in days, weeks, months, years, or other
measurement of time is prescribed for the exercise of any privilege or the
discharge of any duty, the first day shall not be counted but the last day
shall be counted.
Section 2. WAIVER OF NOTICE. Except as otherwise provided or required
by the Articles of Incorporation, these By-Laws or applicable law:
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<PAGE> 6
(a) A shareholder may waive any notice required to be given to such
shareholder, before or after the date and time stated in the notice. The waiver
must be in writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's corporate records.
(b) A shareholder's attendance at a meeting:
(1) Waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting; and
(2) Waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to
considering the matter when it is presented.
(c) Neither the business transacted nor the purpose of the meeting
need be specified in the waiver, except that any waiver by a shareholder of the
notice of a meeting of shareholders with respect to an amendment of the Articles
of Incorporation, a plan of merger or share exchange, a sale of assets or any
other action which would entitle the shareholder to exercise statutory
dissenter's rights under the Act and obtain payment for his shares shall not be
effective unless:
(1) Prior to the execution of the waiver, the shareholder shall have
been furnished the same material that under the Act would have
been required to be sent to the shareholder in a notice of the
meeting, including notice of any applicable dissenters' rights
as provided in the Act; or
(2) The waiver expressly waives the right to receive the material
required to be furnished.
(d) A director may waive any notice required to be given to such
director by the Act, the Articles of Incorporation, or these By-Laws before or
after the date and time stated in the notice. Except as provided by subsection
(e) of this Section 2, the waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's corporate records.
(e) A director's attendance at or participation in a meeting waives
any required notice to him of the meeting unless the director at the beginning
of the meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
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<PAGE> 7
ARTICLE III.
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETING. The Board may designate any place within or
outside the State of Florida as the place of meeting for any annual or special
shareholders' meeting. A waiver of notice signed by all shareholders entitled to
vote at a meeting may designate any place within or outside the State of Florida
as the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
office of the Corporation.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders shall
be held on the fourth Friday in March of each year, if not a legal holiday (and
if such is a legal holiday, then on the next following business day not a legal
holiday), at such time and place as the Board shall determine, at which time the
shareholders shall elect a Board and transact such other business as may be
properly brought before the meeting. Notwithstanding the foregoing, the Board
may cause the annual meeting of shareholders to be held on such other date in
any year as the Board shall determine to be in the best interests of the
Corporation, and any business transacted at that meeting shall have the same
validity as if transacted on the date designated herein. If the annual meeting
is not held within any 13-month period, the circuit court of the circuit in
which the principal office of the Corporation is located may, on application of
any shareholder, summarily order a meeting to be held.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, except to the extent otherwise prescribed by statute or
the Articles of Incorporation, may be called by the Chief Executive Officer, or
by the presiding officer of the Board, if any. The Chief Executive Officer or
the Secretary shall call a special meeting when: (1) requested in writing by any
three or more of the directors; or (2) requested in writing by shareholders
owning not less than one tenth of all shares entitled to vote. Any such written
request shall be signed and dated and shall state the purpose or purposes of the
proposed meeting.
Section 4. NOTICE TO SHAREHOLDERS.
(a) Except as otherwise specifically provided in this Section 4,
requirements with respect to the giving of notice and waiver of notice shall be
governed by the provisions of Article II of these By-Laws.
(b) The Corporation shall give notice to each shareholder entitled
to vote thereat of the date, time and place of each annual and special
shareholders' meeting not less than ten (10) nor more than sixty (60) days
before the meeting date.
(c) Unless otherwise required by the Act with respect to meetings at
which specified actions will be considered (including but not limited to
mergers, certain share exchanges, certain
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asset sales by the Corporation, and dissolution of the Corporation), notice of
an annual meeting need not contain a description of the purpose or purposes for
which the meeting is called.
(d) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(e) Unless a new record date is set (or is required by law or by the
terms of these ByLaws to be set) therefor, notice of the date, time and place of
any adjourned meeting need not be given otherwise than by the announcement at
the meeting before adjournment. If a new record date for the adjourned meeting
is or must be fixed, however, notice of the adjourned meeting must be given in
accordance with these By-Laws as if such adjourned meeting were a newly-called
meeting.
(f) If any corporate action proposed to be considered at a meeting
of shareholders would or might give rise to statutory dissenters' rights under
the Act, the notice of such meeting shall state that the meeting is to include
consideration of such proposed corporate action, and that the consummation of
such action will or might give rise to such dissenters' rights, and shall
include the description of such statutory dissenters' rights required by the
Act.
Section 5. FIXING OF RECORD DATE.
(a) For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders, or shareholders entitled to demand
a special meeting of shareholders, or shareholders entitled to take any other
action, the Board may fix in advance (but not retroactively from the date the
Board takes such action) a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days prior
to the meeting or action requiring such determination of shareholders. If no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, the close of business on the last
business day before the first notice of such meeting is delivered to
shareholders shall be the record date. If no record date is fixed for
determining shareholders entitled to take action without a meeting, the date the
first shareholder signs the consent shall be the record date for such purpose.
If no record date is fixed for determining shareholders entitled to demand a
special meeting, or to take other action, the date of receipt of notice by the
Corporation of demand for such meeting, or the date on which such other action
is to be taken by the shareholders, shall be the record date for such purpose.
(b) A separate record date may be established for each voting group
entitled to vote separately on a matter at a meeting.
(c) A determination of shareholders entitled to notice of or to
vote at a shareholders meeting 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 event, a new record date shall be set.
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<PAGE> 9
(d) For the purpose of determining shareholders entitled to a
distribution by the Corporation (other than one involving a purchase, redemption
or other acquisition of the Corporation's shares), the record date shall be the
date fixed for such purpose by the Board, or if the Board does not fix such a
date, the date on which the Board authorizes such distribution.
Section 6. QUORUM AND VOTING REQUIREMENTS.
(a) Except as otherwise provided by the Articles of Incorporation
or the Act:
(i) A "voting group" with respect to any given matter means
all shares of one or more class or series which, under
the Articles of Incorporation or the Act, are entitled
to vote and be counted together collectively on that
matter, and unless specified otherwise in the Articles
of Incorporation, the Act or these By-Laws, all shares
entitled to vote on a given matter shall be deemed to
be a single voting group for purposes of that matter.
(ii) Each outstanding share, regardless of class, is
entitled to one vote on each matter voted on at a
shareholders' meeting.
(iii) A majority of the votes entitled to be cast on the
matter by a voting group constitutes a quorum of that
voting group for action on that matter.
(iv) The presence of a quorum of each voting group entitled
to vote thereon shall be the requisite for transaction
of business on a given matter.
(v) Action on a matter other than election of directors is
approved by a voting group if a quorum of such voting
group exists and the number of votes cast within such
voting group in favor of such action exceeds the number
of votes cast within such voting group against such
action.
(vi) Except as otherwise provided in these By-Laws, all
shares entitled to vote for election of directors shall
vote thereon as a single voting group, and directors
shall be elected by a plurality of votes cast by shares
entitled to vote in the election in a meeting at which
a quorum of such voting group is present.
(b) Once a share is represented for any purpose other than solely to
object to holding a meeting or transacting business at the meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is, or is required by law
or these By-Laws to be, set for that adjourned meeting.
(c) If a quorum for transaction of business shall not be present at
a meeting of shareholders, the shareholders entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time, until the requisite amount of voting stock
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<PAGE> 10
shall be present. No notice other than announcements at the meeting before
adjournment shall be required of the new date, time or place of the adjourned
meeting, unless a new record date for such adjourned meeting is, or is required
by law or these By-Laws to be, fixed. At such adjourned meeting (for which no
new record date is, or is required to be, set) at which a quorum shall be
present in person or by proxy, any business may be transacted that might have
been transacted at the meeting originally called.
Section 7. PROXIES. At every meeting of the shareholders, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be: (i) effective unless given in writing and signed,
either personally by the shareholder or his attorney-in-fact; (ii) effective
until received by the Secretary or other officer or agent authorized to tabulate
votes; or (iii) valid after eleven months from its date, unless said proxy
expressly provides for a longer period.
Section 8. ACTION OF SHAREHOLDERS WITHOUT A MEETING. Unless otherwise
provided in the Articles of Incorporation, any action required or permitted to
be taken at any annual or special meeting of shareholders of the Corporation,
may be taken without a meeting, without prior notice, and without a vote if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock of each voting group entitled to vote thereon
having not less than the minimum number of votes with respect to each voting
group that would be necessary to authorize or take such action at a meeting at
which all voting groups and shares entitled to vote thereon were present and
voted.
Within 10 days after obtaining such authorization by written consent,
notice must be given to those shareholders who have not consented in writing or
who are not entitled to vote on the action. The notice shall fairly summarize
the material features of the authorized action and, if the action be such for
which dissenters rights are provided under Florida law, the notice shall contain
a clear statement of the right of shareholders dissenting therefrom to be paid
the fair value of their shares upon compliance with further provisions of
Florida law regarding the rights of dissenting shareholders.
ARTICLE IV.
DIRECTORS
Section 1. GENERAL POWERS. Except as may be otherwise provided by any
legal agreement among shareholders, the property and business of the Corporation
shall be managed by its Board of Directors. In addition to the powers and
authority expressly conferred by these By-Laws, the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, or by any legal agreement among shareholders, or by
the Articles of Incorporation or by these By-Laws directed or required to be
exercised or done by the shareholders.
Section 2. NUMBER, TENURE, QUALIFICATIONS. The Board of Directors
shall consist of not less than two (2) nor more than twenty-five (25) members,
the precise number to be
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<PAGE> 11
determined from time to time by affirmative vote of a majority of the entire
Board of Directors. The Directors shall be elected at the annual meeting of
shareholders, to hold office until the next succeeding annual meeting of
shareholders held after his election and until his successor has been duly
elected and has qualified, or until his earlier resignation, removal from
office, or death. Directors shall be natural persons who are eighteen (18) years
of age or older, but need not be shareholders or residents of Florida unless the
Articles of Incorporation require otherwise.
Section 3. VACANCIES, HOW FILLED. If any vacancy shall occur in the
membership of the Board by reason of the resignation, removal or death of a
director, the remaining directors shall continue to act, and such vacancies may
be filled by the affirmative vote of the majority of the directors then in
office, though less than a quorum, and if not therefore filled by action of the
directors, may be filled by the shareholders at any meeting held during the
existence of such vacancy. If any vacancy shall occur among the directors by
reason of the removal from office of a director, such vacancy shall be filled by
the vote of seventy-five percent (75%) of the outstanding shares of each class
of stock entitled to vote in elections of directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Section 4. PLACE OF MEETING. The Board may hold its meetings at such
place or places within or without the State of Florida as it may from time to
time determine.
Section 5. COMPENSATION. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board and of any special or
standing committees thereof as may be from time to time determined by resolution
of the Board.
Section 6. REGULAR MEETINGS. A regular annual meeting of the Board shall
be held, without other notice than this By-Law, immediately after the annual
meeting of shareholders. The Board may provide, by resolution, the time and
place within or without the State of Florida, for the holding of additional
regular meetings without other notice than such resolution.
Section 7. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chief Executive Officer or the presiding officer of the Board, if
different from the Chief Executive Officer, on not less than two (2) days'
notice to each director by mail, telegram, cablegram or other form of wire or
wireless communication, or personal delivery or other form of communication
authorized under the circumstances by the Act, and shall be called by the Chief
Executive Officer or the Secretary in like manner and on like notice on the
written request of any two (2) or more members of the Board. Such notice shall
state the time, date and place of such meeting, but need not describe the
purpose of the meeting. Any such special meeting shall be held at such time and
place as shall be stated in the notice of the meeting.
Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER. Except as
otherwise expressly provided in this Article IV, matters relating to notice to
directors and waiver of notice by directors shall be governed by the provisions
of Article II of these By-Laws.
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<PAGE> 12
Section 9. QUORUM. At all meetings of the Board, unless otherwise
provided in the Articles of Incorporation or other provisions of these By-Laws,
the presence of a majority of the Directors shall constitute a quorum for the
transaction of business. In the absence of a quorum a majority of the Directors
present at any meeting may adjourn from time to time until a quorum is obtained.
Notice of the time and place of any adjourned meeting need only be given by
announcement at the meeting at which adjournment is taken.
Section 10. MANNER OF ACTING. Except as expressly otherwise provided by
the Articles of Incorporation or other provisions of these By-Laws, if a quorum
is present when a vote is taken, the affirmative vote of a majority of directors
present is the act of the Board. A director who is present at a meeting when
corporate action is taken is deemed to have assented to the action unless:
(1) He objects at the beginning of the meeting (or promptly upon
his arrival) to holding it or transacting business at the
meeting; or
(2) His dissent or abstention from the action taken is entered in
the minutes of the meeting and his reason(s) for abstention is
submitted in writing to the Board.
Section 11. COMMITTEES.
(a) Except as otherwise provided by the Articles of Incorporation,
the Board may create an Executive Committee and one or more committees and
appoint members of the Board to serve on them. Each committee may have two or
more members, who serve at the pleasure of the Board.
(b) The provisions of these By-Laws and of the Act which govern
meetings, action without meetings, notice and waiver of notice, and quorum and
voting requirements of the Board, shall apply as well to committees created
under this Section 11 and their members.
(c) To the extent specified by the Articles of Incorporation, these
By-Laws and the resolution of the Board creating such committee, each committee
may exercise the authority of the Board, provided that a committee may not:
(1) Approve, or propose to shareholders for approval, action
required by the Act to be approved by shareholders;
(2) Fill vacancies on the Board or on any of its committees;
(3) Authorize or approve the reacquisition of shares unless pursuant
to a general formula or method specified by the Board of
Directors;
(4) Adopt, amend, or repeal by-laws; or
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(5) Authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative
rights, preferences, and limitations of a voting group except
that the Board of Directors may authorize a committee (or a
senior executive officer of the Corporation) to do so within
limits specifically prescribed by the Board of Directors.
Section 12. ACTION WITHOUT FORMAL MEETING. Except as expressly otherwise
provided in the Articles of Incorporation, any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if written consent thereto (which may take the form of one or
more counterparts) is signed by all members of the Board or of such committee,
as the case may be, and such written consent is filed with the minutes of the
proceedings of the Board or committee. A consent executed in accordance herewith
has the effect of a meeting vote and may be described as such in any document.
Section 13. CONFERENCE CALL MEETINGS. Members of the Board, or any
committee of the Board, may participate in a meeting of the Board or committee
by means of conference, telephone or similar communications equipment by means
of which all persons participating in the meeting can simultaneously hear each
other during the meeting, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
ARTICLE V.
OFFICERS
Section 1. GENERALLY. The Board shall from time to time elect or appoint
such officers as it shall deem necessary or appropriate to the management and
operation of the Corporation, which officers shall hold their offices for such
terms as shall be determined by the Board and shall exercise such powers and
perform such duties as are specified in these By-Laws or in a resolution of the
Board. Except as specifically otherwise provided in resolutions of the Board,
the following requirements shall apply to election or appointment of officers:
(a) The Corporation shall have, at a minimum, the following
officers, which offices shall bear the titles designated therefor by resolution
of the Board, but in the absence of such designation shall bear the titles set
forth below:
<TABLE>
<CAPTION>
Office Title
------ -----
<S> <C>
Chairman of the Board Chairman
Vice Chairman of the Board Vice-Chairman
Chief Executive Officer President
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
Chief Financial Officer Treasurer
Secretary Secretary
</TABLE>
(b) All officers of the Corporation shall serve at the pleasure of the
Board, and in the absence of specification otherwise in a resolution of the
Board, each officer shall be elected to serve until the next succeeding annual
meeting of the Board and the election and qualification of his successor,
subject to his earlier death, resignation or removal.
(c) Any person may hold two or more offices simultaneously, and no
officer need be a shareholder of the Corporation.
(d) If so provided by resolution of the Board, any officer may be
delegated the authority to appoint one or more officers or assistant officers,
which appointed officers or assistant officers shall have the duties and powers
specified in the resolution of the Board.
Section 2. COMPENSATION. The salaries of the officers of the
Corporation shall be fixed by the Board, except that the Board may delegate to
any officer or officers the power to fix the compensation of any other officer.
Section 3. VACANCIES. A vacancy in any office, because of resignation,
removal or death may be filled by the Board for the unexpired portion of the
term, or if so provided by resolution of the Board, by an officer of the
Corporation to whom has been delegated the authority to appoint the holder of
such vacated office.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall, when present, preside at all meetings of the shareholders and the Board,
either annual or special. The Chairman shall assist the Board in the formulation
of policies to be pursued by the executive management of the Corporation, and he
shall study and make reports and recommendations with respect to major problems,
policies, and activities of the Corporation, and it shall be his responsibility
to see that the policy established by the Board is carried into effect by the
executive officers. The Chairman may sign and deliver on behalf of the
Corporation any deed, mortgages, bonds, contracts, powers of attorney, or other
instruments which the Board have authorized to be executed, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board or by these By-Laws to some other officer or agent of the Corporation or
shall be required by law to be otherwise signed or executed, and he shall
perform such other duties as may be prescribed by the Board from time to time.
Section 5. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the Board of
Directors shall, when present and in the absence of the Chairman of the Board,
preside at all meetings of the Board. The Vice-Chairman shall assist the Board
in the formulation of policies to be pursued by the executive management of the
Corporation, and he shall study and make reports and recommendations with
respect to major problems, policies, and activities of the Corporation. The
Chairman may sign and deliver on behalf of the Corporation any deed,
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<PAGE> 15
mortgages, bonds, contracts, powers of attorney, or other instruments which the
Board have authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board or by these By-Laws
to some other officer or agent of the Corporation or shall be required by law to
be otherwise signed or executed, and he shall perform such other duties as may
be prescribed by the Board from time to time.
Section 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have such title or titles designated by the Board and shall be the principal
executive officer of the Corporation. Subject to the control of the Board, the
Chief Executive Officer shall in general manage, supervise and control all of
the business and affairs of the Corporation. He shall, when present, preside at
all meetings of all of the stockholders. He may sign, individually or in
conjunction with any other proper officer of the Corporation thereunto
authorized by the Board, certificates for shares of the Corporation, any deeds,
mortgages, bonds, policies of insurance, contracts, investment certificates, or
other instruments which the Board has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the Board or by the
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of the Chief Executive Officer of the Corporation
and such other duties as may be prescribed by the Board from time to time.
Section 7. SECRETARY. The Secretary may be designated by any such title
as determined by resolution of the Board, and shall: (a) attend and keep the
Minutes of the shareholders' meetings and of the Board's meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these ByLaws or as otherwise required by law
or the provisions of the Articles of Incorporation; (c) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) maintain, or cause an
agent designated by the Board to maintain, a record of the Corporation's
shareholders in a form that permits the preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares, showing
the number and class of shares held by each; (e) have general charge of the
stock transfer books of the Corporation or responsibility for supervision, on
behalf of the Corporation, of any agent to which stock transfer responsibility
has been delegated by the Board; (f) have responsibility for the custody,
maintenance and preservation of those corporate records which the Corporation is
required by the Act or otherwise to create, maintain or preserve; (g) in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Board.
Section 8. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer,
unless otherwise determined by the Board, shall: (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected by
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<PAGE> 16
the Board; and (b) in general perform all the duties incident to the office of
Chief Financial Officer and such other duties as from time to time may be
assigned by the Board.
Section 9. DEPUTY OFFICERS. The Board may create one or more deputy
officers whose duties shall be, among any other designated thereto by the Board,
to perform the duties of the officer to which such office has been deputized in
the event of the unavailability, death or inability or refusal of such officer
to act. Deputy officers may hold such titles as designated therefor by the
Board; however, any office designated with the prefix "Vice" or "Deputy" shall
be, unless otherwise specified by resolution of the Board, automatically a
deputy officer to the office with the title of which the prefix term is
conjoined. Deputy officers shall have such other duties as prescribed by the
Board from time to time.
Section 10. ASSISTANT OFFICERS. The Board may appoint one or more
officers who shall be assistants to principal officers of the Corporation, or
their deputies, and who shall have such duties as shall be delegated to such
assistant officers by the Board or such principal officers, including the
authority to perform such functions of those principal officers in the place of
and with full authority of such principal officers as shall be designated by the
Board or (if so authorized) by such principal officers. The Board may by
resolution authorize appointment of assistant officers by those principal
officers to which such appointed officers will serve as assistants.
ARTICLE VI.
INDEMNIFICATION
Section 1. ACTION BY PERSONS OTHER THAN THE CORPORATION. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the Corporation
shall indemnify any person who was or is a party to any, threatened, pending or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal (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 of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, including any appeal
thereof, if he acted 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 criminal action or proceeding, he had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the 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, or with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
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<PAGE> 17
Section 2. ACTIONS BY OR IN THE NAME OF THE CORPORATION. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the Corporation
shall indemnify and hold harmless any person who was or is a party to any,
threatened, pending or completed action, suit or other type of proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorney's
fees) and amounts paid in settlement not exceeding, in the judgment of the Board
of Directors, the estimated expense of litigating the action, suit or proceeding
to conclusion, actually and reasonably incurred in connection with the defense
or settlement of such action, suit or proceeding, including any appeal thereof.
Such indemnification shall be authorized 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; except that no indemnification shall be made in respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the Corporation, unless and only to the extent that, the court in
which such action, suit or proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
Section 4. AUTHORIZATION OF INDEMNIFICATION. Except as provided in
Section 3 of this Article and except as may be ordered by a court, any
indemnification under Sections 1 and 2 of this Article shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2. Such determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or
proceeding;
(b) if such a quorum is not obtainable, or, even if
obtainable, by majority vote of a committee duly designated by the Board
of Directors (in which directors who are a party may participate)
consisting solely of two or more directors not at the time parties to
the action, suit or proceeding;
(c) by independent legal counsel (i) selected by the Board of
Directors prescribed in paragraph (a) of this Section or the committee
prescribed in paragraph (b) of this Section; or (ii) if a quorum of the
directors cannot be obtained for paragraph (a)
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<PAGE> 18
of this Section and the committee cannot be designated under paragraph
(b) of this Section, selected by a majority vote of the full Board of
Directors (in which directors who are a party may participate); or
(d) by the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such action, suit or
proceeding or, if no such quorum is obtainable, by a majority vote of
shareholders who were not parties to such action, suit or proceeding.
Section 5. REASONABLENESS OF EXPENSES. Evaluation of the reasonableness
of expenses and authorization of indemnification shall be made in the same
manner as the determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, persons
specified by Section 4(c) shall evaluate the reasonableness of expenses and may
authorize indemnification.
Section 6. PREPAYMENT OF EXPENSES. Expenses incurred by a director or
officer in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the Board of Directors deems appropriate.
Section 7. NON-EXCLUSIVE RIGHT. The indemnification and advancement of
expenses provided by this Article are not exclusive, and the Corporation may
make any other or further indemnification or advancement of expenses of any of
its directors, officers, 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. However, indemnification or advancement of expenses shall not be made to
or on behalf of any director, officer, employee or agent if a judgment or other
final adjudication establishes that his actions, or omissions to act, were
material to the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee or agent had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was
unlawful;
(b) A transaction from which the director, officer, employee
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Florida Business Corporation Act ss. 607.0834
are applicable; or
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(d) 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 a judgment in its favor or in a proceeding by or
in the right of a shareholder.
(e) Recklessness or an act or omission which was 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 the Corporation or a shareholder.
Section 8. SUCCESSORS. Indemnification and advancement of expenses as
provided in this Article shall continue as, unless otherwise provided when
authorized or ratified, to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person, unless otherwise provided when authorized or
ratified.
Section 9. JUDICIAL DETERMINATION. Unless the Articles of Incorporation
provide otherwise, notwithstanding the failure of the Corporation to provide
indemnification, and despite any contrary determination of the Board or of the
shareholders in the specific case, a director, officer, employee or agent of the
Corporation who is or was a party to a proceeding may apply for indemnification
or advancement of expenses, or both, to the court conducting the proceeding, to
the circuit court, or to another court of competent jurisdiction. On receipt of
an application, the court, after giving any notice that it considers necessary,
may order indemnification and advancement of expenses, including expenses
incurred in seeking court-ordered indemnification or advancement of expenses, if
it determines that:
(a) The director, officer, employee or agent is entitled to
mandatory indemnification under Section 3, in which case the court shall
also order the Corporation to pay the director reasonable expenses
incurred in obtaining court-ordered indemnification or advancement of
expenses;
(b) The director, officer, employee or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the Corporation of its power pursuant to Section 7; or
(c) The director, officer, employee or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or
both, in view of all the relevant circumstances, regardless of whether
such person met the standard of conduct set forth in Section 1, Section
2 or Section 7.
Section 10. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
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such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 11. INFORMATION TO SHAREHOLDERS. If any expenses or other
amounts are paid by way of indemnification, otherwise than by court order or
action by the shareholders or by an insurance carrier pursuant to insurance
maintained by the Corporation, the Corporation shall report the indemnification
or advance in writing to the shareholders with or before the notice of the next
shareholders meeting, or prior to such meeting if the indemnification or advance
occurs after the giving of such notice but prior to the time such meeting is
held, which report shall include a statement specifying the persons paid, the
amount paid, and the nature and status at the time of such payment of the
litigation or threatened litigation.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the Corporation shall be established by the Board or,
in the absence of Board action establishing such fiscal year, by the Chief
Executive Officer.
ARTICLE VIII.
ANNUAL STATEMENTS
No later than 120 days after the close of each fiscal year, the
Corporation shall furnish its shareholders the following financial statements:
(a) A balance sheet as of the end of the fiscal year;
(b) An income statement for that year; and
(c) A statement of cash flows for that year.
In addition, upon written request, the Corporation shall mail promptly
to any shareholder of record a copy of the most recent such balance sheet,
income statement and statement of cash flows.
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ARTICLE IX.
CAPITAL STOCK
Section 1. FORM.
(a) Except as otherwise provided for in paragraph (b) of this Section 1,
the interest of each shareholder shall be evidenced by a certificate
representing shares of stock of the Corporation, which shall be in such form as
the Board may from time to time adopt and shall be numbered and shall be entered
in the books of the Corporation as they are issued. Each certificate shall
exhibit the holder's name, the number of shares and class of shares and series,
if any, represented thereby, the name of the Corporation, a statement that the
Corporation is organized under the laws of the State of Florida, the par value
of each share or a statement that the shares are without par value and a summary
of the designations, relative rights, preferences, and limitations applicable to
each class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the Board of Directors to determine
variations for future series) or a statement that the Corporation will furnish
the shareholder a full statement of this information on request and without
charge. Each certificate shall be signed by one or more officers of the
Corporation specified by resolution of the Board, but in the absence of such
specifications, shall be valid if executed by the Chief Executive Officer or any
Deputy or Assistant thereto, and such execution is countersigned by the
Secretary, or any Deputy or Assistant thereto. Each stock certificate may but
need not be sealed with the seal of the Corporation.
(b) If authorized by resolution of the Board, the Corporation may issue
some or all of the shares of any or all of its classes or series without
certificates. The issuance of such shares shall not affect shares already
represented by certificates until they are surrendered to the Corporation.
Within a reasonable time after the issuance or transfer of any shares not
represented by certificates, the Corporation shall send to the holder of such
shares a written statement setting forth, with respect to such shares (i) the
name of the Corporation as issuer and the Corporation's state of incorporation,
(ii) the name of the person to whom such shares are issued, (iii) the number of
shares and class of shares and series, if any, and (iv) the terms of any
restrictions on transfer which, were such shares represented by a stock
certificate would be required to be noted on such certificate, by law, by the
Articles of Incorporation or these By-Laws, or by any legal agreement among the
shareholders of the Corporation.
Section 2. TRANSFER. Transfers of stock shall be made on the books of
the Corporation only by the person named in the certificate, or, in the case of
shares not represented by certificates, the person named in the Corporation's
stock transfer records as the owner of such shares, or, in either case, by
attorney lawfully constituted in writing. In addition, with respect to shares
represented by certificates, transfers shall be made only upon surrender of the
certificate therefor, or in the case of a certificate alleged to have been lost,
stolen or destroyed, upon compliance with the provisions of Section 4, Article
IX of these By-Laws.
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Section 3. RIGHTS OF HOLDER. The Corporation shall be entitled to treat
the holder of record of any share of the Corporation as the person entitled to
vote such share (to the extent such share is entitled to vote), to receive any
distribution with respect to such share, and for all other purposes and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
Section 4. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board may require and shall if the
Board so requires, give the Corporation a bond of indemnity in the form and
amount and with one or more sureties satisfactory to the Board, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
ARTICLE X.
SEAL
The corporate seal shall be in such form as shall be specified in the
minutes of the organizational meeting of the Corporation, or as the Board may
from time to time determine.
ARTICLE XI.
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the corporation is c/o
CT Corporation System, 1200 South Pine Island Road, City of Plantation, Florida
33324 and the name of the initial registered agent is CT Corporation System. The
corporation may amend this Article XI at any time to change its registered
office or registered agent, without further action of its officers or directors,
by filing with the Secretary of State a notice of such change, in accordance
with Section 607.0502 of the Act, or any successor statute.
The corporation may have other offices at such places within or without
the State of Florida as the Board may from time to time designate or the
business of the Corporation may require or make desirable.
ARTICLE XII.
AMENDMENTS
Section 1. AMENDMENTS GENERALLY.
(a) Except as otherwise provided in the Articles of Incorporation or by
applicable law, the By-Laws of the Corporation may be altered or amended and new
By-Laws may be adopted by
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<PAGE> 23
the shareholders or by the Board of Directors at any regular or special meeting
of the Board of Directors; provided, however, that, if such action is to be
taken at a meeting of the shareholders, notice of the general nature of the
proposed change in the By-Laws shall have been given in the notice of a meeting.
Except as otherwise provided in this Article XII, action by the shareholders
with respect to By-Laws shall be taken by an affirmative vote of seventy-five
percent (75%) of each class of stock entitled to elect directors, and action by
the directors with respect to By-Laws shall be taken by an affirmative vote of a
majority of all directors then holding office.
Section 2. BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS.
(a) Any By-Law which sets a greater quorum or voting requirement for
shareholders (or voting groups of shareholders) than the minimum required by the
Act may not be adopted, amended or repealed by the Board.
(b) Except as otherwise provided in the Articles of Incorporation, a
By-Law that fixes a greater quorum or voting requirement for the Board than the
minimum required by the Act:
(1) May be amended or repealed only by the shareholders if
originally adopted by the shareholders;
(2) May be amended or repealed either by the directors or the
shareholders if originally adopted by the Board of Directors.
(c) A By-Law adopted or amended by the shareholders that fixes a
greater quorum or voting requirement for the Board may be amended or repealed
only by a specified vote of either the shareholders or the Board, if such By-Law
provision so provides.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the _____ day of ____________________ 1998,
by and between Florida Banks, Inc., a Florida corporation (the "Company" or
"Employer") and Charles E. Hughes, Jr. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company intends to seek approval
from the Board of Governors of the Federal Reserve System (the "Fed"), the
Comptroller of the Currency ("OCC") and the Federal Deposit Insurance
Corporation ("FDIC") to acquire a national bank in Tampa, Florida (the "Bank")
and to expand the Company's banking business throughout Florida; and
WHEREAS, the Board of Directors of the Company intends to approve the
sale in a firm underwritten public offering of an amount of Company common stock
requisite to expanding the Company's banking business (the "Initial Public
Offering"); and
WHEREAS, Executive is willing to assist the directors of the Company in
the acquisition of the Bank and subsequent public offering and to become the
President and Chief Executive Officer of the Bank and the Company in accordance
with the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. Employer employs Executive and Executive accepts
employment upon the terms and conditions set forth in this Agreement.
2. TERM. The term of employment of Executive under this Agreement shall
be the three year period commencing on January 19, 1998 and ending on January
19, 2001.
3. COMPENSATION. (a) Prior to Closing of the Initial Public Offering.
The Company shall pay Executive a minimum annual base salary of $220,000,
payable in semi-monthly installments from the date of this Agreement until the
closing of the Initial Public Offering. Salary payments shall be subject to
withholding and other applicable taxes. Except as provided in Section 7 and
Section 11(a) below, no additional compensation or benefits will be provided to
Executive prior to the closing of the Initial Public Offering.
(b) After the Closing of the Initial Public Offering. The Company
shall pay Executive a minimum annual base salary of $250,000, payable in
semi-monthly installments beginning the first of the month immediately
subsequent to the closing of the Initial Public Offering. Salary payments shall
be subject to withholding and other applicable taxes.
<PAGE> 2
4. TITLE AND DUTIES. Prior to the Closing of the Initial Public
Offering Executive shall serve as President and Chief Executive Officer of the
Company and shall be nominated as a director of the Company for the term of this
Agreement. Executive shall run the day-to-day activities of the Company and
oversee the Company, within the framework of the approved annual budget, and
with a sound system of internal controls and in compliance with the policies of
the Board of Directors of the Company, and all applicable laws and regulations.
After the Closing of the Initial Public offering Executive shall also
be elected President, Chief Executive Officer and a Director of the Bank and
shall run the day-to-day activities of the Bank and oversee the Bank within the
framework of the approved annual budget, and with the sound system of internal
controls and in compliance with the policies of the Board of Directors of the
Bank and all applicable laws and regulations.
5. EXTENT OF SERVICES. After the Closing of the Initial Public Offering
Executive shall devote his entire time, attention and energies to the business
of Employer and shall not during the term of this Agreement be engaged in any
other business activity which requires the attention or participation of
Executive during normal business hours of Employer, recognition being given to
the fact that Executive is expected on occasion to participate in client
development after normal business hours. However, Executive may invest his
assets in such form or manner as will not require his services in the operation
of the affairs of the companies in which such investments are made. Executive
shall notify Employer of any significant participation by him in any trade
association or similar organization and the Board of Directors shall approve in
advance Executive's service as a director of any entity or organization (other
than service as a director of the Baptist Medical Center and a member of the
Finance Committee of Baptist/St. Vincent's Hospital).
6. WORKING FACILITIES. After the Closing of the Initial Public Offeirng
Executive shall have such assistants, perquisites, facilities and services as
are suitable to his position and appropriate for the performance of his duties,
including membership in the San Jose Country Club and the River Club (including
dues and assessments).
7. EXPENSES. Executive may incur reasonable expenses for promoting the
business of the Employee, including expenses for entertainment, travel, and
similar items. Executive will be reimbursed for all such expenses upon
Executive's periodic presentation of an itemized account of such expenditures.
8. VACATIONS. After the Closing of the Initial Public Offering
Executive shall be entitled each year to a vacation in accordance with the
personnel policy established by the Company's Board of Directors, during which
time Executive's compensation shall be paid in full.
9. ADDITIONAL COMPENSATION. After the Closing of the Initial Public
Offering and as additional consideration paid to Executive, Executive shall be
provided with health, hospitaliza tion, disability and a minimum of $250,000 in
term life insurance. In addition, after the Closing of the Initial Public
Offering Executive shall be provided with an automobile for his use, in
accordance with the automobile policy established by the Company's Board of
Directors.
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<PAGE> 3
10. CHANGE IN CONTROL OF THE COMPANY. (a) After the Closing of the
Initial Public Offering in the event of a "change in control" of the Company, as
defined herein, Executive shall be entitled, for a period of thirty (30) days
from the date of closing of the transaction effecting such change in control and
at his election, to give written notice to Employer of termination of this
Agreement and to receive a cash payment equal to two hundred ninety-nine percent
(299%) times the compensation, including bonus, if any, received by Executive in
the one-year period immediately preceding the change in control. The severance
payments provided for in this Section 10(a) shall be paid in cash, commencing
not later than ten (10) days after the date of notice of termination by
Executive under this Section 10 or ten (10) days after the date of closing of
the transaction effecting the change in control of the Company, whichever is
later.
(b) In addition, if Executive elects to terminate this Agreement
pursuant to this Section 10, Executive shall further be entitled, in lieu of
shares of Common Stock of the Company issuable upon exercise of warrants to
which Executive is entitled under this Agreement, an amount in cash or Common
Stock of the Company (or any combination thereof) as Executive shall in his
election designate equal to the excess of the fair market value of the Common
Stock as of the date of closing of the transaction effecting the change in
control over the per share exercise price of the warrants held by Executive,
times the number of shares of Common Stock subject to such warrants (whether or
not then fully exercisable). The fair market value of the Common Stock shall be
equal to the higher of (i) the value as determined by the Board of Directors of
the Company if there is no organized trading market for the shares at the time
such determination is made, or (ii) the closing price (or the average of the bid
and asked prices if no closing price is available) on any nationally recognized
securities exchange or association on which the Company's shares may be quoted
or listed, or (iii) the highest per share price actually paid for Common Stock
in connection with any change in control of the Company. The severance payments
provided for in this Section 10(b) shall be paid in full not later than ten (10)
days after the date of notice of termination by Executive under this Section 10
or ten (10) days after the date of closing of the transaction effecting the
change in control of the Company, whichever is later.
(c) For purposes of this Section 10, "change in control" of the
Company shall mean:
(i) any transaction, whether by merger, consolidation, asset
sale, tender offer, reverse stock split, or otherwise,
which results in the acquisition or beneficial ownership
(as such term is defined under rules and regulations
promulgated under the Securities Exchange Act of 1934, as
amended) by any person or entity or any group of persons
or entities acting in concert, of 50% or more of the
outstanding shares of Common Stock of the Company;
(ii) the sale of all or substantially all of the assets of
the Company; or
(iii) the liquidation of the Company.
11. TERMINATION. (a) For Failure to Close the Initial Public Offering.
In the event that the Board of Directors of the Company determines in its sole
discretion that the Company is
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<PAGE> 4
unable to close the Initial Public Offering then this Agreement may be
terminated by the Board of Directors of the Company at any time during the term
of this Agreement without notice upon the condition that Executive shall be
entitled, as liquidated damages in lieu of all other claims, to be paid the sum
of $100,000, which payment shall be subject to withholding and other applicable
taxes and shall be made simultaneously with such termination of this Agreement.
(b) For Cause. This Agreement may be terminated by
the Board of Directors of the Company without notice and without further
obligation than for monies already paid, for any of the following reasons:
(i) failure of Executive to follow reasonable written
instructions or policies of the Board of Directors of
the Company or the Bank;
(ii) receipt by the Company or the Bank of written notice
from any bank regulatory agency having jurisdiction
over the Company or the Bank that such agency has
criticized Executive's performance or his area of
responsibility and has either (A) rated the Company
or the Bank a "4" or a "5" under the Uniform
Financial Institution Rating System or (B) has
determined that the Bank is in a "troubled condition"
as defined under Section 914 of the Financial
Institutions Reform, Recovery and Enforcement Act of
1989;
(iii) gross negligence or willful misconduct of Executive
materially damaging to the business of the Company or
Bank during the term of this Agreement, or at any
time while he was employed by the Company prior to
the term of this Agreement, if not disclosed to the
Company prior to the commencement of the term of this
Agreement; or
(iv) conviction of Executive during the term of this
Agreement of a crime involving breach of trust or
moral turpitude.
In the event that the Bank discharges Executive alleging
"cause" under this Section 11(b) and it is subsequently determined judicially
that the termination was "without cause," then such discharge shall be deemed a
discharge without cause subject to the provisions of Section 11(c) hereof. In
the event that the Bank discharges Executive alleging "cause" under this Section
11(b), such notice of discharge shall be accompanied by a written and specific
description of the circumstances alleging such "cause." The termination of
Executive for "cause" shall not entitle the Bank to enforcement of the
non-competition and non-solicitation covenants contained in Section 13 hereof.
(c) Without Cause.
(i) The Bank may, upon thirty (30) days' written notice
to Executive, terminate this Agreement without cause
at any time during the term of this Agreement upon
the condition that Executive shall be entitled, as
liquidated damages in lieu of all other claims, to
the same severance
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<PAGE> 5
payments as provided in Section 10 hereof; provided
that for purposes of Section 10(b), the fair market
value of Common Stock shall be determined as of the
date of notice of termination of this Agreement given
by the Bank to Executive. The severance payments
provided for in this Section 11(c) shall commence not
later than thirty (30) days after the actual date of
termination of employment of Executive. The
termination of Executive "without cause" shall not
entitle the Bank to enforcement of the
non-competition and non-solicitation covenants
contained in Section 13 hereof.
(ii) Executive may upon thirty (30) days' written notice
to Employer terminate this Agreement without cause at
any time during the term of this Agreement. In the
event of termination of this Agreement by Executive,
the Bank shall have no further obligation to
Executive than for monies paid and the Bank shall be
entitled to enforcement of the non-competition and
non-solicitation covenants contained in Section 13
hereof.
12. DEATH OR DISABILITY. After the closing of the Initial Public
Offering, in the event of Executive's death, Employer shall pay to Executive's
designated beneficiary, or, if Executive has failed to designate a beneficiary,
to his estate, an amount equal to Executive's base salary pursuant to Section
3(b) hereof through the end of the month in which Executive's death occurred.
Such compensation shall be in lieu of any other benefits provided hereunder,
except that (i) in the event of a change in control of the Company as defined
herein, Executive's designated beneficiary or his estate, as the case may be,
shall be entitled to the benefits of Section 10(b) hereof, and (ii) any benefit
payable pursuant to Section 3(b) shall be prorated and made available to
Executive in respect of any period prior to his death. The Bank may maintain
insurance on its behalf to satisfy in whole or in part the obligations of this
Section 12.
After the closing of the Initial Public Offering, in the event of
Executive's disability, as hereinafter defined, Employer shall pay to Executive
the base salary then in effect through the end of the month in which Executive
became disabled. Executive shall be deemed disabled if, by reason of physical or
mental impairment, he is incapable of performing his duties hereunder for a
period of 180 consecutive days.
13. NON-COMPETITION AND NON-SOLICITATION. (a) Executive acknowledges
that he has performed services or will perform services hereunder which directly
affect Employer's business. Accordingly, the parties deem it necessary to enter
into the protective agreement set forth below, the terms and condition of which
have been negotiated by and between the parties hereto.
(b) In the event of termination of employment under this
Agreement by action of Executive pursuant to 11(c)(ii) prior to the expiration
of the term of this Agreement, Executive agrees with Employer that through the
actual date of termination of the Agreement, and for a period of twelve (12)
months after such termination date, Executive shall not, without the prior
written consent of Employer, within Duval County, Florida either directly or
indirectly, serve as an executive officer of any bank, bank holding company or
other financial institution.
(c) The covenants of Executive set forth in this Section 13 are
separate and independent covenants for which valuable consideration has been
paid, the receipt, adequacy and
5
<PAGE> 6
sufficiency of which are acknowledged by Executive, and have also been made by
Executive to induce Employer to enter into this Agreement. Each of the aforesaid
covenants may be availed of or relied upon by Employer in any court of competent
jurisdiction, and shall form the basis of injunctive relief and damages
including expenses of litigation (including but not limited to reasonable
attorney's fees) suffered by Employer arising out of any breach of the aforesaid
covenants by Executive. The covenants of Executive set forth in this Section 13
are cumulative to each other and to all other covenants of Executive in favor of
Employer contained in this Agreement and shall survive the termination of this
Agreement for the purposes intended. Should any covenant, term, or condition
contained in this Section 13 become or be declared invalid or unenforceable by a
court of competent jurisdiction, then the parties may request that such court
judicially modify such unenforceable provision consistent with the intent of
this Section 13 so that it shall be enforceable as modified, and in any event
the invalidity of any provision of this Section 13 shall not affect the validity
of any other provision in this Section 13 or elsewhere in this Agreement.
14. NOTICES. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of Executive, or to its principal office in the case of
Employer.
15. WAIVER OF BREACH. The waiver by Employer of a breach of any
provision of this Agreement by Executive shall not operate or be construed as a
waiver of any subsequent breach by Executive. No waiver shall be valid unless in
writing and signed by an authorized officer of Employer.
16. ASSIGNMENT. Executive acknowledges that the services to be rendered
by him are unique and personal. Accordingly, Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement. The
rights and obligations of Executive under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of Employer.
17. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida.
18. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto regarding employment of Executive, and supersedes and
replaces any prior agreement relating thereto. It may not be changed orally but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY"
FLORIDA BANKS, INC.
By:
--------------------------------------
Name:
Title:
"EXECUTIVE"
(L.S.)
-----------------------------------
Charles E. Hughes, Jr.
7
<PAGE> 1
EXHIBIT 10.2
FLORIDA BANKS, INC.
1998 STOCK OPTION PLAN
EFFECTIVE AS OF MARCH 31, 1998
1. PURPOSE
The primary purpose of the Florida Banks, Inc. 1998 Stock Option Plan
(the "Plan") is to encourage and enable eligible directors, officers, key
employees and certain consultants and advisors of Florida Banks, Inc. (the
"Company") and its subsidiaries to acquire proprietary interests in the Company
through the ownership of Common Stock of the Company. The Company believes that
directors, officers and key employees who participate in the Plan will have a
closer identification with the Company by virtue of their ability as
shareholders to participate in the Company's growth and earnings. The Plan also
is designed to provide motivation for participating directors, officers and key
employees to remain in the employ of and to give greater effort on behalf of the
Company. It is the intention of the Company that the Plan provide for the award
of "incentive stock options" qualified under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as well as the award of non-qualified stock options. Accordingly,
the provisions of the Plan related to incentive stock options shall be construed
so as to extend and limit participation in a manner consistent with the
requirements of Section 422 of the Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the Company
and an Eligible Employee or Eligible Participant pursuant to the terms of this
Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan, if any, as set forth in Section 5 of the Plan.
(d) "Company" shall mean Florida Banks, Inc., a Florida corporation.
(e) "Eligible Employee(s)" shall mean key employees regularly employed
by the Company or a Subsidiary (including officers, whether or not they are
directors) as the Board of Directors or the Committee shall select from time to
time.
(f) "Eligible Participant(s)" shall mean directors, officers, key
employees of the Company and its Subsidiaries, consultants, advisors and other
persons who may not otherwise be eligible to receive Qualified Incentive Options
pursuant to Section 8 of the Plan.
<PAGE> 2
(g) "Market Price" shall mean the closing price of the Company's Common
Stock on the date in question, as quoted by the Nasdaq National Market or the
Nasdaq SmallCap Market (or other nationally recognized quotation service). If
the Company's Common Stock is not traded on the Nasdaq Stock Market but is
registered on a national securities exchange, "Market Price" shall mean the
closing sales price of the Company's Common Stock on such national securities
exchange. If the Company's shares of Common Stock are not traded on a national
securities exchange or through any other nationally recognized quotation
service, then "Market Price" shall mean the fair market value of the Company's
Common Stock as determined by the Board of Directors or the Committee, acting in
good faith, under any method consistent with the Code, or Treasury Regulations
thereunder, as the Board of Directors or the Committee shall in its discretion
select and apply at the time of the grant of the option concerned. Subject to
the foregoing, the Board of Directors or the Committee, in fixing the market
price, shall have full authority and discretion and be fully protected in doing
so.
(h) "Optionee" shall mean an Eligible Employee or Eligible Participant
having a right to purchase Common Stock under an Agreement.
(i) "Option(s)" shall mean the right or rights granted to Eligible
Employees or Eligible Participants to purchase Common Stock under the Plan.
(j) "Plan" shall mean this Florida Banks, Inc. 1998 Stock Option Plan.
(k) "Shares," "Stock," or "Common Stock" shall mean shares of the $.01
par value common stock of the Company.
(l) "Subsidiary" or "Subsidiaries" shall mean any corporation(s), if the
Company owns or controls, directly or indirectly, more than a majority of the
voting stock of such corporation(s).
(m) "Ten Percent Owner" shall mean an individual who, at the time an
Option is granted, owns directly or indirectly more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors, or the date the Plan is approved
by the shareholders of the Company, whichever is earliest. The Plan must be
approved by the affirmative vote of not less than a majority of the shares
present and voting at a meeting at which a quorum is present, which shareholder
vote must be taken within twelve (12) months after the date the Plan is adopted
by the Board of Directors. Such shareholder vote shall not alter the Effective
Date of the Plan. In the event shareholder approval of the adoption of the Plan
is not obtained within the aforesaid twelve (12) month period, then any Options
granted in the intervening period shall be void.
2
<PAGE> 3
4. SHARES RESERVED FOR PLAN
The shares of the Company's Common Stock to be sold to Eligible
Employees and Eligible Participants under the Plan may at the election of the
Board of Directors be either treasury shares or Shares originally issued for
such purpose. The maximum number of Shares which shall be reserved and made
available for sale under the Plan shall be nine hundred thousand (900,000);
provided, however, that such Shares shall be subject to the adjustments provided
in Section 8(h). Any Shares subject to an Option which for any reason expires or
is terminated unexercised may again be subject to an Option under the Plan.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the
Committee. The Committee shall be comprised of not less than two (2) members
appointed by the Board of Directors of the Company from among its members, each
of whom qualifies as a "Non-Employee Director" as such term is defined in Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor regulation.
Within the limitations described herein, the Board of Directors of the
Company or the Committee shall administer the Plan, select the Eligible
Employees and Eligible Participants to whom Options will be granted, determine
the number of shares to be optioned to each Eligible Employee and Eligible
Participant and interpret, construe and implement the provisions of the Plan.
The Board of Directors or the Committee shall also determine the price to be
paid for the Shares upon exercise of each Option, the period within which each
Option may be exercised, and the terms and conditions of each Option granted
pursuant to the Plan. The Board of Directors and Committee members shall be
reimbursed for out-of-pocket expenses reasonably incurred in the administration
of the Plan.
If the Plan is administered by the Board of Directors, a majority of the
members of the Board of Directors shall constitute a quorum, and the act of a
majority of the members of the Board of Directors present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Board of Directors shall be the acts of the Board of Directors. If the Plan is
administered by the Committee, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members of the Committee shall be the acts of the Committee.
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to Eligible
Employees. Options granted pursuant to Section 9 may be granted to Eligible
Employees and to Eligible Participants.
3
<PAGE> 4
7. DURATION OF THE PLAN
The Plan shall remain in effect until all Shares subject to or which may
become subject to the Plan shall have been purchased pursuant to Options granted
under the Plan; provided that Options under the Plan must be granted within ten
(10) years from the Effective Date. The Plan shall expire on the tenth
anniversary of the Effective Date.
8. QUALIFIED INCENTIVE OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by stock option agreements in such form and not
inconsistent with this Plan as the Committee or the Board of Directors shall
approve from time to time, which Agreements shall contain in substance the
following terms and conditions:
(a) Price. The purchase price for shares purchased upon exercise will be
equal to 100% of the Market Price on the day the Option is granted; provided
that the purchase price of stock deliverable upon the exercise of a qualified
incentive stock option granted to a Ten Percent Owner under this Section 8 shall
be not less than one hundred ten percent (110%) of the Market Price on the day
the Option is granted, as determined by the Board of Directors or the Committee,
but in no case less than the par value of such stock.
(b) Number of Shares. The Agreement shall specify the number of Shares
which the Optionee may purchase under such Option, as determined by the Board of
Directors or the Committee.
(c) Exercise of Options. The shares subject to the Option may be
purchased in whole or in part by the Optionee in accordance with the terms of
the Agreement from time to time after shareholder approval of the Plan, as
determined by the Board of Directors or the Committee, but in no event later
than ten (10) years from the date of grant of the Option. Notwithstanding the
foregoing, Shares subject to an Option which is a qualified incentive stock
option granted to a Ten Percent Owner under this Section 8 may be purchased from
time to time but in no event later than five (5) years from the date of grant of
the Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an Agreement
shall be paid for in full at the time of purchase. Payment of the purchase price
shall be in cash or, in lieu of payment of all or part of the purchase price in
cash, the Optionee may surrender to the Company shares of the common stock of
the Company valued at the Market Price on the date of exercise of the Option in
accordance with the terms of the Agreement. Upon receipt of payment, the Company
shall, without transfer or issue tax, deliver to the Optionee (or other person
entitled to exercise the Option) a certificate or certificates for such Shares.
4
<PAGE> 5
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such Shares. Except as
otherwise expressly provided in the Plan, no adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
(f) Nonassignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event that an
Optionee during his or her lifetime ceases to be an employee of the Company or
of any Subsidiary of the Company for any reason (including retirement) other
than death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable on the date of termination of employment
shall expire unless exercised within a period of three (3) months from the date
on which the Optionee ceased to be an employee, but in no event after the term
provided in the Optionee's Agreement. In the event that an Optionee ceases to be
an employee of the Company or of any Subsidiary of the Company for any reason
(including retirement) other than death or permanent and total disability prior
to the time that an Option or portion thereof becomes exercisable, such Option
or portion thereof which is not then exercisable shall terminate and be null and
void. Whether authorized leave of absence for military or government service
shall constitute termination of employment for the purpose of this Plan shall be
determined by the Board of Directors or the Committee, which determination shall
be final and conclusive.
In the event that an Optionee during his or her lifetime ceases to be an
employee of the Company or any Subsidiary of the Company by reason of death or
permanent and total disability, any Option or unexercised portion thereof which
was otherwise exercisable on the date such Optionee ceased employment shall
expire unless exercised within a period of one (1) year from the date on which
the Optionee ceased to be an employee, but in no event after the term provided
in the Optionee's Agreement. In the event that an Optionee during his or her
lifetime ceases to be an employee of the Company or any Subsidiary of the
Company by reason of death or permanent and total disability, any Option or
portion thereof which was not exercisable on the date such Optionee ceased
employment may, in the discretion of the Board of Directors or the Committee, be
accelerated and become immediately exercisable for a period of one (1) year from
the date on which the Optionee ceased to be an employee, but in no event shall
the exercise period extend past the term provided in the Optionee's Agreement.
"Permanent and total disability" as used in this Plan shall be as
defined in Section 22(e)(3) of the Code.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
5
<PAGE> 6
(h) Recapitalization. In the event that dividends are payable in Common
Stock of the Company or in the event there are splits, subdivisions or
combinations of shares of Common Stock of the Company, the number of Shares
available under the Plan shall be increased or decreased proportionately, as the
case may be, and the number and Option exercise price of Shares deliverable upon
the exercise thereafter of any Option theretofore granted shall be increased or
decreased proportionately, as the case may be, as determined to be proper and
appropriate by the Board of Directors or the Committee.
(i) Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of a separation, reorganization, recapitalization or liquidation of the
Company, the Board of Directors of the Company, or the Board of Directors of any
corporation assuming the obligations of the Company hereunder, shall either (i)
make appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock of the Company, provided only
that the excess of the aggregate fair market value of the Shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the Shares
subject to option immediately before such substitution over the purchase price
thereof, or (ii) upon written notice to the Optionee provide that the Option
(including, in the discretion of the Board of Directors, any portion of such
Option which is not then exercisable) must be exercised within sixty (60) days
of the date of such notice or it will be terminated. If any adjustment under
this Section 8(i) would create a fractional share of Stock or a right to acquire
a fractional share, such shall be disregarded and the number of shares of Stock
available under the Plan and the number of Shares covered under any Options
previously granted pursuant to the Plan shall be the next lower number of shares
of Stock, rounding all fractions downward. An adjustment made under this Section
8(i) by the Board of Directors shall be conclusive and binding on all affected
persons.
Except as otherwise expressly provided in this Plan, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or prices of shares of Common Stock subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined at
the time the Option is granted) of the shares with respect to which incentive
stock options are exercisable for the first
6
<PAGE> 7
time by an Optionee during any calendar year (under all incentive stock option
plans of the Company and its Subsidiaries) shall not exceed $100,000. Any excess
over such amount shall be deemed to be related to and part of a non-qualified
stock option granted pursuant to Section 9.
(k) General Restriction. Each Option shall be subject to the requirement
that if at any time the Board of Directors shall determine, in its reasonable
discretion, that the listing, registration or qualification of the Shares
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issue or purchase of Shares thereunder, such Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. Alternatively, such
Options shall be issued and exercisable only upon such terms and conditions and
with such restrictions as shall be necessary or appropriate to effect exemption
from such listing, registration, or other qualification requirement.
9. NON-QUALIFIED OPTIONS
The Board of Directors or the Committee may grant to Eligible Employees
or Eligible Participants Options under the Plan which are not qualified
incentive stock options under the provisions of Section 422 of the Code. Such
non-qualified options shall be evidenced by Agreements in such form and not
inconsistent with this Plan as the Board of Directors or the Committee shall
approve from time to time, which Agreements shall contain in substance the same
terms and conditions as set forth in Section 8 hereof with respect to qualified
incentive stock options; provided, however, that:
(i) the limitations set forth in Sections 8(a) and 8(c) with
respect to Ten Percent Owners shall not be applicable to non-qualified options
granted to any Ten Percent Owner;
(ii) the limitations set forth in Section 8(g) with respect to
termination of employment or death shall not be applicable to non-qualified
option grants, and any such limitations shall be determined on a case by case
basis by the Board of Directors or the Committee at the time of the
non-qualified option grant;
(iii) the limitation set forth in Section 8(j) with respect to the
annual limitation of incentive stock options shall not be applicable to
non-qualified option grants; and
(iv) non-qualified options may be granted at a purchase price equal
to not less than 75% of the Market Price on the day the Option is granted.
7
<PAGE> 8
10. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified or
amended by the affirmative vote of not less than a majority of the shares
present and voting thereon by the Company's shareholders at a meeting of the
shareholders at which a quorum is present. The Board of Directors may at any
time and from time to time modify or amend the Plan in any respect, except that
without shareholder approval the Board of Directors may not (1) increase the
maximum number of Shares for which Options may be granted under the Plan (other
than increases due to changes in capitalization as referred to in Section 8(h)
hereof), or (2) change the class of persons eligible for qualified incentive
options. The termination or any modification or amendment of the Plan shall not,
without the written consent of an Optionee, affect his or her rights under an
Option or right previously granted to him or her. With the written consent of
the Optionee affected, the Board of Directors or the Committee may amend
outstanding option agreements in a manner not inconsistent with the Plan.
Without employee consent, the Board of Directors may at any time and from time
to time modify or amend outstanding option agreements in such respects as it
shall deem necessary in order that incentive options granted hereunder shall
comply with the appropriate provisions of the Code and regulations thereunder
which are in effect from time to time respecting "Qualified Incentive Options."
The Company's Board of Directors may also suspend the granting of Options
pursuant to the Plan at any time and may terminate the Plan at any time;
provided, however, no such suspension or termination shall modify or amend any
Option granted before such suspension or termination unless (1) the affected
participant consents in writing to such modification or amendment or (2) there
is a dissolution or liquidation of the Company.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Company and on all persons eligible or who
become eligible to participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general corporate
purposes.
8
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Florida Bank, Inc. on
Form S-1 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
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
April 23, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, OF FLORIDA BANK, AS OF DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FILING ON FORM S-1 FOR THE PERIOD ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> OCT-15-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
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<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
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<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 26,442
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 26,442
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