<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
F.N.B. CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6711 25-1255406
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
HERMITAGE SQUARE
HERMITAGE, PENNSYLVANIA 16148
(412) 981-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN D. WATERS
F.N.B. CORPORATION
HERMITAGE SQUARE
HERMITAGE, PENNSYLVANIA 16148
(412) 981-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CRAIG M. WASSERMAN ROBERT C. SCHWARTZ
WACHTELL, LIPTON, ROSEN & KATZ SMITH, GAMBRELL & RUSSELL
51 West 52nd Street 3343 Peachtree Road, NE
New York, NY 10019 Suite 1800
(212) 403-1000 Atlanta, Georgia 30326
(404) 264-2620
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective
and all other conditions precedent to the merger of a wholly-owned subsidiary of
the Registrant with and into Southwest Banks, Inc. have been satisfied or waived
as described in the enclosed Proxy Statement -- Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE FEE
- -------------------------------------------------------------------------------------------------
Common Stock, $2.00 par value.... 3,120,667 shs. (1) $46,810,005(2) $16,141
- -------------------------------------------------------------------------------------------------
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</TABLE>
(1) Not applicable.
(2) Computed in accordance with Rule 457(f) under the Securities Act of 1933, as
amended, based on the average of the high bid and low ask prices reported by
the Dow Jones News Retrieval Service on March 21, 1996 of the maximum number
of securities ($4,000,855 shares of Common Stock of Southwest, par value
$.10) to be received by the Registrant in exchange for the securities
registered hereby.
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, AS AMENDED, 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
F.N.B. CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
S-4 ITEM PROXY STATEMENT -- PROSPECTUS HEADING
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<C> <S> <C>
INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page of Registration Statement; Cross-
Reference Sheet; Outside Front Cover of
Proxy Statement -- Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... TABLE OF CONTENTS; AVAILABLE INFORMATION;
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... SUMMARY
4. Terms of the Transaction.................. SUMMARY; THE MERGER; DESCRIPTION OF FNB
CAPITAL STOCK AND SOUTHWEST CAPITAL STOCK;
COMPARISON OF SHAREHOLDERS RIGHTS
5. Pro Forma Financial Information........... SUMMARY -- Comparative Unaudited Per Share
Data and -- Selected Financial Data;
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS FOR THE MERGER
6. Material Contracts with the Company Being
Acquired................................ THE MERGER -- Background of and Reasons for
the Merger, -- Interests of Certain Persons
in the Merger, and -- Stock Option
Agreement
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... *
8. Interests of Named Experts and Counsel.... LEGAL OPINIONS; EXPERTS
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. *
INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................. INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE; SUMMARY; THE MERGER -- Interests
of Certain Persons in the Merger, and
-- Stock Option Agreement; INFORMATION
ABOUT FNB
11. Incorporation of Certain Information by
Reference............................... INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
12. Information with Respect to S-2 or S-3
Registrants............................. *
13. Incorporation of Certain Information...... *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
S-4 ITEM PROXY STATEMENT -- PROSPECTUS HEADING
------------------------------------------ ---------------------------------------------
<C> <S> <C>
14. Information with Respect to Registrants
other than S-2 or S-3 Registrants....... *
INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies............................... *
16. Information with Respect to S-2 or S-3
Companies............................... INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE; SUMMARY; THE MERGER -- Interests
of Certain Persons in the Merger, and
-- Stock Option Agreement; INFORMATION
ABOUT SOUTHWEST
17. Information with Respect to Companies
other than S-2 or S-3 Companies......... *
VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE; SUMMARY; THE SPECIAL MEETING OF
SHAREHOLDERS OF SOUTHWEST; THE
MERGER -- Dissenters' Rights of Southwest
Shareholders, -- Interests of Certain
Persons in the Merger, and -- Stock Option
Agreement; INFORMATION ABOUT FNB;
INFORMATION ABOUT SOUTHWEST; SHAREHOLDER
PROPOSALS; OTHER MATTERS
19. Information if Proxies, Consent or
Authorizations are not be to Solicited
or in an Exchange Offer................. *
</TABLE>
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* Item is omitted because answer is negative or item is inapplicable.
<PAGE> 4
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 LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 27, 1996
PROXY STATEMENT
OF
SOUTHWEST BANKS, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JUNE 17, 1996
------------------------
PROSPECTUS
OF
F.N.B. CORPORATION
COMMON STOCK, $2.00 PAR VALUE
This Proxy Statement-Prospectus (this "Proxy Statement-Prospectus") is
being furnished to holders of common stock, par value $.10 per share ("Southwest
Common Stock"), of Southwest Banks, Inc., a Florida corporation ("Southwest"),
in connection with the solicitation of proxies by the Board of Directors of
Southwest (the "Southwest Board") for use at a special meeting of such holders
to be held on Monday, June 17, 1996, commencing at 5:00 p.m., local time, and
at any adjournment or postponement thereof (the "Special Meeting"). At the
Special Meeting, holders of Southwest Common Stock will be asked to consider
and act upon a proposal to approve the Agreement and Plan of Merger, dated
February 2, 1996, by and among F.N.B. Corporation, a Pennsylvania corporation
("FNB"), Southwest Affiliation Corporation, a Florida corporation and
wholly-owned subsidiary of FNB ("SWAC"), and Southwest (the "Merger
Agreement"), and the transactions contemplated thereby, pursuant to which,
among other things, Southwest would be acquired by FNB by means of a merger of
SWAC with and into Southwest (the "Merger"). A copy of the Merger Agreement is
attached hereto as Appendix A and is incorporated herein by reference.
Pursuant to the Merger Agreement, upon consummation of the Merger, each
issued and outstanding share of Southwest Common Stock (other than shares held
by Southwest, FNB or any of their subsidiaries, in each case, other than in a
fiduciary capacity or as a result of debts previously contracted, which shares
will be canceled and retired without consideration being paid) will be converted
into 0.78 of a share of common stock, par value $2.00 per share, of FNB ("FNB
Common Stock"), subject to certain adjustments as described in this Proxy
Statement-Prospectus (the "Exchange Ratio"). See "THE MERGER -- Modification,
Waiver, Termination". Any options, warrants or other rights to purchase shares
of Southwest Common Stock pursuant to stock options, warrants or stock
appreciation rights (collectively, the "Southwest Options") remaining
<PAGE> 5
unexercised upon consummation of the Merger will become options, warrants or
other rights to purchase an adjusted number of shares of FNB Common Stock at an
adjusted exercise price, both of which are computed in accordance with the
Exchange Ratio. Each holder of Southwest Common Stock or Southwest Options who
would otherwise be entitled to receive a fraction of a share of FNB Common Stock
(after taking into account all of a shareholder's certificates) will receive, in
lieu thereof, the equivalent cash value of such fraction of a share, without
interest.
Consummation of the Merger is subject to several conditions, including,
among others, the affirmative vote to approve the Merger Agreement of the
holders of a majority of the outstanding shares of Southwest Common Stock
entitled to vote in elections for directors which are not beneficially owned (as
defined herein and in the Southwest Articles of Incorporation (the "Southwest
Charter")), directly or indirectly, by FNB and the approval of appropriate
regulatory authorities. See "THE MERGER -- Conditions Precedent to the Merger".
The FNB Common Stock trades on the SmallCap Market Tier of the Nasdaq Stock
Market (the "Nasdaq SmallCap Market") under the trading symbol "FBAN". The last
reported bid price of FNB Common Stock as reported by the Dow Jones News
Retrieval Service (the "Dow Jones") on February 2, 1996, the last trading day
preceding public announcement of the proposed Merger, was $20.75 per share. The
last reported bid price of FNB Common Stock as reported by the Dow Jones on
, 1996 was $ per share. Based on such last reported bid
price, the Exchange Ratio resulted in a per share purchase price for the
Southwest Common Stock of $ . Since , 1996, the Southwest
Common Stock has traded on the Nasdaq Stock Market as a National Market Security
(the "Nasdaq National Market") under the trading symbol . Prior to
, 1996, Southwest Common Stock was traded on the over-the-counter
market under the trading symbol "SWBA". The last reported bid price per share of
Southwest Common Stock on the over-the-counter market as reported by the Dow
Jones on February 2, 1996 was $14.25 per share. The last reported bid price of
Southwest Common Stock on the Nasdaq National Market as reported by the Dow
Jones on , 1996 was $ per share. See "PRICE RANGE OF COMMON
STOCK AND DIVIDENDS".
Because the Exchange Ratio is fixed, a change in the market price of FNB
Common Stock before the Merger would affect the value of the FNB Common Stock to
be received in the Merger in exchange for the Southwest Common Stock. THERE CAN
BE NO ASSURANCE AS TO THE MARKET PRICE OF THE FNB COMMON STOCK AT ANY TIME
BEFORE THE DATE ON WHICH THE MERGER BECOMES EFFECTIVE (THE "EFFECTIVE TIME") OR
AS TO THE MARKET PRICE OF THE FNB COMMON STOCK AT ANY TIME THEREAFTER.
Shareholders are urged to obtain current market quotations.
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") has rendered its
opinion dated February 2, 1996 to the Southwest Board that, as of that date, the
Exchange Ratio in the Merger Agreement was fair from a financial point of view
to the holders of Southwest Common Stock. See "THE MERGER -- Opinion of
Southwest's Financial Advisor".
THE SOUTHWEST BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
SOUTHWEST VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
This Proxy Statement-Prospectus also constitutes a prospectus of FNB with
respect to the shares of FNB Common Stock issuable to shareholders of Southwest
upon consummation of the Merger. FNB has supplied all information contained in
this Proxy Statement-Prospectus relating to FNB and its subsidiaries, and
Southwest has supplied all information contained in this Proxy
Statement-Prospectus relating to Southwest and its subsidiaries.
This Proxy Statement-Prospectus is included as part of a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") by FNB relating to the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of up to
3,120,667 shares of FNB Common Stock to be issued in connection with the Merger.
The Registration Statement has not yet become effective. Information contained
herein is subject to completion or amendment. These securities may not be sold
nor may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Proxy Statement-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,
<PAGE> 6
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
This Proxy Statement-Prospectus and the accompanying form of proxy for the
Special Meeting are first being mailed to the shareholders of Southwest on or
about , 1996. The date of this Proxy Statement-Prospectus is
, 1996.
------------------------
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 PROXY STATEMENT PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FNB COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK
DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR
NONBANKING AFFILIATE OF FNB, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED IN THIS PROXY STATEMENT-PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY FNB OR SOUTHWEST. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A
SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR TO OR FROM ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS SPEAKS AS OF THE DATE HEREOF UNLESS
OTHERWISE SPECIFICALLY INDICATED. INFORMATION CONTAINED IN THIS PROXY
STATEMENT-PROSPECTUS REGARDING FNB AND PRO FORMA INFORMATION HAS BEEN FURNISHED
BY FNB, AND INFORMATION HEREIN REGARDING SOUTHWEST HAS BEEN FURNISHED BY
SOUTHWEST.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.......................... 1
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE.................................... 1
SUMMARY........................................ 3
General.................................... 3
The Companies.............................. 3
FNB.................................... 3
Southwest.............................. 3
Special Meeting and Vote Required to
Approve the Merger....................... 3
The Merger................................. 4
Effective Time of the Merger............... 5
Recommendation of the Southwest Board...... 5
Opinion of Southwest's Financial Advisor... 5
Certain Differences in the Rights of
Shareholders............................. 6
Modification, Waiver and Termination....... 6
Certain Federal Income Tax Consequences.... 6
Interests of Certain Persons in the
Merger................................... 6
Stock Option Agreement..................... 7
Dissenters' Rights......................... 7
Accounting Treatment....................... 7
Regulatory Approvals....................... 7
Resales by Affiliates...................... 8
Share Information and Market Prices........ 8
Comparative Unaudited Per Share Data....... 8
Selected Financial Data.................... 9
THE SPECIAL MEETING OF SHAREHOLDERS OF
SOUTHWEST.................................... 12
General.................................... 12
Proxies.................................... 12
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Solicitation of Proxies.................... 12
Record Date and Voting Rights.............. 12
Recommendation of the Southwest Board...... 13
THE MERGER..................................... 14
Description of the Merger.................. 14
Conversion of Southwest Options............ 14
Effective Time of the Merger............... 15
Exchange of Certificates................... 16
Background of and Reasons for the Merger... 16
Background of the Merger............... 16
FNB Reasons for the Merger............. 17
Southwest Reasons for the Merger....... 18
Opinion of Southwest's Financial Advisor... 19
General................................ 19
Valuation Methodologies................ 19
Comparable Transaction Analysis.... 19
Discounted Cash Flow Analysis...... 20
Compensation for Robinson-Humphrey..... 20
Conditions Precedent to the Merger......... 21
Conduct of Business Prior to the Merger.... 22
Modification, Waiver and Termination....... 24
Expenses................................... 25
Certain Federal Income Tax Consequences.... 25
Interests of Certain Persons in the
Merger................................... 26
General................................ 26
Southwest Management Post-Merger;
Southwest Employment Agreements...... 26
Indemnification........................ 26
Southwest Options...................... 27
Other Matters Relating to Southwest
Employee Benefit Plans............... 28
Southwest Board Resolutions............ 29
Ownership of Southwest Common Stock by
FNB.................................. 29
Other FNB Relationships to Southwest... 30
Stock Option Agreement..................... 30
Dissenters' Rights of Southwest
Shareholders............................. 34
Accounting Treatment....................... 34
Bank Regulatory Matters.................... 34
Federal Reserve Board.................. 34
Florida Banking Department............. 35
Status of Regulatory Approvals and
Other Information.................... 35
Restrictions on Resales by Affiliates...... 36
Voluntary Dividend Reinvestment and Stock
Purchase Plan............................ 36
PRICE RANGE OF COMMON STOCK AND DIVIDENDS...... 37
Market Prices.............................. 37
Dividends.................................. 37
<CAPTION>
PAGE
----
<S> <C>
INFORMATION ABOUT FNB.......................... 38
INFORMATION ABOUT SOUTHWEST.................... 39
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS FOR THE MERGER.......... 40
DESCRIPTION OF FNB CAPITAL STOCK AND SOUTHWEST
CAPITAL STOCK................................ 45
FNB Common Stock........................... 45
General................................ 45
Voting and Other Rights................ 45
Distributions.......................... 45
FNB Preferred Stock........................ 46
General................................ 46
FNB Series A Preferred Stock........... 46
FNB Series B Preferred Stock........... 46
Southwest Common Stock..................... 46
General................................ 46
Southwest Preferred Stock.............. 46
COMPARISON OF SHAREHOLDER RIGHTS............... 47
Removal of Directors; Filling Vacancies on
the Board of Directors................... 47
Quorum of Shareholders..................... 48
Adjournment and Notice of Shareholder
Meetings................................. 48
Call of Special Shareholder Meetings....... 48
Shareholder Consent in Lieu of Meeting..... 48
Dissenters' Rights......................... 49
Derivative Actions......................... 49
Dividends and Distributions................ 49
Director Qualifications and Number......... 50
Indemnification of Officers and
Directors................................ 50
Director Liability......................... 52
Amendment of Articles of Incorporation and
By-Laws.................................. 52
Vote Required for Extraordinary Corporate
Transactions............................. 53
Interested Shareholder Transactions........ 53
Fiduciary Duty............................. 54
Provisions with Possible Anti-Takeover
Effects.................................. 55
LEGAL OPINIONS................................. 57
EXPERTS........................................ 58
SHAREHOLDER PROPOSALS.......................... 58
OTHER MATTERS.................................. 58
APPENDIX A -- Agreement and Plan of Merger..... A-1
APPENDIX B -- Stock Option Agreement........... B-1
APPENDIX C -- Opinion of The Robinson-Humphrey
Company, Inc................................. C-1
</TABLE>
<PAGE> 8
AVAILABLE INFORMATION
FNB has filed with the Commission a Registration Statement under the
Securities Act, relating to the shares of FNB Common Stock to be issued in
connection with the Merger. For further information pertaining to the shares of
FNB Common Stock to which this Proxy Statement-Prospectus relates, reference is
made to such Registration Statement, including the exhibits and schedules filed
as a part thereof. As permitted by the rules and regulations of the Commission,
certain information included in the Registration Statement is omitted from this
Proxy Statement-Prospectus. In addition, FNB and Southwest are subject to
certain of the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, file
certain reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information can be inspected and copied
at the public reference room of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and copies of such materials can be obtained by
mail from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition,
copies of such materials are available for inspection and reproduction at the
public reference facilities of the Commission at its New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048; and at its Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Reports, proxy statements and other information concerning
FNB also may be inspected at the offices of the Nasdaq, 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by FNB with the Commission are
hereby incorporated by reference in this Proxy Statement-Prospectus: (a) the FNB
Annual Report on Form 10-K for the year ended December 31, 1995; (b) the
description of FNB Common Stock contained in the FNB registration statement
filed pursuant to Section 12 of the Exchange Act and any amendment or report
filed for the purpose of updating such description; and (c) the FNB Current
Report on Form 8-K filed February 9, 1996.
The following documents previously filed by Southwest with the Commission
are hereby incorporated by reference in this Proxy Statement-Prospectus: (a) the
Southwest Annual Report on Form 10-K for the year ended December 31, 1995 and
(b) the Southwest Current Report on Form 8-K filed March 13, 1996. A copy of the
Southwest Annual Report on Form 10-K has been enclosed for delivery with this
Proxy Statement-Prospectus.
In addition, all documents filed by FNB and Southwest with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the
date hereof and prior to the time at which the Special Meeting has been finally
adjourned are hereby deemed to be incorporated by reference herein. Any
statements contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement-Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO FNB
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST FROM DAVID B. MOGLE, SECRETARY AND TREASURER, F.N.B. CORPORATION,
HERMITAGE SQUARE, HERMITAGE, PA 16148, TELEPHONE (412) 981-6000. THE DOCUMENTS
RELATING TO SOUTHWEST (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE
NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST FROM LEWIS S. ALBERT, SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, SOUTHWEST BANKS, INC., 900 GOODLETTE ROAD NORTH,
NAPLES, FLORIDA 33940, TELEPHONE (941) 262-7600. IN ORDER TO ENSURE TIMELY
<PAGE> 9
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 10, 1996. PERSONS
REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE COSTS OF
REPRODUCTION AND MAILING.
2
<PAGE> 10
SUMMARY
The following is a brief summary of certain information set forth elsewhere
in this Proxy Statement-Prospectus and is not intended to be complete. It is
qualified in its entirety by reference to more detailed information contained
elsewhere in this Proxy Statement-Prospectus, the accompanying Appendices and
the documents incorporated herein by reference.
GENERAL
This Proxy Statement-Prospectus, Notice of Special Meeting of Southwest
shareholders to be held on Monday, June 17, 1996 and form of proxy solicited in
connection therewith are first being mailed to Southwest shareholders on or
about , 1996. At the Special Meeting, the holders of Southwest
Common Stock will consider and vote on whether to approve the Merger Agreement
and the transactions contemplated thereby. A copy of the Merger Agreement is
attached hereto as Appendix A.
THE COMPANIES
FNB. FNB is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and a savings and loan holding
company registered under the Home Owners Loan Act (the "HOLA"). FNB was
organized under the laws of the Commonwealth of Pennsylvania in 1974 and has as
its principal assets the stock of its subsidiaries. The lead bank of FNB is
First National Bank of Pennsylvania ("First National"). Through its six banking
and thrift subsidiaries and its one consumer finance subsidiary, FNB provides a
full range of financial services, primarily to consumers and small- to
medium-sized businesses through its network of 93 offices in Pennsylvania,
eastern Ohio and southwestern New York. On December 31, 1995, FNB had total
assets of $1.7 billion. The principal executive offices of FNB are located at
Hermitage Square, Hermitage, Pennsylvania 16148, and its telephone number is
(412) 981-6000. All references herein to FNB refer to FNB Corporation and its
subsidiaries, unless the context otherwise requires.
For additional information regarding FNB and the combined company that
would result from the Merger, see "THE MERGER" and "INFORMATION ABOUT FNB".
SOUTHWEST. Southwest is a bank holding company registered under the BHCA.
It was organized under the laws of the State of Florida in 1988, and has as its
principal assets the stock of its two subsidiary banks, First National Bank of
Naples ("First Naples") and Cape Coral National Bank ("Cape Coral"). Southwest
provides commercial banking services through a network of seven offices in
southwestern Florida. On December 31, 1995, Southwest had total assets of $386
million. Southwest's principal executive offices are located at 900 Goodlette
Road North, Naples, Florida 33940, and its telephone number is (941) 262-7600.
For additional information regarding Southwest, see "THE MERGER" and
"INFORMATION ABOUT SOUTHWEST".
SPECIAL MEETING AND VOTE REQUIRED TO APPROVE THE MERGER
The Special Meeting will be held on Monday, June 17, 1996 at 5:00 p.m.,
local time, at , Naples, Florida, at which time the shareholders
of Southwest will be asked to approve the Merger Agreement and the transactions
contemplated thereby. The record holders of Southwest Common Stock at the close
of business on , 1996 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting. On the Record Date, there were approximately
holders of record of Southwest Common Stock and
shares of Southwest Common Stock outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of Southwest Common Stock entitled to vote in elections for directors which are
not beneficially owned directly or indirectly by FNB is required to approve the
Merger Agreement and the transactions contemplated thereby. As of the Record
Date, FNB beneficially owned (as defined herein and in the Southwest Charter)
shares, or % of the Southwest Common Stock entitled to vote
in elections for directors. As of the Record Date, directors and executive
officers of Southwest and their affiliates beneficially owned
shares, or %, of the Southwest Common Stock entitled to vote
at the Special Meeting. The banking subsidiaries
3
<PAGE> 11
of Southwest, in a fiduciary capacity for third parties, do not have sole or
shared voting power as to any shares of Southwest Common Stock.
See "THE SPECIAL MEETING OF SHAREHOLDERS OF SOUTHWEST".
Approval of the Merger Agreement by the shareholders of FNB is not
required.
THE MERGER
Subject to the terms and conditions of the Merger Agreement and at the
Effective Time, SWAC will merge with and into Southwest. Southwest will be the
surviving entity and will continue to be governed by the laws of the State of
Florida. At the Effective Time, each outstanding share of Southwest Common Stock
(other than shares held by Southwest or FNB, or any of their subsidiaries, in
each case, other than in a fiduciary capacity or as a result of debts previously
contracted, which shares will be canceled and retired without consideration
being paid) will be converted into and exchanged for 0.78 of a share (subject to
possible adjustment) of FNB Common Stock, with cash to be paid in lieu of any
resulting fractional shares of FNB Common Stock, each share of FNB capital stock
outstanding prior to the Merger will continue to be outstanding after the
Effective Time and each share of SWAC Common Stock will be converted into one
share of Southwest Common Stock. As of the Record Date, there were
shares of Southwest Common Stock outstanding. Southwest has
represented that, as of the Effective Time, there will be no more than 4,000,855
shares of Southwest Common Stock issued and outstanding.
Because the Exchange Ratio is fixed and because the market price of FNB
Common Stock is subject to fluctuation, the value of the shares of FNB Common
Stock that holders of Southwest Common Stock will receive in the Merger may
increase or decrease prior to and following the Merger.
Immediately following the Effective Time and assuming that 4,000,855 shares
of Southwest Common Stock are outstanding immediately prior to the Effective
Time, the former stockholders of Southwest would own approximately 3,120,667
shares, or 26.6%, of the then outstanding FNB Common Stock (assuming 8,609,599
shares of FNB Common Stock outstanding immediately prior to the Effective Time).
The number of shares of FNB Common Stock to be issued in the Merger will change
if less than 4,000,855 shares of Southwest Common Stock are outstanding
immediately prior to the Effective Time.
As of the Record Date, there were Southwest Options outstanding with
respect to shares of Southwest Common Stock. Except as described
below, at the Effective Time, each Southwest Option will be converted into an
option, warrant or other right to purchase the number of shares of FNB Common
Stock equal to the number of shares of Southwest Common Stock subject to such
Southwest Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, at a per share exercise price adjusted by dividing the per share
exercise price under each such Southwest Option by the Exchange Ratio and
rounding down to the nearest cent, with cash to be paid in lieu of any
fractional shares upon exercise of each converted option, warrant or other
right, upon the otherwise same terms and conditions under the relevant Southwest
Option as were applicable immediately prior to the Effective Time. In addition,
notwithstanding the foregoing, each Southwest Option that is an "incentive stock
option" shall be adjusted in accordance with the Section 424 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code"), so as not to constitute a modification, extension or renewal of
the option within the meaning of Section 424(h) of the Code.
The Merger is subject to the satisfaction of certain conditions. Such
conditions include, among others, an affirmative vote to approve the Merger
Agreement by holders of a majority of the outstanding shares of Southwest Common
Stock entitled to vote in elections of directors which are not beneficially
owned directly or indirectly by FNB, the effectiveness under the Securities Act
of the Registration Statement for shares of FNB Common Stock to be issued in the
Merger and the approval of appropriate regulatory agencies. The obligation of
FNB to effect the Merger also is subject to (i) the receipt, to the extent
necessary to assure, in the reasonable judgment of FNB, that the transactions
contemplated hereby will qualify for pooling-of-interests accounting treatment,
of agreements from affiliates of Southwest restricting their ability to sell or
otherwise transfer their shares of Southwest Common Stock or their shares of FNB
Common Stock received
4
<PAGE> 12
upon consummation of the Merger; and (ii) that as of the close of the most
recent calendar quarter (or, if the Effective Time shall occur within 20 days
following the close of a calendar quarter, then as of the next preceding
calendar quarter) cumulative earnings reported by Southwest since December 31,
1995 will be greater than or equal to the amount calculated by multiplying (a)
$500,000 by (b) the number of full calendar quarters which have passed since
December 31, 1995 and for which earnings have been reported (as described herein
and in the Merger Agreement) as of such date.
Southwest has agreed to take all steps necessary to exempt the Merger from
any applicable Florida anti-takeover laws.
For additional information relating to the Merger, see "THE MERGER".
EFFECTIVE TIME OF THE MERGER
Unless otherwise agreed by FNB and Southwest, the Effective Time is
expected to occur on the date and at the time the Articles of Merger to be
executed by Southwest and SWAC and filed with the Florida Department of State
(the "Articles of Merger") become effective with the Florida Department of
State. The parties have agreed to use their reasonable efforts to cause the
Effective Time to occur on or before the fifth business day (as designated by
FNB) following the last to occur of (i) the effective date of the last required
consent of any state or federal regulatory authority having authority over the
Merger (including the expiration of all applicable waiting periods following
such consents or the delivery of appropriate notices) or (ii) the date on which
the shareholders of Southwest approve the Merger Agreement, unless otherwise
agreed upon by FNB and Southwest; provided, however, that in no event shall the
Effective Time occur prior to January 1, 1997, unless FNB determines, in its
sole discretion, to permit the Effective Time to occur prior to January 1, 1997,
but not earlier than December 16, 1996. If approved by the Southwest
shareholders and applicable regulatory authorities, the parties expect that the
Effective Time will occur on or before January 31, 1997, although there can be
no assurance as to whether or when the Merger will occur. See "THE MERGER --
Effective Time of the Merger" and "-- Conditions Precedent to the Merger".
RECOMMENDATION OF THE SOUTHWEST BOARD
THE SOUTHWEST BOARD, WITH THE EXCEPTION OF PETER MORTENSEN WHO RECUSED
HIMSELF FROM DELIBERATIONS REGARDING (AND VOTES ON) THE PROPOSED MERGER BECAUSE
OF HIS POSITION AS CHAIRMAN AND PRESIDENT OF FNB, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE SOUTHWEST BOARD
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF SOUTHWEST AND ITS
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF SOUTHWEST VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
In the course of reaching its decision to approve the Merger Agreement and
the transactions contemplated thereby, the Southwest Board consulted with its
legal advisors regarding the legal terms of the Merger Agreement and with its
financial advisor, Robinson-Humphrey, as to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of Southwest Common Stock. For a
discussion of the factors considered by the Southwest Board in reaching its
conclusions, see "THE MERGER -- Background of and Reasons for the Merger".
The Southwest Board resolved that each director will vote such director's
shares in favor of the Merger Agreement and the transactions contemplated
thereby at the Special Meeting.
OPINION OF SOUTHWEST'S FINANCIAL ADVISOR
Robinson-Humphrey, which has served as financial advisor to Southwest, has
rendered its opinion to the Southwest Board that the Exchange Ratio is fair to
the shareholders of Southwest from a financial point of view. A copy of a
written confirmation of such opinion, dated February 2, 1996, is attached hereto
as Appendix C and should be read in its entirety with respect to assumptions
made, matters considered and limitations of the review undertaken by
Robinson-Humphrey in rendering such opinion. See "THE MERGER -- Opinion of
Southwest's Financial Advisor".
5
<PAGE> 13
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of FNB shareholders and other corporate matters relating to FNB
Common Stock are controlled by the FNB Articles of Incorporation (the "FNB
Charter"), the FNB By-laws (the "FNB By-laws") and the Pennsylvania Business
Corporation Law (the "PBCL"). The rights of Southwest shareholders and other
corporate matters relating to Southwest Common Stock are controlled by the
Southwest Charter, the Southwest By-laws (the "Southwest By-laws") and the
Florida Business Corporation Act (the "FBCA"). Upon consummation of the Merger,
shareholders of Southwest will become shareholders of FNB whose rights will be
governed by the FNB Charter, the FNB By-laws and the provisions of the PBCL. See
"DESCRIPTION OF FNB CAPITAL STOCK AND SOUTHWEST CAPITAL STOCK"; "COMPARISON OF
SHAREHOLDERS RIGHTS".
MODIFICATION, WAIVER AND TERMINATION
The Merger Agreement provides that it may be amended by a subsequent
writing signed by each party upon the approval of each of their respective Board
of Directors. However, no amendment that reduces or, except as hereinafter
described in reference to a possible Exchange Ratio increase after a Termination
Event (as defined herein), modifies in any material respect the consideration to
be received by the holders of Southwest Common Stock in connection with the
Merger may be made after the Special Meeting without the further approval of
such shareholders. The Merger Agreement provides that each party may waive any
of the conditions precedent to its obligations to consummate the Merger, to the
extent legally permitted.
The Merger Agreement may be terminated by mutual agreement of the Board of
Directors of FNB (the "FNB Board") and the Southwest Board. The Merger Agreement
may also be terminated by either the FNB Board or the Southwest Board (i) in the
event of breach of the Merger Agreement by the other party that cannot or has
not been cured within 30 days of notice of such breach, (ii) if the required
approval of the Southwest shareholders or any applicable regulatory authority is
not obtained, (iii) if the Merger is not consummated by July 31, 1997 or (iv) if
any of the conditions precedent to the obligations of such party to consummate
the Merger cannot be satisfied or fulfilled by July 31, 1997.
In addition, the Merger Agreement may be terminated by the Southwest Board,
at its sole option, at any time during the ten-day period commencing the day
after the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") consents to the Merger if the average of the mid-point of the closing
high bid and low ask prices of FNB Common Stock for the 20 full trading days
ending on the day before the date the Federal Reserve Board consents to the
Merger is less than $19.00; provided, however, that the Merger Agreement may not
be so terminated if FNB elects, at its sole option but subject to Southwest's
written agreement, during the five-day period commencing with receipt of notice
of such termination, to increase the Exchange Ratio to equal the quotient
obtained by dividing (i) the product of $19.00 and the Exchange Ratio (as then
in effect) by (ii) the Designated Price (as defined herein).
See "THE MERGER -- Modification, Waiver and Termination".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section
368(a)(1) of the Code. Wachtell, Lipton, Rosen & Katz has delivered an opinion,
based upon certain customary assumptions and representations, to the effect
that, for federal income tax purposes, no gain or loss will be recognized by the
Southwest shareholders as a result of the Merger to the extent that they receive
FNB Common Stock solely in exchange for their Southwest Common Stock. For a more
complete description of the federal income tax consequences, see "THE
MERGER -- Certain Federal Income Tax Consequences".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Southwest's management and of the Southwest Board may be
deemed to have interests in the Merger in addition to their interests, if any,
as shareholders of Southwest generally. These interests include, among others,
(i) certain amended employment agreements with certain officers of Southwest
that FNB agreed to assume, each of which provides for, upon the termination of
employment of
6
<PAGE> 14
such officer with Southwest for any reason other than death, whether by such
officer, Southwest or FNB, the payment in stock of the value of such officer's
options on the date of termination; (ii) the election or appointment of three
members of the Southwest Board to the FNB Board; and (iii) agreements by FNB to
indemnify present and former directors, officers, employees and agents of
Southwest and its subsidiaries from and after the Merger against certain
liabilities arising prior to the Merger to the fullest extent permitted under
Florida law, the Southwest Charter and the Southwest By-laws.
FNB and certain of its employees and directors, including Mr. Mortensen,
Chairman and President of FNB, own shares of Southwest Common Stock and warrants
to acquire shares of Southwest Common Stock. Mr. Mortensen is one of the
founders of Southwest and of its subsidiary lead bank, First Naples, and is a
member of the Southwest Board and of the First Naples Board of Directors. Mr.
Mortensen recused himself from deliberations regarding (and votes on) the Merger
by the Southwest Board.
See "THE MERGER -- Interests of Certain Persons in the Merger".
STOCK OPTION AGREEMENT
Following the execution of the Merger Agreement, Southwest granted FNB an
option (the "Stock Option") to purchase, under certain circumstances and subject
to certain adjustments, up to 727,163 shares (the "Stock Option Shares") of
Southwest Common Stock at a price, subject to certain adjustments, of $15.00 per
share pursuant to the terms of the Stock Option Agreement dated February 2,
1996, by and between FNB and Southwest (the "Stock Option Agreement"). The Stock
Option, if exercised, would equal before giving effect to the exercise of the
Stock Option, 19.9% of the total number of shares of Southwest Common Stock
outstanding as of its date of exercise. The Stock Option was granted by
Southwest to FNB as a condition and inducement to FNB's willingness to enter
into the Merger Agreement. The Stock Option is exercisable only upon the
occurrence of certain events generally indicating a change of control not
involving FNB occurring within 12 months of a termination of the Merger
Agreement, and the receipt of any required regulatory approvals, neither of
which has occurred as of the date hereof. Under certain circumstances, Southwest
may be required to repurchase the Stock Option or the Stock Option Shares
acquired pursuant to the exercise of the Stock Option. The purpose of the Stock
Option Agreement and the Stock Option is to increase the likelihood that the
Merger will occur by making it more difficult for another party to acquire
Southwest. The ability of FNB to exercise the Stock Option and to cause, subject
to certain adjustments, up to an additional 727,163 shares of Southwest Common
Stock to be issued may be considered a deterrent to other potential acquisitions
of control of Southwest, as it is likely to increase the cost of an acquisition
of all the shares of Southwest Common Stock which would then be outstanding. See
"THE MERGER -- Stock Option Agreement".
DISSENTERS' RIGHTS
Under the provisions of Section 607.1302 of the FBCA, holders of Southwest
Common Stock are not entitled to dissenters' rights with respect to payment for
the value of their shares of Southwest Common Stock. See "THE
MERGER -- Dissenters' Rights of Southwest Shareholders".
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles ("GAAP").
See "THE MERGER -- Accounting Treatment".
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board and of
the Florida Department of Banking and Finance (the "Florida Banking
Department"). The Merger may not be consummated until expiration of all
applicable waiting periods.
7
<PAGE> 15
FNB and Southwest will file all required applications for regulatory review
and approval or notice with the Federal Reserve Board and the Florida Banking
Department in connection with the Merger. There can be no assurance that such
approvals will be obtained or as to the date of any such approvals.
See "THE MERGER -- Conditions Precedent to the Merger" and "-- Bank
Regulatory Matters".
RESALES BY AFFILIATES
Southwest has agreed to use its reasonable efforts to obtain from each of
those individuals identified by it as an affiliate an appropriate agreement that
such individual will not transfer any shares of FNB Common Stock received by it
as a result of the Merger, except in compliance with the applicable provisions
of the Securities Act and as required by pooling-of-interests accounting
treatment. See "THE MERGER -- Restrictions on Resales by Affiliates".
SHARE INFORMATION AND MARKET PRICES
The FNB Common Stock trades on the Nasdaq SmallCap Market under the trading
symbol "FBAN". As of December 31, 1995, there were 8,611,814 shares of FNB
Common Stock outstanding held by approximately 3,735 holders of record. Since
, 1996, the Southwest Common Stock has traded on the Nasdaq National
Market under the trading symbol " ". Prior to , 1996, the
Southwest Common Stock was traded on the over-the-counter market under the
trading symbol "SWBA". As of the Record Date, there were shares
of Southwest Common Stock outstanding held by approximately
holders of record.
The following table sets forth the last bid price reported by the Dow Jones
for shares of FNB Common Stock on February 2, 1996, the last trading day
preceding public announcement of the proposed Merger, and on , 1996.
The table also sets forth the last reported sales price per share reported by
the Dow Jones for shares of Southwest Common Stock on February 2, 1996 and on
, 1996. The Southwest Equivalent represents the last sales price of
a share of FNB Common Stock on such date multiplied by the Exchange Ratio.
<TABLE>
<CAPTION>
SOUTHWEST
FNB SOUTHWEST EQUIVALENT
------- --------- ----------
<S> <C> <C> <C>
February 2, 1996................................................. $20.75 $ 14.25 $ 16.185
, 1996................................................
</TABLE>
For additional information regarding the market prices of the FNB Common
Stock and Southwest Common Stock during the previous two years, see "PRICE RANGE
OF COMMON STOCK AND DIVIDENDS -- Market Prices".
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth (a) selected comparative per share data for
each of FNB and Southwest on an historical basis and (b) selected unaudited pro
forma comparative per share data assuming the Merger had been effective during
the periods presented for FNB and Southwest combined. The unaudited pro forma
data have been prepared giving effect to the Merger as a pooling-of-interests.
For a description of the effect of pooling-of-interests accounting on the Merger
and the historical financial statements of FNB, see "THE MERGER -- Accounting
Treatment". The Southwest pro forma equivalent amounts are presented with
respect to each set of pro forma information.
The comparative per share data presented are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of FNB and Southwest
incorporated by reference herein. The pro forma amounts are not necessarily
indicative of results of operations or combined financial position that would
have resulted had the Merger been consummated at the beginning of the period
indicated or which will be attained in the future.
8
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
FNB COMMON STOCK
Historical (primary)................................ $2.00 $1.48 $1.12
Historical (fully diluted).......................... 1.90 1.44 1.11
Pro forma combined (primary)........................ 1.67 1.17 1.04
Pro forma combined (fully diluted).................. 1.62 1.17 1.04
SOUTHWEST COMMON STOCK
Historical.......................................... .44 .19 .47
Pro forma equivalent (1)
Primary........................................ 1.30 .91 .81
Fully Diluted.................................. 1.26 .91 .81
CASH DIVIDENDS DECLARED PER COMMON SHARE
FNB historical......................................... .37 .26 .25
Southwest historical................................... 0 0 0
Southwest pro forma equivalent (2)..................... .29 .20 .20
</TABLE>
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1995
------------
<S> <C>
BOOK VALUE PER COMMON SHARE (PERIOD END)
FNB historical................................................. 15.40
FNB pro forma combined......................................... 14.17
Southwest historical........................................... 8.19
Southwest pro forma equivalent (1)............................. 11.05
</TABLE>
- ---------------
(1) Southwest pro forma equivalent amounts are calculated by multiplying the pro
forma combined amounts for FNB by the Exchange Ratio of .78 of a share of
FNB Common Stock for each share of Southwest Common Stock. The Exchange
Ratio is subject to adjustment in certain circumstances. See "THE
MERGER -- Modification, Waiver and Termination".
(2) The Southwest pro forma equivalent amounts are calculated by multiplying the
historical amounts for FNB by the Exchange Ratio of .78 of a share of FNB
Common Stock for each share of Southwest Common Stock. The Exchange Ratio is
subject to adjustment in certain circumstances. See "THE
MERGER -- Modification, Waiver and Termination".
SELECTED FINANCIAL DATA
The following tables present (a) summary selected financial data for each
of FNB and Southwest on an historical basis and (b) summary unaudited pro forma
selected financial data for FNB and Southwest giving effect to the Merger as a
pooling-of-interests. For a description of the effect of pooling-of-interests
accounting on the Merger and the historical financial statements of FNB, see
"THE MERGER -- Accounting Treatment".
The summary selected financial data are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of FNB and Southwest
incorporated by reference herein. The pro forma amounts are not necessarily
indicative of results of operations or combined financial position that would
have resulted had the Merger been consummated at the beginning of the period
indicated or which will be attained in the future.
9
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
F.N.B. CORPORATION:
Earnings (In thousands, except per
share data)
Interest income................. $ 135,356 $ 124,879 $ 125,512 $ 125,825 $ 124,118
Interest expense................ 58,056 50,228 55,339 62,533 72,752
Net interest income............. 77,300 74,651 70,173 63,292 51,366
Provision for loan losses....... 5,652 8,450 9,498 15,107 5,399
Net income (loss) before
extraordinary items........... 18,083 13,445 10,472 6,770 10,005
Earnings per common share
Primary.................... 2.00 1.48 1.12 0.73 1.16
Fully diluted.............. 1.90 1.44 1.11 0.73 1.16
Cash dividends declared per
common share.................. 0.37 0.26 0.25 0.24 0.22
Balance sheet (period end in
thousands)
Total assets.................... 1,706,993 1,686,519 1,690,150 1,698,608 1,378,740
Total loans and leases net of
unearned income............... 1,201,345 1,174,008 1,105,876 1,041,979 988,672
Total deposits 1,442,109 1,425,405 1,458,739 1,479,947 1,178,226
Other borrowings................ 55,224 69,365 65,501 57,153 67,813
Long-term debt and obligations
under capital leases.......... 39,755 39,017 31,297 32,823 18,520
Stockholders' equity............ 143,917 126,050 115,092 107,679 93,280
SOUTHWEST BANKS, INC.:
Earnings (In thousands, except per
share data)
Interest income................. $ 25,384 $ 15,415 $ 11,186 $ 9,032 $ 6,982
Interest expense................ 11,756 6,306 4,659 4,193 3,947
Net interest income............. 13,628 9,109 6,527 4,839 3,035
Provision for loan losses....... 835 605 240 336 209
Net income (loss) before
extraordinary items........... 1,707 650 1,005 453 207
Earnings per common share
Primary.................... 0.44 0.19 0.47 0.27 0.16
Fully diluted.............. 0.44 0.19 0.47 0.27 0.16
Cash dividends declared per
common share.................. 0.00 0.00 0.00 0.00 0.00
Balance sheet (period end in
thousands)
Total assets.................... 386,462 264,614 178,454 146,108 87,382
Total loans, net of unearned
discount...................... 236,666 184,507 125,729 94,247 62,550
Total deposits.................. 324,831 201,245 157,370 132,037 79,196
Other borrowings................ 28,277 29,073 6,903 2,185 792
Long-term debt and obligations
under capital leases.......... 0 5,000 2,000 0 0
Stockholders' equity............ 29,944 27,710 12,982 10,995 6,703
</TABLE>
10
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED:
Earnings (In thousands, except per
share data)
Interest income................. $ 160,740 $ 140,294 $ 136,698 $ 134,857 $ 131,100
Interest expense................ 69,812 56,534 59,998 66,726 76,699
Net interest income............. 90,928 83,760 76,700 68,131 54,401
Provision for loan losses....... 6,487 9,055 9,738 15,443 5,608
Net income (loss) before
extraordinary items........... 19,790 14,195 11,477 7,223 10,212
Earnings per common share
Primary.................... 1.67 1.17 1.04 0.66 1.05
Fully diluted.............. 1.62 1.17 1.04 0.66 1.04
Balance sheet (period end in
thousands)
Total assets.................... 2,091,417 1,949,393 1,867,785 1,844,123 1,465,747
Total loans, net of unearned
discount...................... 1,438,011 1,358,515 1,231,605 1,136,226 1,051,222
Total deposits.................. 1,766,939 1,626,650 1,616,109 1,611,984 1,257,422
Other borrowings................ 83,501 98,438 72,404 59,338 68,605
Long-term debt and obligations
under capital leases.......... 39,755 44,017 31,297 32,823 18,520
Stockholders' equity............ 171,823 152,020 127,255 118,081 99,608
</TABLE>
11
<PAGE> 19
THE SPECIAL MEETING OF SHAREHOLDERS OF SOUTHWEST
GENERAL
This Proxy Statement-Prospectus is first being mailed to the holders of
Southwest Common Stock on or about , 1996, and is accompanied by the
notice of Special Meeting and a form of proxy that is solicited by the Southwest
Board for use at the Special Meeting of Shareholders of Southwest to be held on
Monday, June 17, 1996, at 5:00 p.m., local time, at , Naples, Florida
and at any adjournments or postponements thereof. The purpose of the Special
Meeting is to take action with respect to the approval of the Merger Agreement
and the transactions contemplated thereby.
PROXIES
A shareholder of Southwest may use the accompanying proxy if such
shareholder is unable to attend the Special Meeting in person or wishes to have
his or her shares voted by proxy even if such shareholder does attend the
meeting. A shareholder may revoke any proxy given pursuant to this solicitation
by delivering to the Corporate Secretary of Southwest, prior to or at the
Special Meeting, a written notice revoking the proxy or a duly executed proxy
relating to the same shares bearing a later date, or by voting in person at the
Special Meeting. All written notices of revocation and other communications with
respect to the revocation of Southwest proxies should be addressed to Southwest
Banks, Inc., 900 Goodlette Road, North Naples, Florida 33940 Attention:
Corporate Secretary. For such notice of revocation or later proxy to be valid,
however, it must actually be received by Southwest prior to the vote of the
shareholders. All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If no specification is made, the proxies will be voted
in favor of approval of the Merger Agreement. The Southwest Board is unaware of
any other matters that may be presented for action at the Special Meeting. If
other matters do properly come before the Special Meeting, however, it is
intended that shares represented by proxies in the accompanying form will be
voted or not voted by the persons named in the proxies in their discretion.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, by directors, officers and employees of Southwest, who will not be
specially compensated for such solicitation. Nominees, fiduciaries and other
custodians will be requested to forward solicitation materials to beneficial
owners and to secure their voting instructions, if necessary, and will be
reimbursed for the expenses incurred in sending proxy materials to beneficial
owners.
All costs of solicitation of proxies from Southwest shareholders will be
borne by Southwest; provided, however, that FNB and Southwest have each agreed
to pay one-half of the printing costs of this Proxy Statement-Prospectus and
related materials.
RECORD DATE AND VOTING RIGHTS
The Southwest Board has fixed , 1996 as the Record Date for the
determination of shareholders of Southwest entitled to receive notice of and to
vote at the Special Meeting. At the close of business on the Record Date, there
were outstanding shares of Southwest Common Stock held by
approximately holders of record. Each share of Southwest Common Stock
outstanding on the Record Date is entitled to one vote as to (i) the approval of
the Merger Agreement and the transactions contemplated thereby and (ii) any
other proposal that may properly come before the Special Meeting.
Under the terms of the FBCA, approval of the Merger Agreement will require
the affirmative vote of the holders of a majority of the outstanding shares of
Southwest Common Stock. However, the Southwest Charter has voting requirements
that are more stringent than those in the FBCA. Pursuant to the Southwest
Charter, approval of the Merger Agreement will require the affirmative vote of
the holders of a majority of the outstanding shares of Southwest Common Stock
entitled to vote in elections of directors which are not beneficially owned,
directly or indirectly, by FNB, because FNB owns, directly or indirectly, more
than 5% of
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the shares of Southwest Common Stock entitled to otherwise vote in elections of
directors. Pursuant to the Southwest Charter, FNB is the beneficial owner and
beneficially owns shares of Southwest Common Stock (other than shares of
Southwest Common Stock held in its treasury) (a) which FNB and its affiliates
and associates beneficially own, directly or indirectly, whether of record or
not, (b) which FNB 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 FNB 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
FNB 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 Southwest. See "THE MERGER -- Interest of Certain Persons in the
Merger".
As of the Record Date, FNB beneficially owned (as defined herein and in the
Southwest Charter) shares, or % of the Southwest Common Stock
entitled to vote in elections for directors. As of the Record Date, the
directors and executive officers of Southwest and their affiliates beneficially
owned an aggregate of shares, or %, of Southwest Common Stock. The
banking subsidiaries of Southwest, in a fiduciary capacity for third parties, do
not have sole or shared voting power as to any shares of Southwest Common Stock.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF SOUTHWEST COMMON STOCK
ENTITLED TO VOTE IN ELECTIONS OF DIRECTORS WHICH ARE NOT BENEFICIALLY OWNED BY
FNB, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS NEGATIVE
VOTES. ACCORDINGLY, THE SOUTHWEST BOARD URGES ITS SHAREHOLDERS TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
RECOMMENDATION OF THE SOUTHWEST BOARD
THE SOUTHWEST BOARD, WITH THE EXCEPTION OF MR. MORTENSEN, WHO RECUSED
HIMSELF FROM DELIBERATIONS REGARDING (AND VOTES ON) THE PROPOSED MERGER BECAUSE
OF HIS POSITION AS CHAIRMAN AND PRESIDENT OF FNB, UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF SOUTHWEST AND ITS SHAREHOLDERS, AND
RECOMMENDS THAT THE SHAREHOLDERS OF SOUTHWEST VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
In the course of reaching its respective decisions to approve the Merger
Agreement and the transactions contemplated thereby, the Southwest Board
consulted with its legal advisors regarding the legal terms of the Merger
Agreement and with its financial advisor, Robinson-Humphrey, as to the fairness,
from a financial point of view, of the Exchange Ratio to the holders of
Southwest Common Stock. For a discussion of the factors considered by the
Southwest Board in reaching its conclusion, see "THE MERGER -- Background of and
Reasons for the Merger".
The Southwest Board resolved that each director will vote such director's
shares in favor of the Merger Agreement and the transactions thereby at the
Special Meeting.
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THE MERGER
The following summary of certain terms and provisions of the Merger
Agreement and Stock Option Agreement is qualified in its entirety by reference
to the Merger Agreement and Stock Option Agreement, which are incorporated
herein by reference and, with the exception of certain exhibits thereto, are
included as Appendix A and Appendix B, respectively, to this Proxy
Statement-Prospectus. All shareholders are urged to read the Merger Agreement,
Stock Option Agreement and the other Appendix hereto in their entirety.
DESCRIPTION OF THE MERGER
At the Effective Time, SWAC will be merged with and into Southwest, which
will be the surviving entity. The Southwest Charter and the Southwest By-laws in
effect at the Effective Time will continue to govern Southwest until amended or
repealed in accordance with applicable law. The Merger is subject to the
approvals of the Federal Reserve Board and the Florida Banking Department. See
"-- Bank Regulatory Matters".
At the Effective Time, each share of Southwest Common Stock outstanding
immediately prior to the Effective Time (other than shares held by Southwest,
FNB or any of their subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted) will be converted
automatically into the right to receive 0.78 of a share (subject to possible
adjustment) of FNB Common Stock. At the Effective Time, any shares of Southwest
Common Stock held by Southwest, FNB, or any of their subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, will be canceled and retired without consideration being paid.
Southwest has represented that, as of the Effective Time, there will be no more
than 4,000,855 shares of Southwest Common Stock issued and outstanding.
Following the Effective Time and assuming that 4,000,855 shares of Common Stock
are outstanding at the Effective Time, the former shareholders of Southwest
would own approximately 3,120,667 shares, or 26.6%, of the then outstanding FNB
Common Stock (assuming 8,609,599 shares of FNB Common Stock outstanding
immediately prior to the Effective Time). The number of shares of FNB Common
Stock to be issued in the Merger will be less if fewer than 4,000,855 shares of
Southwest Common Stock are outstanding immediately prior to the Effective Time.
No fractional shares of FNB Common Stock will be issued in the Merger.
Instead, each holder of shares of Southwest Common Stock who would otherwise
have been entitled to receive a fraction of a share of FNB Common Stock (after
taking into account all certificates delivered by such holder) will receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of FNB Common Stock multiplied by the market value of one share of
FNB Common Stock at the Effective Time, which is defined in the Merger Agreement
as the average of the high bid and low asked prices of one share of FNB Common
Stock in the over the counter market as reported by the Nasdaq SmallCap Market
(or, if not reported thereby, by any other authoritative source selected by FNB)
on the last trading day preceding the Effective Time. No such holder will be
entitled to dividends, voting rights or any other rights as a shareholder in
respect of any fractional shares. See "-- Exchange of Certificates".
The shares of FNB capital stock outstanding immediately prior to the Merger
will continue to be outstanding after the Effective Time.
CONVERSION OF SOUTHWEST OPTIONS
Southwest Options to purchase an aggregate of shares of Southwest
Common Stock were outstanding as of the Record Date. To the extent that shares
of Southwest Common Stock are issued pursuant to the exercise of Southwest
Options in accordance with their terms prior to the Effective Time, they will be
converted into shares of FNB Common Stock in the same manner as other shares of
Southwest Common Stock. At the Effective Time, each Southwest Option to purchase
shares of Southwest Common Stock that has not expired and remains outstanding at
the Effective Time shall be converted into and become an option, warrant or
other right to purchase shares of FNB Common Stock, and FNB shall assume each
such Southwest Option in accordance with the terms of the stock option plan
under which it was issued and the stock option agreement by which it is
evidenced or the warrant agreement pursuant to which it was granted and
evidenced (collectively, the "Southwest Stock Plans"), except that, from and
after the Effective Time,
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(i) FNB and its Compensation Committee shall be substituted for Southwest and
its Compensation Committee (including, if applicable, the entire Southwest
Board) administering such Southwest Stock Plan, (ii) each Southwest Option
assumed by FNB may be exercised solely for shares of FNB Common Stock (or cash
in the case of stock appreciation rights), (iii) the number of shares of FNB
Common Stock subject to such Southwest Option will be equal to the number of
shares of Southwest Common Stock subject to such Southwest Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, with cash being
paid in lieu of any resulting fraction of a share of FNB Common Stock equal to
the product of such fraction and the difference between the market value of one
share of FNB Common Stock and the per share exercise price of such option,
warrant or other right to purchase shares of FNB Common Stock, and (iv) the per
share exercise price under each such Southwest Option will be adjusted by
dividing the per share exercise price under each such Southwest Option by the
Exchange Ratio and rounding down to the nearest cent. Notwithstanding the
provisions of clauses (iii) and (iv) of the preceding sentence, each Southwest
Option which is an incentive stock option shall be adjusted as required by
Section 424 of the Code, so as not to constitute a modification, extension, or
renewal of the option within the meaning of Section 424(h) of the Code.
Southwest has agreed to take all necessary steps to effectuate the foregoing
provisions.
As soon as practicable after the Effective Time, FNB will deliver to the
participants in each Southwest Stock Plan an appropriate notice setting forth
such participant's rights pursuant thereto and the grants pursuant to such
Southwest Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments described in the above paragraph after giving effect
to the Merger), and FNB will comply with the terms of each Southwest Stock Plan
to ensure, to the extent required by, and subject to the provisions of, such
Southwest Stock Plan, that Southwest Options which qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time. At or prior to the Effective Time, FNB will
take all corporate action necessary to reserve for issuance sufficient shares of
FNB Common Stock for delivery upon exercise of Southwest Options assumed by it.
As soon as practicable after the Effective Time, FNB will file a registration
statement on Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate forms), with respect to the shares of FNB Common Stock subject to
such options and will use its reasonable efforts to maintain the effectiveness
of such registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, where applicable, FNB will administer the Southwest Stock Plan assumed
pursuant to the Merger Agreement in a manner that complies with Rule 16b-3
promulgated under the Exchange Act to the extent the Southwest Stock Plan
complied with such rule prior to the Merger.
All restrictions or limitations on transfer with respect to Southwest
Common Stock awarded under the Southwest Stock Plans or any other plan, program,
or arrangement of Southwest or of any subsidiary of Southwest, to the extent
that such restrictions or limitations will not have already lapsed, and except
as otherwise expressly provided in such plan, program, or arrangement, will
remain in full force and effect with respect to shares of FNB Common Stock into
which such restricted stock is converted pursuant to the Merger Agreement.
See "-- Interest of Certain Persons in the Merger".
EFFECTIVE TIME OF THE MERGER
The Effective Time will occur on the date and at the time the Articles of
Merger become effective with the Florida Department of State. Unless otherwise
agreed by FNB and Southwest, the parties have agreed to use their reasonable
efforts to cause the Effective Time to occur on or before the fifth business day
(as designated by FNB) following the last to occur of (i) the effective date of
the last required consent of any state or federal regulatory authority having
authority over the Merger (including the expiration of all applicable waiting
periods following such consents or the delivery of appropriate notices) or (ii)
the date on which the shareholders of Southwest approve the Merger Agreement,
provided, however, that in no event shall the Effective Time occur prior to
January 1, 1997, unless FNB determines, in its sole discretion, to permit the
Effective Time to occur prior to January 1, 1997, but not earlier than December
16, 1996. If approved by the
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Southwest shareholders and the applicable regulatory authorities, the parties
expect that the Effective Time will occur on or before January 31, 1997,
although there can be no assurance as to whether or when the Merger will occur.
EXCHANGE OF CERTIFICATES
Before or as soon as practicable after the Effective Time, Chemical Mellon
Shareholder Services ("Chemical Mellon" or the "Exchange Agent") will mail to
each holder of Southwest Common Stock of record as of the Effective Time a
letter of transmittal and related forms (the "Letter of Transmittal") for use in
forwarding stock certificates previously representing Southwest Common Stock for
surrender and exchange for certificates representing FNB Common Stock. Risk of
loss and title to the certificates theretofore representing shares of Southwest
Common Stock shall pass only upon proper delivery of such certificates to the
Exchange Agent.
SOUTHWEST SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates for shares
of Southwest Common Stock, together with a properly completed Letter of
Transmittal, there will be issued and mailed to the holder thereof a certificate
or certificates representing the aggregate number of whole shares of FNB Common
Stock to which such holder is entitled, together with all declared but unpaid
dividends in respect of such shares, and, where applicable, a check for the
amount (without interest) representing any fractional share. A certificate for
shares of FNB Common Stock, or any check representing cash in lieu of a
fractional share or declared but unpaid dividends, may be issued in a name other
than the name in which the surrendered certificate is registered only if (i) the
certificate surrendered is properly endorsed, accompanied by a guaranteed
signature if required by the Letter of Transmittal and otherwise in proper form
for transfer, and (ii) the person requesting the issuance of such certificate
either pays to the Exchange Agent any transfer or other taxes required by reason
of the issuance of a certificate for such shares in a name other than the
registered holder of the certificate surrendered or establishes to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. The Exchange Agent will issue stock certificates evidencing FNB
Common Stock in exchange for lost, stolen, mutilated or destroyed certificates
of Southwest Common Stock only upon receipt of a lost stock affidavit and a bond
indemnifying FNB against any claim arising out of the allegedly lost, stolen,
mutilated or destroyed certificate. In no event will the Exchange Agent, FNB or
Southwest be liable to any persons for any FNB Common Stock or dividends thereon
or cash delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
On and after the Effective Time and until surrender of certificates of
Southwest Common Stock to the Exchange Agent, each certificate that represented
outstanding Southwest Common Stock immediately prior to the Effective Time will
be deemed to evidence ownership of the number of whole shares of FNB Common
Stock into which such shares have been converted, and the holders thereof shall
be entitled to vote at any meeting of FNB shareholders. Beginning 30 days after
the Effective Time, no shareholder will, however, receive dividends or other
distributions on such FNB Common Stock until the certificates representing
Southwest Common Stock are surrendered. Upon surrender of Southwest Common Stock
certificates, Southwest shareholders will be paid any dividends or other
distributions on FNB Common Stock that are payable to holders as of any dividend
record date on or following the Effective Time. No interest will be payable with
respect to withheld dividends or other distributions.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. In April 1995, Gary L. Tice, Chairman, President
and Chief Executive Officer of Southwest and Peter Mortensen, Chairman and
President of FNB, had their first formal discussion regarding the idea of a
strategic affiliation between FNB and Southwest. At that time it was agreed that
a meeting would be scheduled in Pittsburgh, Pennsylvania for Southwest and FNB
to discuss the concept of a
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strategic affiliation, a preliminary timetable, and any business, legal and
accounting issues that might be preliminarily identified. On May 31, 1995,
representatives of FNB and Southwest met in Pittsburgh, Pennsylvania to discuss
the concept of a strategic affiliation and agreed to explore it.
On July 24, 1995, the Southwest Board received a presentation of the
strategic affiliation concept by representatives of FNB, including Mr. Mortensen
and FNB's investment banker. At this meeting, the Southwest Board resolved to
give authority to Mr. Tice to hire an investment banker to review Southwest's
strategic alternatives, including a possible affiliation with FNB.
On August 7, 1995, Mr. Tice met in Atlanta, Georgia with representatives of
Robinson-Humphrey and representatives of Southwest's legal counsel. On August
25, 1995, Southwest engaged Robinson-Humphrey to perform an analysis of
Southwest's strategic alternatives. The term of that initial engagement was
through December 31, 1995.
On September 19, 1995, Mr. Tice and Southwest's Chief Financial Officer,
Lewis S. Albert, met in Atlanta, Georgia with representatives of
Robinson-Humphrey and Southwest's counsel to further discuss the status of
Robinson-Humphrey's analysis.
On September 22, 1995, six of Southwest's directors met with management of
FNB in Hermitage, Pennsylvania to review FNB and its subsidiary banks'
operations and to meet with the directors of FNB.
On October 16, 1995, representatives of Robinson-Humphrey made a
presentation to the Southwest Board at a Southwest Board meeting held in Naples,
Florida regarding the current commercial banking environment, a summary analysis
of a strategic affiliation with FNB, and a review of Southwest's strategic
alternatives, including remaining independent, achieving a strategic affiliation
with a specific partner or selling Southwest to a super-regional bank. After a
discussion of the Robinson-Humphrey presentation, the Southwest Board
unanimously voted to evaluate a strategic alliance with FNB, utilizing a
negotiating team comprised of Mr. Tice and two outside directors to be appointed
by him (the "Negotiating Committee"). On October 16, 1995, Mr. Tice appointed
James S. Lindsay and Edward J. Mace as members of the Negotiating Committee.
On November 15, 1995, Southwest's Negotiating Committee met in Atlanta with
representatives of Robinson-Humphrey, Mr. Mortensen and FNB's investment banker
to discuss the business terms of a proposed strategic affiliation. On November
21, 1995, these parties met again in Naples, Florida to continue negotiations.
On November 29, 1995, the Southwest Board met in Naples, Florida and was
provided with a summary of the progress which had been made by the Negotiating
Committee in its November 21, 1995 meeting with Mr. Mortensen and FNB's
representatives. On January 23, 1996, a meeting was held in Naples, Florida
among representatives of Southwest and FNB to further negotiate the terms of the
proposed strategic affiliation. The parties discussed the terms of the proposed
transaction, and FNB's lawyers were directed to negotiate the final legal issues
with Southwest's lawyers with a view toward preparing final merger documents
which could be considered by the Southwest Board at a meeting scheduled for
February 2, 1996.
At a special meeting of the Southwest Board held on February 2, 1996, the
directors of Southwest reviewed and unanimously authorized the execution of a
definitive Merger Agreement with FNB regarding the Merger, and Robinson-Humphrey
delivered its opinion that the transaction was fair, from a financial point of
view, to Southwest's shareholders.
FNB REASONS FOR THE MERGER. FNB has had an affiliation with Southwest
since Southwest's inception. FNB has owned approximately 4.9% of the shares of
Southwest Common Stock since Southwest and its subsidiary lead bank, First
Naples, were organized in 1988. Mr. Tice was an officer of First National, the
lead bank of FNB, earlier in his career. Mr. Mortensen was one of the organizers
and founders of Southwest and of First Naples. He has been a member of the
Southwest Board and the First Naples Board of Directors, and a stockholder of
Southwest since its inception. Southwest has a correspondent relationship with
First National, whereby Southwest solicits the sale and purchase of loan
participations.
The FNB Board recognized that the proposed Merger with Southwest provides a
unique opportunity to employ FNB's growing capital in southwest Florida, one of
the fastest growing markets in the United States.
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This is in contrast to the more mature market areas of Pennsylvania, eastern
Ohio and southwestern New York where FNB is currently operating.
After the Effective Time of this strategic affiliation, FNB will retain the
management team of Southwest with the authority and responsibility for operating
Southwest and its subsidiaries in substantially the same manner and fashion as
they have historically operated Southwest.
With the approval of and guidance of the FNB Board, FNB conducted
discussions and negotiated a merger agreement with Southwest beginning in April
1995 and continuing through February 2, 1996, when FNB entered into the Merger
Agreement.
SOUTHWEST REASONS FOR THE MERGER. In early 1995, management of Southwest
determined that internal projections indicated Southwest would require
additional capital in 1998 to support the continued growth of Southwest and the
performance of Southwest's business plan. In connection with evaluation of
various alternate means of raising capital, Mr. Tice and Mr. Mortensen began
discussing the benefits of an affiliation between Southwest and FNB which
included, among other things, FNB as a source for capital to support Southwest's
continued pattern of growth. This discussion was a natural result of the
long-term relationship that had existed between Mr. Tice and Mr. Mortensen and
Southwest and FNB. See "-- FNB Reasons for the Merger".
In determining to approve the Merger Agreement, the Southwest Board
considered and based their opinion as to the fairness of the transactions
contemplated by the Merger Agreement on the following factors:
(i) The financial terms of the merger. In this regard, the Southwest
Board was of the view that the Exchange Ratio of 0.78 of a share of FNB
Common Stock for each share of Southwest Common Stock was fair in relation
to the relative book values, earnings per share and shareholders equity of
FNB and Southwest.
(ii) The possible alternatives to the proposed Merger of Southwest,
including the prospects of continuing as an independent institution and
raising a substantial amount of additional capital, the range of values to
the shareholders of such alternatives, and the timing and likelihood of
actually achieving those values. Robinson-Humphrey advised the Southwest
Board that shareholder value would likely increase sooner as a result of
the proposed Merger than if Southwest remained an independent entity and
completed a public offering of equity.
(iii) The financial advice of Robinson-Humphrey and the opinion of
Robinson-Humphrey that the financial terms of the proposed Merger as
provided in the Merger Agreement were fair, from a financial point of view,
to Southwest's shareholders. The opinion of Robinson-Humphrey is set forth
in Appendix C to this Proxy Statement-Prospectus.
(iv) The general structure of the proposed transaction as a Merger
allowing for the continued independent operations of Southwest and its
subsidiary banks, and the compatibility of management and business
philosophy of Southwest and FNB.
(v) Information with respect to the financial condition, results of
operation, business and prospects of Southwest and the current industry,
economic and market conditions, as well as the risks associated with
achieving those prospects.
(vi) The non-financial terms and structure of the proposed Merger, in
particular, the fact that the Merger qualifies as a tax-free organization
to Southwest's share holders.
(vii) The likelihood of the proposed Merger being approved by
appropriate regulatory authorities.
(viii) The limited impact of the proposed Merger on Southwest's
depositors, employees, customers and community, particularly in light of
FNB's intention that Southwest continue to operate under its present board
and management.
Each of the above factors support, directly or indirectly, the
determination of the Southwest Board as to the fairness of the proposed Merger.
The Southwest Board did not quantify or attempt to assign relative
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weights to the specific factors considered in reaching its determination;
however, the Southwest Board placed special emphasis on the consideration
payable in the proposed Merger and the receipt of a favorable fairness opinion
from its financial advisor. See "-- Opinion of Southwest's Financial Advisor".
OPINION OF SOUTHWEST'S FINANCIAL ADVISOR
GENERAL. Southwest retained Robinson-Humphrey to act as its financial
adviser in connection with the Merger. Robinson-Humphrey has rendered an opinion
to the Southwest Board that, based on the matters set forth therein, the
consideration to be received pursuant to the Merger is fair, from a financial
point of view, to Southwest's shareholders. The text of such opinion is set
forth in Appendix C to this Prospectus-Proxy Statement and should be read in its
entirety by shareholders of Southwest.
The consideration to be received by Southwest shareholders in the Merger
was determined by Southwest and FNB in their negotiations. No limitations were
imposed by the Southwest Board or management upon Robinson-Humphrey with respect
to the investigations made or the procedures followed by Robinson-Humphrey in
rendering its opinion.
In connection with rendering its opinion to the Southwest Board,
Robinson-Humphrey performed a variety of financial analyses. However, the
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and, therefore, such an opinion
is not readily susceptible to summary description. Robinson-Humphrey, in
conducting its analysis and in arriving at its opinion, has not conducted a
physical inspection of any of the properties or assets of Southwest, and has not
made or obtained any independent valuation or appraisals of any properties,
assets or liabilities of Southwest. Robinson-Humphrey has assumed and relied
upon the accuracy and completeness of the financial and other information that
was provided to it by Southwest or that was publicly available.
Robinson-Humphrey's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of the
date of, its analyses.
VALUATION METHODOLOGIES. In connection with its opinion on the Merger and
the presentation of that opinion to the Southwest Board, Robinson-Humphrey
performed two valuation analyses with respect to Southwest: (i) an analysis of
comparable prices and terms of recent transactions involving banks purchasing
banks; and (ii) a discounted cash flow analysis. For purposes of the comparable
transaction analyses, FNB Common Stock was valued at $21.3125 per share (the
trading value of the shares measured as of February 1, 1996). Each of these
methodologies is discussed briefly below.
Comparable Transaction Analysis. Robinson-Humphrey performed three
analyses of premiums paid for selected banks with comparable characteristics to
Southwest. Comparable transactions were considered to be (i) transactions since
January 1, 1995 where the seller was a bank located in Florida, (ii)
transactions since January 1, 1995 where the seller was a bank located in the
Southeast with total assets between $100 million and $500 million, and (iii)
transactions since January 1, 1996 where the seller was a bank located in the
United States with total assets between $100 and $500 million.
Based on the first of the foregoing transactions, financial institutions
purchasing banks in Florida since January 1, 1995, the analysis yielded a range
of transaction values to book value of 1.27 times to 3.49 times, with a mean of
2.03 times and a median of 1.98 times. These compare to a transaction value for
the Merger of approximately 2.03 times Southwest's book value as of December 31,
1995. The analysis yielded a range of transaction values as a multiple of
tangible book value for the comparable transactions ranging from 1.37 times to
4.15 times, with a mean of 2.19 times and a median of 2.01 times. These compare
to a transaction value to tangible book value at December 31, 1995 of
approximately 2.03 times for the Merger. The analysis yielded a range of
transaction values as a multiple of trailing 12 month earnings per share. These
values ranged from 11.18 times to 35.19 times, with a mean of 21.53 times and a
median of 18.56 times. These compare to a transaction value to Southwest's last
12 months earnings as of December 31, 1995 of approximately 37.78 times for the
Merger. The analysis yielded a range of transaction values as a percent of total
assets. These values ranged from 6.19% to 25.92%, with a mean of 16.72% and a
median of 18.12%. These compare to a transaction value to the December 31, 1995
total assets of 15.72% for the Merger.
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Based on transactions since January 1, 1995, where the seller was a bank
located in the Southeast with total assets between $100 and $500 million, the
analysis yielded a range of transaction values to book value of 1.11 times to
3.49 times, with a mean of 2.12 times and a median of 2.13 times. These compare
to a transaction value for the Merger of approximately 2.03 times Southwest's
book value as of December 31, 1995. The analysis yielded a range of transaction
values as a multiple of tangible book value for the comparable transactions
ranging from 1.12 times to 4.15 times, with a mean of 2.29 times and a median of
2.21 times. These compare to a transaction value to tangible book value at
December 31, 1995 of approximately 2.03 times for the Merger. The analysis
yielded a range of transaction values as a multiple of trailing 12 month
earnings per share. These values ranged from 9.14 times to 26.54 times, with a
mean of 17.92 times and a median of 18.60 times. These compare to a transaction
value to Southwest's last 12 months earnings as of December 31, 1995 of
approximately 37.78 times for the Merger. The analysis yielded a range of
transaction values as a percent of total assets. These values ranged from 6.19%
to 31.05%, with a mean of 16.26% and a median of 14.73%. These compare to a
transaction value to the December 31, 1995 total assets of 15.72% for the
Merger.
Based on transactions since January 1, 1996, where the seller was a bank
located in the United States with total assets between $100 and $500 million,
the analysis yielded a range of transaction values to book value of 1.26 times
to 2.40 times, with a mean of 1.88 times and a median of 1.92 times. These
compare to a transaction value for the Merger of approximately 2.03 times
Southwest's book value as of December 31, 1995. The analysis yielded a range of
transaction values as a multiple of tangible book value for the comparable
transactions ranging from 1.26 times to 2.43 times, with a mean of 1.88 times
and a median of 1.92 times. These compare to a transaction value to tangible
book value at December 31, 1995 of approximately 2.03 times for the Merger. The
analysis yielded a range of transaction values as a multiple of trailing 12
month earnings per share. These values ranged from 8.57 times to 26.95 times,
with a mean of 15.62 times and a median of 13.77 times. These compare to a
transaction value to Southwest's last 12 months earnings as of December 31, 1995
of approximately 37.78 times for the Merger. The analysis yielded a range of
transaction values as a percent of total assets. These values ranged from 14.76%
to 21.85%, with a mean of 17.59% and a median of 17.05%. These compare to a
transaction value to the December 31, 1995 total assets of 15.72% for the
Merger.
No company or transaction used in the comparable transaction analyses is
identical to Southwest. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors that
affect the public trading value or the acquisition value of the company to which
it is being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the future stream of after-tax
cash flows that Southwest could produce through 1999 under various
circumstances, assuming that Southwest performed in accordance with the
earnings/return projections of management at the time that Southwest entered
into merger discussions in April 1995. Robinson-Humphrey estimated the terminal
value for Southwest at the end of the period by applying multiples of earnings
ranging from 10.0% to 12.0% and then discounting the cash flow streams,
dividends paid to shareholders and terminal value using differing discount rates
ranging from 10.0% to 12.0% chosen to reflect different assumptions regarding
the required rates of return of Southwest and the inherent risk surrounding the
underlying projections. This discounted cash flow analysis indicated a reference
range of $59.6 million to $73.9 million, or $14.09 to $17.47 per share, for
Southwest.
COMPENSATION FOR ROBINSON-HUMPHREY. Pursuant to an engagement letter dated
August 24, 1995 between Southwest and Robinson-Humphrey, Southwest paid
Robinson-Humphrey a fee of $10,000 for a valuation analysis and advice on its
strategic alternatives. This engagement letter expired December 31, 1995.
Additionally, pursuant to an engagement letter dated January 10, 1996 between
Southwest and Robinson-Humphrey, Southwest agreed to pay Robinson-Humphrey a
$100,000 fairness opinion fee and an incremental success fee (to be paid at
closing) equal to approximately 1.0% of the total value of the transaction less
the fairness opinion fee. Southwest has also agreed to indemnify and hold
harmless Robinson-Humphrey and its officers and employees against certain
liabilities in connection with its services under the engagement letter, except
for liabilities resulting from the negligence of Robinson-Humphrey.
20
<PAGE> 28
As part of its investment banking business, Robinson-Humphrey is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. The Southwest Board decided to retain Robinson-Humphrey
based on its experience as a financial advisor in mergers and acquisitions of
financial institutions, particularly transactions in the Southeastern region of
the United States, and its knowledge of financial institutions and Southwest in
particular.
CONDITIONS PRECEDENT TO THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the shareholders of Southwest. Consummation of the Merger is
subject to the satisfaction of certain other conditions, unless waived, to the
extent legally permitted. Such conditions include (i) the receipt of all
required governmental orders, permits, approvals or qualifications (and the
expiration of all applicable waiting periods following the receipt of such items
or the delivery of appropriate notices), provided that such approvals shall not
have imposed any condition or restriction that, 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 the Merger
Agreement that, had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into the Merger Agreement; (ii)
the receipt, with certain exceptions, of all consents required for consummation
of the Merger and the preventing of any default under any contract or permit of
such party which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse effect on such party; (iii)
the absence of any action by a court or governmental or regulatory authority
that restricts or prohibits the transactions contemplated by the Merger
Agreement; (iv) the effectiveness of the Registration Statement under the
Securities Act and the receipt of all necessary approvals under state securities
laws, the Securities Act or the Exchange Act relating to the issuance or trading
of the shares of FNB Common Stock issuable pursuant to the Merger; (v) the
receipt of a letter dated as of the Effective Time from Ernst & Young LLP to the
effect that the Merger will be accounted for as a pooling-of-interests under
GAAP; and (vi) the receipt of the tax opinion referred to in "-- Certain Federal
Income Tax Consequences".
In addition, unless waived, each party's obligation to effect the Merger is
subject to the accuracy of the other party's representations and warranties at
the Effective Time and the performance by the other party of its obligations
under the Merger Agreement and the receipt of certain closing certificates and
opinions from the other party. The obligation of FNB to effect the Merger also
is subject to (i) the receipt, to the extent necessary to assure, in the
reasonable judgment of FNB, that the transactions contemplated hereby will
qualify for pooling-of-interests accounting treatment, of agreements from
affiliates of Southwest restricting their ability to sell or otherwise transfer
their shares of Southwest Common Stock or their shares of FNB Common Stock
received upon consummation of the Merger; and (ii) that as of the close of the
most recent calendar quarter (or, if the Effective Time shall occur within 20
days following the close of a calendar quarter, then as of the next preceding
calendar quarter) cumulative earnings reported by Southwest since December 31,
1995 will be greater than or equal to the amount calculated by multiplying (a)
$500,000 by (b) the number of full calendar quarters which have passed since
December 31, 1995 and for which earnings have been reported as of such date.
"Reported" means reported on Southwest's financial statements prepared in
accordance with GAAP applied on a basis consistent with Southwest's financial
statements for the years ended December 31, 1995 and 1994, as included in
Southwest's reports to the Commission on Forms 10-K or Southwest's annual
reports to shareholders, subject to any subsequent adjustments required to be
reported whether or not such adjustments have, as yet, been reported with the
following adjustments, if any, net of related income tax savings and costs,
which were reflected in net income for the relevant period(s) added back into or
deducted from net income for the applicable period: (i) investment banking
expenses, outside legal and accounting fees, or other costs (including severance
and extraordinary restructuring costs) and expenses associated with or resulting
from the Merger, (ii) gains or losses on sales of assets outside of the ordinary
course of business, (iii) any expense related to the exercise of options or the
lapses of restrictions on restricted stock; and (iv) any other expenses which
are incurred in connection with the transactions contemplated by the Merger
Agreement upon which FNB and Southwest shall mutually agree. No assurances can
be provided as to when or if all of the conditions precedent to the Merger can
or will be satisfied or waived by the party permitted to do so.
21
<PAGE> 29
CONDUCT OF BUSINESS PRIOR TO THE MERGER
In the Merger Agreement, Southwest has agreed, except as otherwise
contemplated by the Merger Agreement, to (i) operate its business only in the
usual, regular and ordinary course, (ii) preserve intact its business
organization and assets and maintain its rights and franchises, (iii) use its
reasonable 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 consent or approvals required by the Merger Agreement or to perform
its covenants and agreements under the Merger Agreement.
In addition, Southwest has agreed that it will not, without the prior
written consent of FNB:
(a) amend the Southwest Charter, the Southwest By-laws, or other
governing instruments;
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of Southwest or any of its
subsidiaries to Southwest or any of its subsidiaries) in excess of an
aggregate of $100,000 except in the ordinary course of the business
consistent with past practices, or impose, or suffer the imposition, with
certain exceptions, of a lien on any asset of Southwest or its subsidiaries
(other than in connection with deposits, repurchase agreements, bankers
acceptances, treasury tax and loan accounts established in the ordinary
course of business, the satisfaction of legal requirements in the exercise
of trust powers, and already existing liens);
(c) 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 Southwest or any subsidiary, or declare or pay any
dividend or make any other distribution in respect of its capital stock;
(d) except for the Merger Agreement, or pursuant to the Stock Option
Agreement or the exercise of the Southwest Options, 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 out- standing, any additional shares of Southwest Common Stock or
any other capital stock of any Southwest subsidiary, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock;
(e) adjust, split, combine, or reclassify the capital stock of
Southwest or any subsidiary or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Southwest Common
Stock or sell, lease, mortgage, or otherwise dispose of or otherwise
encumber (i) any shares of capital stock of any Southwest subsidiary
(unless any such shares of stock are sold or otherwise transferred to
Southwest or another of its subsidiaries) or (ii) any asset other than in
the ordinary course of business for reasonable and adequate consideration;
(f) except for purchases of United States Treasury securities or
United States government agency securities, which in either case have
maturities of five years or less, purchase any securities or make any
material investment, either by purchase of stock or securities,
contributions to capital, asset transfers, or purchase of any assets, in
any person other than a wholly-owned subsidiary 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 a depository institution subsidiary in its fiduciary capacity,
or (iii) the creation of new wholly-owned subsidiaries organized to conduct
or continue activities otherwise permitted by the Merger Agreement;
(g) grant any increase in compensation or benefits to the employees or
officers of Southwest or its subsidiaries, except in accordance with past
practice or as required by law; pay any severance or termination pay or any
bonus other than pursuant to written policies or written contracts in
effect on the date of the Merger Agreement; enter into or amend any
severance agreements with officers of Southwest or its subsidiaries; grant
any material increase in fees or other compensation to directors of
Southwest or any of its subsidiaries; or voluntarily accelerate the vesting
of any Southwest Options or other employee benefits;
22
<PAGE> 30
(h) enter into or amend any employment contract (unless such amendment
is required by law) that Southwest or one of its subsidiaries 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;
(i) adopt any new employee benefit plan or make any material change in
or to any existing employee benefit plans other than such changes required
by law or to maintain the tax qualified status of any such plan;
(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, regulatory accounting requirements or GAAP;
(k) commence any litigation other than in accordance with past
practice or settle any litigation for material money damages or
restrictions upon the operations of Southwest or any of its subsidiaries;
(l) except in the ordinary course of business, modify, amend, or
terminate any material contract or waive, release, compromise, or assign
any material rights or claims;
(m) except for transactions in the ordinary course of business
consistent with past practice, make any investment in excess of $100,000
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 of Southwest;
(n) sell, transfer, mortgage, encumber or otherwise dispose of any of
its 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 the
Merger Agreement; or
(o) agree to, or make any commitment to, take any of the actions
prohibited by the above paragraphs.
The Merger Agreement also provides that, except for the transactions
contemplated thereby, neither Southwest nor its affiliates or representatives
shall, directly or indirectly, solicit the acquisition by any person of all or a
substantial portion of the equity in, or all of or a substantial portion of the
assets of, or a merger with or tender offer for Southwest. Additionally, except
to the extent necessary to comply with the fiduciary duties of the Southwest
Board, as advised by counsel, neither Southwest nor its affiliates or
representatives will provide any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into any contract with
respect to, any such acquisition proposal, although Southwest may communicate
information about such 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.
In the Merger Agreement, FNB has agreed (i) to conduct its business in a
manner designed, in its reasonable judgment, to enhance the long-term value of
the FNB Common Stock and its business prospects and (ii) to take no action which
would materially adversely affect the ability of any party to obtain any consent
or approvals required by the Merger Agreement or to perform its covenants and
agreements under the Merger Agreement; provided that FNB or any of its
subsidiaries may discontinue or dispose of any of its assets or business if FNB
determines that such action is desirable in the conduct of its business. FNB
further agreed that it will not, without the prior written consent of the
Chairman and Chief Executive Officer of Southwest, which consent shall not be
unreasonably withheld, amend the FNB Charter or the FNB By-laws in any manner
adverse to the holders of Southwest Common Stock.
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<PAGE> 31
MODIFICATION, WAIVER AND TERMINATION
The Merger Agreement provides that it may be amended by a subsequent
writing signed by each party upon the approval of each of their respective Board
of Directors. However, the provision relating to the manner or basis in which
shares of Southwest Common Stock will be exchanged in the Merger may not be
amended after the Special Meeting in a manner to reduce or, except as described
below in reference to a possible Exchange Ratio increase after a Termination
Event, modify in any material respect the consideration to be received by the
holders of the Southwest Common Stock without the further approval of the
holders of the issued and outstanding shares of Southwest Common Stock entitled
to vote thereon.
The Merger Agreement provides that each party may waive any of the
conditions precedent to its obligations to consummate the Merger to the extent
legally permitted. Neither of the parties intends, however, to waive any
conditions of the Merger if such waiver would, in the judgment of the waiving
party, have a material adverse effect on its shareholders.
The Merger Agreement may be terminated by mutual agreement of the FNB Board
and the Southwest Board. The Merger Agreement may also be terminated by either
the FNB Board or the Southwest Board (i) in the event of inaccuracies of any
representation or warranty of the other Party contained in the Merger Agreement
which cannot be or has not been cured within 30 days of written notice of such
inaccuracies such that the aggregate effect of such inaccuracies has, or is
reasonably likely to have, a material adverse effect on such party, provided
that such party is also not in breach of the Merger Agreement; (ii) in the event
of a material breach of any covenant or agreement in the Merger Agreement by the
other party that cannot or has not been cured within 30 days of written notice
of such breach; (iii) if the required approval of the Southwest shareholders or
any applicable regulatory authority is not obtained; (iv) if the Merger is not
consummated by July 31, 1997, provided that the failure to consummate the Merger
by such date is not caused by any breach of the Merger Agreement by the
terminating party; or (v) 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 July 31, 1997, provided that the terminating party is not in breach
of the Merger Agreement.
In addition, the Merger Agreement may be terminated by the Southwest Board,
at its sole option at any time during the ten-day period commencing the day
after the Federal Reserve Board consents to the Merger, if the average of the
mid-point of the closing high bid and low ask prices of FNB Common Stock (the
"Designated Price") for the 20 full trading days ending on the day prior to the
date the Federal Reserve Board consents to the Merger (the "Determination Date")
is less than $19.00 (a "Termination Event"); provided, however, that the Merger
Agreement would not be so terminated if FNB elects, at its sole option but
subject to Southwest's written agreement, to increase the Exchange Ratio during
the five-day period commencing with its receipt of written notice of such an
election to terminate, to equal the quotient obtained by dividing (1) the
product of $19.00 and the Exchange Ratio (as then in effect) by (2) the
Designated Price. There can be no assurance that the Southwest Board would
exercise its right to terminate the Merger Agreement if a Termination Event
exists, and, if the Southwest Board does elect to so terminate the Merger
Agreement, there can be no assurance that FNB will elect to increase the
Exchange Ratio as provided above; and, if FNB so elects, there can be no
assurance that Southwest would permit such an election by FNB.
Southwest shareholders should be aware that the Designated Price on the
Determination Date on which the occurrence of a Termination Event and the
subsequent increase, if any, in the Exchange Ratio may be determined, will be
based on the average of the closing high bid and low ask prices of FNB Common
Stock during a 20-day period ending on the day prior to the date the Federal
Reserve Board consents to the Merger. Accordingly, because the market price of
FNB Common Stock between the Determination Date and the Effective Time, as well
as on the date certificates representing shares of FNB Common Stock are
delivered in exchange for shares of Southwest Common Stock following
consummation of the Merger, will fluctuate and possibly decline, the value of
the FNB Common Stock actually received by holders of Southwest Common Stock may
be more or less than (i) the Designated Price, or (ii) the value of the FNB
Common Stock at the Effective Time resulting from the Exchange Ratio or any
possible adjustment to the Exchange Ratio as described above.
24
<PAGE> 32
It is not possible to know whether a Termination Event will occur until
after the Determination Date. The Southwest Board has made no decision as to
whether it would exercise its termination right in such situation. The Southwest
Board would, consistent with its fiduciary duties, take into account all
relevant facts and circumstances that exist at such time, and would consult with
its financial advisors and legal counsel.
Approval of the Merger Agreement by the shareholders of Southwest at the
Special Meeting will confer on the Southwest Board the power, consistent with
its fiduciary duties, to elect to consummate the Merger in the event of a
Termination Event whether or not there is any increase in the Exchange Ratio and
without any further action by, or resolicitation of, the shareholders of
Southwest. If the Southwest Board elects to exercise its termination right,
Southwest must give FNB prompt notice of that decision during a ten-day period
beginning the day after the Federal Reserve Board consents to the Merger, but
the Southwest Board may withdraw such notice, at its sole option, at any time
during such ten-day period. During the five-day period commencing with receipt
of such notice, FNB has the option, in its sole discretion, to increase the
Exchange Ratio as described above and thereby avoid such termination of the
Merger Agreement if Southwest agrees to permit such an election by executing a
written acceptance thereof. FNB is under no obligation to increase the Exchange
Ratio, and there can be no assurance that FNB would elect to increase the
Exchange Ratio if the Southwest Board were to exercise its right to terminate
the Merger Agreement as set forth above. Any such decision would be made by FNB
in light of the circumstances existing at the time FNB has the opportunity to
make such an election. If FNB elects to increase the Exchange Ratio as described
above, it must give Southwest prompt notice of that election and such increased
Exchange Ratio, in which case no termination of the Merger Agreement would occur
as a result of a Termination Event if Southwest decided to accept such an
election. There can be no assurance that Southwest would agree to permit such an
election by FNB if FNB elected to increase the Exchange Ratio.
EXPENSES
In the Merger Agreement, each of the parties has agreed to pay its own
expenses and one-half of the printing costs of this Proxy Statement-Prospectus
and related materials; provided, further, that in the event of any termination
of the Merger Agreement following the occurrence of an Initial Triggering Event
(as defined in the Stock Option Agreement), FNB shall be entitled to a cash
payment from Southwest in an amount equal to $1 million upon the occurrence of
any Subsequent Triggering Event (as defined in the Stock Option Agreement)
within 12 months following the date of such termination (or such longer period
as shall exist under the Stock Option Agreement until the occurrence of an
Exercise Termination Date (as defined in the Stock Option Agreement)). In the
event the Merger Agreement is terminated as a result of FNB's failure to satisfy
any of its representations, warranties or covenants set forth therein, FNB shall
reimburse Southwest for its reasonable out-of-pocket expenses relating to the
Merger in an amount not to exceed $250,000.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Wachtell, Lipton, Rosen & Katz has delivered to FNB and Southwest its
opinion that, based upon certain customary assumptions and representations,
under federal law as currently in effect, (a) the proposed Merger will
constitute a reorganization within the meaning of Section 368(a)(1) of the Code;
(b) no gain or loss will be recognized by the shareholders of Southwest on the
exchange of their shares of Southwest Common Stock for shares of FNB Common
Stock pursuant to the terms of the Merger to the extent of such exchange; (c)
the federal income tax basis of the FNB Common Stock for which shares of
Southwest Common Stock are exchanged pursuant to the Merger will be the same as
the basis of such shares of Southwest Common Stock exchanged therefor (including
basis allocable to any fractional interest in any share of FNB Common Stock);
(d) the holding period of FNB Common Stock for which shares of Southwest Common
Stock are exchanged will include the period that such shares of Southwest Common
Stock were held by the holder, provided that such shares were capital assets of
the holder; and (e) the receipt of cash in lieu of fractional shares will be
treated as if the fractional shares were distributed as part of the exchange and
then redeemed by FNB, and gain or loss will be recognized in an amount equal to
the difference between the cash received and the basis of the fractional share
of FNB Common Stock surrendered, which gain or loss will be capital gain or loss
if the Southwest Common Stock was a capital asset in the hands of the
shareholder.
25
<PAGE> 33
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED MERGER UNDER THE CODE AND IS FOR GENERAL
INFORMATION ONLY. IT DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX
LAWS OR SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL
SITUATIONS. SHAREHOLDERS OF SOUTHWEST SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS AND TAX CONSEQUENCES
OF SUBSEQUENT SALES OF FNB COMMON STOCK.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of Southwest's management and of the Southwest
Board have interests in the Merger that are in addition to any interests they
may have as shareholders of Southwest generally. These interests include, among
others, provisions in the Merger Agreement relating to the management of
Southwest after the Effective Time, indemnification of Southwest directors and
officers, election or appointment of three members of the Southwest Board to the
FNB Board, and certain amended employment agreements and other employee
benefits, as hereinafter described.
In addition, as hereinafter described, FNB and certain of its employees and
directors, including Mr. Mortensen, Chairman and President of FNB, own shares of
Southwest Common Stock and warrants to acquire shares of Southwest Common Stock.
Mr. Mortensen is also a member of the Southwest Board. Mr. Mortensen recused
himself from deliberations regarding (and votes on) the Merger by the Southwest
Board.
SOUTHWEST MANAGEMENT POST-MERGER; SOUTHWEST EMPLOYMENT AGREEMENTS. FNB has
agreed to cause three of the current Southwest directors to be elected to the
FNB Board following consummation of the Merger.
After the Effective Time of this strategic affiliation, FNB will retain the
management team of Southwest with the authority and responsibility for operating
Southwest and its subsidiaries in substantially the same manner and fashion as
historically operated by such management team.
Southwest has employment agreements with each of Gary L. Tice, Garrett S.
Richter, David W. Gomer, James L. Cottrell, C.C. Coghill, David H. Schaeffer and
Robert Avery (collectively, the "Named Officers") which, before they were
amended, provided for severance payments and for the payment in cash or in
Southwest Common Stock in an amount equal in value to the excess of the fair
market value of Southwest Common Stock on the date of termination over the per
share exercise price of the Southwest Options multiplied by the number of shares
of Southwest Common Stock subject to such options (whether or not then fully
exercisable) upon the termination of such officer's employment following a
change in control. Immediately before execution of the Merger Agreement, the
Named Officers amended their employment agreements to provide that the Merger
and Merger Agreement did not constitute a change of control with the intended
effect that neither the approval and execution of the Merger Agreement nor the
consummation of the transactions contemplated thereby would give rise to any
rights of acceleration or payment under the employment agreements, and to
provide that if their employment with Southwest is terminated after the
Effective Time for any reason other than death, whether by the officer,
Southwest or FNB, upon such termination the terminated officer will receive FNB
Common Stock in an amount equal in value to the excess of the fair market value
of FNB Common Stock on the date of termination over the per share exercise price
of the Southwest Options multiplied by the number of shares of FNB Common Stock
subject to such Southwest Options (whether or not then fully exercisable).
Pursuant to the Merger Agreement, FNB has agreed to honor each of the amended
employment agreements.
INDEMNIFICATION. FNB has agreed that it will, following the Effective
Time, indemnify, defend and hold harmless the current and former directors,
officers, employees and agents of Southwest and its subsidiaries against all
losses, expenses, claims, damages or liabilities arising out of actions or
omissions occurring at or prior to the Effective Time to the full extent then
permitted under Florida law and by the Southwest Charter
26
<PAGE> 34
and Southwest By-laws as currently in effect, including provisions relating to
advances of expenses incurred in defense of any litigation.
SOUTHWEST OPTIONS. Southwest has granted stock options to certain
Southwest officers under the Southwest 1988 Incentive Stock Option Plan (the
"1988 Option Plan"), including incentive stock options and non-qualified stock
options which vest over ten years from the date of grant unless accelerated in
accordance with the 1988 Option Plan, individual option agreement evidencing the
grant of such option, or employment agreement. The amendments to the Southwest
employment agreements had the intended effect of ensuring that the consummation
of the Merger did not constitute a change in control resulting in the
acceleration of the Southwest Options.
The following table sets forth with respect to Southwest executive officers
(i) the number of shares covered by options held by such persons, (ii) the
number of shares covered by currently-exercisable options held by such persons,
(iii) the weighted average exercise price of all such options held by such
persons, and (iv) the aggregate value (i.e., stock price less option exercise
price, based on a stock price of $15.00 per share of Southwest Common Stock) of
all such options.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS CURRENTLY EXERCISE PRICE AGGREGATE VALUE
OPTIONS HELD EXERCISABLE PER OPTION OF OPTIONS
------------ ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Gary L. Tice................. 94,676 46,602 7.54 $ 706,074
Garrett S. Richter........... 63,130 31,567 7.48 $ 474,669
C.C. Coghill................. 42,032 18,977 7.85 $ 300,624
David H. Schaeffer........... 31,420 11,548 8.91 $ 191,321
Lewis S. Albert.............. 10,404 3,121 9.61 $ 56,078
Sidney T. Jackson............ 10,302 2,581 10.43 $ 47,062
David W. Gomer............... 20,808 6,242 9.61 $ 112,155
Executive Officer Group
(7 persons in all)......... 272,772 120,638 8.08 $ 1,887,983
</TABLE>
In consideration of the efforts of the organizers of Southwest and of First
Naples in organizing such entities and the attendant personal financial risks
they have undertaken, Southwest granted warrants to purchase shares of Southwest
Common Stock to its sixteen organizers. The warrants are currently exercisable,
have an exercise price of $5.64 and expire on June 19, 2001.
27
<PAGE> 35
The following table sets forth (i) the number of shares covered by warrants
held by such persons, (ii) the exercise price of all such warrants held by such
persons, and (iii) the aggregate value (i.e., stock price less warrant exercise
price, based on a stock price of $15.00 per share of Southwest Common Stock) of
all such warrants.
<TABLE>
<CAPTION>
WARRANTS EXERCISE PRICE AGGREGATE VALUE
HELD PER WARRANT OF WARRANTS
--------- --------------- ----------------
<S> <C> <C> <C>
AFFILIATES OF SOUTHWEST:
F.N.B. Corporation............................... 9,816 $5.64 $ 91,878
James S. Lindsay................................. 11,143 $5.64 $ 104,298
Edward J. Mace................................... 3,184 $5.64 $ 29,802
Peter Mortensen.................................. 1,857 $5.64 $ 17,382
Richard C. Myers................................. 11,673 $5.64 $ 109,259
Larry A. Wynn.................................... 11,673 $5.64 $ 109,259
OTHERS:
Donald W. Major.................................. 4,510 $5.64 $ 42,214
Joseph R. Pelletier.............................. 5,306 $5.64 $ 49,664
Dr. James R. Rehak, DDS.......................... 5,306 $5.64 $ 49,664
Richard L. Jaegar................................ 6,633 $5.64 $ 62,085
Arlene M. Nichols................................ 7,959 $5.64 $ 74,496
Anita M. Pittman................................. 11,673 $5.64 $ 109,259
Michael E. Watkins............................... 1,549 $5.64 $ 14,499
The William E. Barnett Trust..................... 9,949 $5.64 $ 93,123
The Robert I. Beckler Trust...................... 9,949 $5.64 $ 93,123
William Herman Elett-Trustee..................... 5,837 $5.64 $ 54,634
Dr. & Mrs. Nicholas P. Klokochar................. 5,837 $5.64 $ 54,634
AS A GROUP (17 persons in all)................... 123,854 $5.64 $1,159,273
</TABLE>
The Merger Agreement provides for FNB to assume all outstanding Southwest
Options, on the Effective Time in accordance with the terms of the Southwest
Stock Plans under which each of them was issued or granted, provided that such
Southwest Options shall thereafter be exercisable for an adjusted number of
shares of FNB Common Stock and at an adjusted per share exercise price computed
in accordance with the Exchange Ratio. See "-- Conversion of Southwest Options".
OTHER MATTERS RELATING TO SOUTHWEST EMPLOYEE BENEFIT PLANS. The Merger
Agreement also provides that following the Effective Time, FNB will provide
generally to officers and employees of Southwest and its subsidiaries employee
benefits under employee benefit plans (other than stock option or other plans
involving the potential issuance of FNB Common Stock), on terms and conditions
which when taken as a whole are no less favorable than those currently provided
by Southwest or those currently provided by FNB or its subsidiaries to their
similarly situated officers and employees; provided that, for a period of 12
months after the Effective Time, FNB will provide generally to officers and
employees of Southwest or its subsidiaries severance benefits in accordance with
the policies of Southwest.
For purposes of participation and vesting (but not benefit accrual under
any employee benefit plans of FNB and its subsidiaries other than under the
Southwest Stock Plans) under such employee benefit plans, the service of the
employees of Southwest or any of its subsidiaries prior to the Effective Time
will be treated as service with FNB or any of its subsidiaries participating in
such employee benefit plans. FNB will, and will cause its subsidiaries to, honor
in accordance with their terms all provisions for vested benefits or other
vested amounts earned or accrued through the Effective Time under the Southwest
benefit plans and all employment, severance, consulting, and other compensation
contracts between Southwest or any of its subsidiaries and any current or former
director, officer or employee thereof; provided, however, that all such
contracts have been amended to provide that the Merger and the other
transactions contemplated by the Merger Agreement will not constitute a "change
of control" or otherwise give rise to any rights of acceleration, payment or
other special rights under any such contracts.
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<PAGE> 36
Southwest provides incentive compensation to each of its qualified
employees pursuant to an incentive compensation plan under which annual cash
bonuses are determined and paid. Under this plan, bonuses are determined based
on measured standards and predetermined performance goals. Southwest from
time-to-time revises the individual and corporate performance standards to
conform with current strategic plans.
Southwest maintains a supplemental retirement plan for its executive
officers and directors. This plan provides permanent death benefit coverage and
post retirement cash value access. These benefits are funded through "split
dollar" life insurance contracts which provide for the recovery of premiums paid
by Southwest from the accumulated cash value of the policies or from death
benefits. Participants under the plan vest under the following schedule: for
qualified executive officers, 20% of the plan's benefits vest for each year of
service; for non-officer directors, 100% of the plan's benefits vest upon
completion of five years of service. In each case, policies are funded over a
five-year period.
In addition to the plans previously discussed, Southwest provides certain
health and welfare benefit plans including a salary saving KSOP, group life and
long-term disability coverage, health and dental insurance, excess life
insurance for officers up to $200,000, supplemental long-term disability for
vice presidents and above, and a cafeteria plan covering health, dental and
flexible spending accounts under Section 125 of the Code.
SOUTHWEST BOARD RESOLUTIONS. On February 2, 1996, the Southwest Board
adopted a resolution pursuant to which each director of Southwest agreed to vote
all shares of the Southwest Common Stock beneficially owned by him in favor of
the approval of the Merger Agreement at a meeting of shareholders duly called
and convened for the purpose of considering the Merger Agreement.
OWNERSHIP OF SOUTHWEST COMMON STOCK BY FNB. As of February 2, 1996, FNB
owned 172,621 shares of Southwest Common Stock, and warrants to acquire 9,816
shares of Southwest Common Stock at an exercise price of $5.64, representing in
aggregate approximately 4.99% of the outstanding shares of Southwest Common
Stock as of December 31, 1995* after giving effect to the exercise of the
warrants. Pursuant to the Stock Option Agreement, FNB has the right to acquire
up to 727,163 additional shares, subject to adjustment, representing
approximately 19.9% of the outstanding shares of Southwest Common Stock as of
December 31, 1995 before giving effect to the exercise of the Stock Option.
Pursuant to the Southwest Charter, approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Southwest Common Stock entitled to vote in elections of directors
which are not beneficially owned, directly or indirectly, by FNB, because FNB
owns, directly or indirectly, more than 5% of the shares of Southwest Common
Stock entitled to vote in elections of directors. Pursuant to the Southwest
Charter, FNB is the beneficial owner and beneficially owns shares of stock of
which (other than shares of Southwest Common Stock held in its treasury) (a) FNB
and its affiliates and associates beneficially own, directly or indirectly,
whether of record or not, (b) FNB 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) FNB or any of its affiliates or
associates has the right to sell or vote pursuant to any agreement, or (d) are
beneficially owned, directly or indirectly, by any other person with which FNB
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 Southwest. The following table sets forth (i) the number of shares
of Southwest Common Stock currently entitled to vote that FNB is deemed to
beneficially own and hence whose vote will not count towards approving the
Merger; (ii) the percentage of shares of Southwest Common Stock outstanding as
of December 31, 1995 that such beneficially owned shares represent; (iii) the
number of shares of Southwest Common Stock that FNB beneficially owns but which
are not entitled to vote because the shares have not been acquired; and (iv) the
percentage of shares of Southwest Common Stock outstanding on December 31, 1995
that such shares would represent if FNB acquired them:
- ---------------
* As of December 31, 1995, there were 3,654,089 shares of Southwest Common
Stock issued and outstanding.
29
<PAGE> 37
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED BY FNB WHICH
ARE CURRENTLY % OF SHARES SHARES BENEFICIALLY
ENTITLED TO VOTE OUTSTANDING AT OWNED BY FNB WHICH OUTSTANDING AT
IN ELECTIONS DECEMBER 31, CURRENTLY HAVE NO DECEMBER 31,
FOR DIRECTORS 1995 VOTING POWER 1995
------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
FNB
Shares of Southwest
Common Stock...... 172,621 4.72%
Warrants............. 9,816 .27%
Stock Option
Agreement......... 727,163 19.90%
BENEFICIAL OWNERSHIP OF
AFFILIATES AND
ASSOCIATES OF FNB*
Shares of Southwest
Common Stock...... 98,253....... 2.69%
Warrants............. ............. 1,857 .05%
---------- ------- ---------- ----------------
Total........ 270,874 7.41% 738,836 20.22%
</TABLE>
- ---------------
* The shares of Southwest Common Stock and warrants to acquire shares of
Southwest Common Stock are held by executive officers and directors of FNB and
their Associates, as that term is defined by Rule 12b-2 of the Exchange Act,
which definition includes certain relatives or the spouse of any affiliate of
FNB.
For purposes of the Exchange Act, FNB expressly disclaims beneficial
ownership of the shares held by its affiliates and associates and of any shares
which may be acquired pursuant to the Stock Option Agreement.
OTHER FNB RELATIONSHIPS TO SOUTHWEST. Mr. Mortensen is one of the founders
of Southwest as well as of its lead bank, First Naples, and has served as a
member of the Board of Directors of each entity since each of their inceptions
in 1988.
From time to time, FNB engages in transactions with Southwest and certain
of the Southwest directors and officers or their related interests in the
ordinary course of business. Southwest has a correspondent relationship with
First National, FNB's lead bank, whereby Southwest solicits the sale and
purchase of loan participations. During fiscal year 1995, Southwest sold no
participations to First National and purchased participations totalling
$2,000,000 from First National. At December 31, 1995, $14,391,377 and $1,927,467
in principal balances, respectively, were outstanding. No fees were paid or
received by Southwest in connection with such participations. All purchases and
sales of loan participations were at the market value of the loans at the date
of sale.
STOCK OPTION AGREEMENT
As an inducement and a condition to FNB to enter into the Merger Agreement,
FNB and Southwest entered into the Stock Option Agreement whereby Southwest
granted FNB the irrevocable Stock Option entitling FNB to purchase, subject to
certain adjustments, up to 727,163 shares of Southwest Common Stock, at an
exercise price, subject to certain adjustments, of $15.00 per share, payable in
cash under the circumstances described below.
The Stock Option Shares, if issued pursuant to the Stock Option Agreement,
would represent approximately 19.9% of the Southwest Common Stock issued and
outstanding without giving effect to the issuance of any shares of Southwest
Common Stock pursuant to an exercise of the Stock Option.
The number of shares of Southwest Common Stock subject to the Stock Option
will be increased or decreased to the extent that Southwest issues additional
shares of Southwest Common Stock (otherwise than pursuant to an exercise of the
Stock Option) or redeems, repurchases, retires or otherwise causes to be no
longer outstanding shares of Southwest Common Stock such that the number of
shares of Southwest
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<PAGE> 38
Common Stock subject to the Stock Option continues to equal 19.9% of the
Southwest Common Stock then issued and outstanding, without giving effect to the
issuance of shares of Southwest Common Stock pursuant to an exercise of the
Stock Option. In the event of any change in, or distributions in respect of, the
Southwest Common Stock by reasons of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares,
distributions on or in respect of the Southwest Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Southwest Common Stock subject to the Stock Option, and the
applicable exercise price per Stock Option Share, will be appropriately adjusted
in such manner as to fully preserve the economic benefits provided under the
Stock Option Agreement.
FNB or any other holder or holders of the Stock Option (collectively, the
"Holder") may exercise the Stock Option, in whole or in part, by sending written
notice after the occurrence of an "Initial Triggering Event" and a "Subsequent
Triggering Event" (as such terms are defined herein) prior to termination of the
Stock Option. The term "Initial Triggering Event" is defined as the occurrence
of any of the following events:
(i) Southwest or any of its subsidiaries, without having received
FNB's prior written consent, shall have entered into an agreement to engage
in an Acquisition Transaction (as hereinafter defined) with any person
other than FNB or any of its subsidiaries or the Southwest Board shall have
recommended that the stockholders of Southwest approve or accept any such
Acquisition Transaction. For purposes of the FNB Option Agreement,
"Acquisition Transaction" shall mean (x) a merger or consolidation, or any
similar transaction involving Southwest or any significant subsidiary of
Southwest, (y) a purchase, lease, or other acquisition of all or a
substantial portion of the assets or deposits of Southwest or any
significant subsidiary of Southwest, 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 Southwest;
(ii) Any person other than FNB, one of FNB's subsidiaries, or one of
Southwest's subsidiaries acting in a fiduciary capacity in the ordinary
course of its business shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the outstanding
shares of Southwest Common Stock (the term "beneficial ownership" for
purposes of the Stock Option Agreement having the meaning assigned thereto
in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder pursuant to which a person is the beneficial owner of all shares
that such person has direct or indirect voting power or investment power
over whether through any contract, arrangement, understanding, relationship
or otherwise);
(iii) The shareholders of Southwest shall not have approved the
transaction contemplated by the Merger Agreement at the Special Meeting, or
such Special Meeting shall not have been held or shall have been cancelled
prior to termination of the Merger Agreement, in either case, after the
Southwest Board shall have withdrawn or modified, or publicly announced its
interest to withdraw or modify, its recommendation that the stockholders of
Southwest approve the transactions contemplated by the Merger Agreement, or
after Southwest or any of its subsidiaries, without having received FNB's
prior written consent, shall have authorized, recommended, proposed, or
publicly announced its intention to authorize, recommend, or propose, to
engage in an Acquisition Transaction with any person other than FNB or one
of its subsidiaries;
(iv) Any person other than FNB or one of its subsidiaries shall have
made a bona fide proposal to Southwest or its stockholders to engage in an
Acquisition Transaction;
(v) Southwest shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction and such breach would entitle FNB to terminate the
Merger Agreement; or
(vi) Any person other than FNB or one of its subsidiaries, other than
in connection with a transaction to which FNB 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.
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<PAGE> 39
The term "Subsequent Triggering Event" is defined as either (A) the
acquisition by any person of beneficial ownership of 25% or more of the then
outstanding Southwest Common Stock, or (B) the occurrence of the Initial
Triggering Event described in clause (i) above, except that the percentage
referred to in subclause (z) thereof shall be 25%.
After a Subsequent Triggering Event prior to the termination of the Stock
Option, FNB (on behalf of itself or any subsequent Holder) may demand that the
Stock Option and the related Stock Option Shares be registered under the
Securities Act. Upon such demand, Southwest must effect such registration
promptly, subject to certain exceptions. FNB is entitled to two such
registrations.
The Stock Option terminates at or upon, and each of the following
constitutes an "Exercise Termination Event", (i) the Effective Time, (ii)
termination of the Merger Agreement in accordance with the terms thereof prior
to the occurrence of an Initial Triggering Event, or (iii) 12 months (subject to
extension to obtain regulatory approvals (for so long as the Holder is using
commercially reasonable efforts to obtain such regulatory approvals), to allow
statutory waiting periods to expire, and to avoid liability under Section 16(b)
of the Exchange Act which provides for the disgorgement to the issuer of any
profit realized by an insider as a result of a purchase and sale or sale and
purchase of certain equity securities occurring within a six-month period) after
termination of the Merger Agreement following the occurrence of an Initial
Triggering Event.
Under applicable law, FNB may not acquire 5% or more of the issued and
outstanding shares of Southwest Common Stock without the prior approval of the
Federal Reserve Board. In considering whether to approve the acquisition by FNB
of shares pursuant to the exercise of the Stock Option, the Federal Reserve
Board will generally apply the same standards as in considering whether to
approve the Merger. See "-- Bank Regulatory Matters -- Federal Reserve Board".
Certain other regulatory approvals (including approval of the Florida Banking
Department) may also be required before such an acquisition could be completed
and, under Florida law, such an acquisition could not occur until December 16,
1996, which is two years after Cape Coral (a Southwest subsidiary bank) was
formed. FNB anticipates submitting an application seeking Federal Reserve Board
approval of its acquisition of up to 19.9% of the outstanding shares of
Southwest Common Stock pursuant to a potential exercise of the Stock Option and
making a similar filing with the Florida Banking Department in April 1996. See
"-- Bank Regulatory Matters".
Upon the occurrence of a Repurchase Event (as defined herein) that occurs
prior to an Exercise Termination Event (i) at the request of the Holder
delivered prior to the Exercise Termination Event, Southwest shall repurchase
the Stock Option from the Holder at a price ("Stock Option Repurchase Price")
equal to the amount by which (x) the Market/Offer Price (as defined herein)
exceeds (y) the then applicable Stock Option exercise price, multiplied by the
number of shares for which the Stock Option may then be exercised; and (ii) at
the request of the owner of Stock Option Shares from time to time (the "Owner")
delivered prior to the Exercise Termination Event, Southwest shall repurchase
such number of Stock Option Shares from the Owner as the Owner designates at a
price per share (the "Stock Option Share Repurchase Price") equal to the
Market/Offer Price. "Market/Offer Price" means the highest of (A) the price per
share of Southwest Common Stock at which a tender offer or exchange offer
therefor has been made, (B) the price per share of Southwest Common Stock to be
paid by any third party pursuant to an agreement with Southwest, (C) the highest
closing price for shares of Southwest Common Stock within the three-month period
immediately preceding the date the Holder gives notice of the required
repurchase of the Stock Option or the Owner gives notice of the required
repurchase of Stock Option Shares, as the case may be, and (D) in the event of
the sale of all or a substantial portion of Southwest's assets, the sum of the
net price paid in such sale for such assets and the current market value of the
remaining assets of Southwest divided by the number of shares of Southwest
Common Stock then outstanding. "Repurchase Event" means (i) the consummation of
certain mergers, consolidations or similar transactions involving Southwest or
any purchase, transfer or other acquisition of all or a substantial portion of
the assets of Southwest by any person other than FNB or one of its subsidiaries,
other than any such transaction which would not constitute an Acquisition
Transaction or (ii) the acquisition by any person of beneficial ownership of 50%
or more of the then outstanding shares of Southwest Common Stock.
32
<PAGE> 40
In the event that prior to termination of the Stock Option, Southwest
enters into an agreement (i) to consolidate with or merge into any person other
than FNB or one of its subsidiaries and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person other
than FNB or one of its subsidiaries to merge into Southwest with Southwest as
the continuing or surviving corporation, but in connection therewith the then
outstanding shares of Southwest Common Stock are changed into or exchanged for
securities of any other person or cash or any other property, or the then
outstanding shares of Southwest Common Stock after such merger represent less
than 50% of the outstanding voting shares and voting share equivalents of the
merged company, or (iii) to sell or transfer all or substantially all of its
assets to any person other than FNB or one of its subsidiaries, then such
agreement shall provide that the Stock Option be converted into or exchanged for
an option (a "Substitute Option") to purchase shares of common stock of, at the
Holder's option, either (x) the continuing or surviving corporation of a merger
or consolidation or the transferee of all or substantially all of Southwest's
assets, or (y) the person controlling such continuing or surviving corporation
or transferee. The number of shares subject to the Substitute Option and the
exercise price per share will be determined in accordance with a formula in the
Stock Option Agreement. To the extent possible, the Substitute Option will
contain terms and conditions that are the same as those in the Stock Option.
The issuer of the Substitute Option will be required to repurchase the
Substitute Option at the request of the holder thereof and to repurchase any
shares of such issuer's common stock ("Substitute Common Stock") issued upon
exercise of a Substitute Option ("Substitute Shares") at the request of the
owner thereof. The repurchase price for a Substitute Option will equal the
amount by which (A) the Highest Closing Price (as defined herein) exceeds (B)
the exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be
exercised. The repurchase price for the Substitute Shares shall equal the
Highest Closing Price multiplied by the number of Substitute Shares to be
repurchased. As used herein, "Highest Closing Price" means the highest closing
price for shares of Substitute Common Stock within the three-month period
immediately preceding the date the holder gives notice of the required
repurchase of the Substitute Option or the owner gives notice of the required
repurchase of Substitute Shares, as the case may be.
Neither Southwest nor FNB may assign any of its respective rights and
obligations under the Stock Option Agreement or the Stock Option to any other
person without the other party's express written consent, except that if a
Subsequent Triggering Event occurs prior to termination of the Stock Option,
FNB, subject to the express provisions thereof, may assign in whole or in part
its rights and obligations thereunder; provided, however, that until 30 days
after the Federal Reserve Board approves an application by FNB to acquire the
Stock Option Shares, FNB may not assign its rights under the Stock Option except
in (i) a widely dispersed public distribution, (ii) a private placement in which
no one party acquires the right to purchase in excess of 2% of the voting shares
of Southwest, (iii) an assignment to a single party for the purpose of
conducting a widely dispersed public distribution on FNB's behalf, or (iv) any
other manner approved by the Federal Reserve Board.
In the event that prior to the exercise or termination of the Stock Option,
Southwest enters into an agreement to engage in any of the transactions
described in clause (ii) of the definition of "Repurchase Event" above, the
agreement governing such transaction must make proper provision so that the
Stock Option will, upon the consummation of such transaction, be converted into,
or exchanged for, an option with terms similar to the Stock Option, at the
election of FNB, of either the acquiring person or any person that controls the
acquiring person.
The rights and obligations of Southwest and FNB under the Stock Option
Agreement are subject to receipt of any required regulatory approvals, and both
parties have agreed to use their best efforts in connection therewith. These
include, but are not limited to, applying to the Federal Reserve Board for
approval to acquire the Stock Option Shares.
The purpose of the Stock Option Agreement and the Stock Option is to
increase the likelihood that the Merger will occur by making it more difficult
for another party to acquire Southwest. The ability of FNB to exercise the Stock
Option and to cause, subject to certain adjustments, up to an additional 727,163
shares of
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<PAGE> 41
Southwest Common Stock to be issued may be considered a deterrent to other
potential acquisitions of control of Southwest, as it is likely to increase the
cost of an acquisition of all the shares of Southwest Common Stock which would
then be outstanding.
DISSENTERS' RIGHTS OF SOUTHWEST SHAREHOLDERS
Under the provisions of Section 607.1302 of the FBCA, holders of Southwest
Common Stock are not entitled to dissenters' rights with respect to payment for
the value of their shares of Southwest Common Stock.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
pooling-of-interests under GAAP. Southwest and FNB have agreed to use their
reasonable efforts to cause the Merger, and to take no action that would cause
the Merger not, to qualify for pooling-of-interests treatment.
Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of FNB and Southwest will be combined at the
effective time of the Merger and carried forward at their previously recorded
amounts, and the shareholders' equity accounts of Southwest and FNB will be
combined on FNB's consolidated balance sheet and no goodwill or other intangible
assets will be created.
The unaudited pro forma financial information contained in this Proxy
Statement-Prospectus has been prepared using the pooling-of-interests accounting
method to account for the Merger. See "SUMMARY -- Comparative Unaudited Per
Share Data" and "-- Selected Financial Data"; "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS FOR THE MERGER".
BANK REGULATORY MATTERS
FEDERAL RESERVE BOARD. The Merger is subject to prior approval by the
Federal Reserve Board under the BHCA. The BHCA requires the Federal Reserve
Board, when approving a transaction such as the Merger, to take into
consideration the financial and managerial resources (including the competence,
experience and integrity of the officers, directors and principal shareholders)
and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. In considering financial
resources and future prospects, the Federal Reserve Board will, among other
things, evaluate the adequacy of the capital levels of the parties to a proposed
transaction.
The BHCA prohibits the Federal Reserve Board from approving a merger if it
would result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country would be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner result in a restraint of trade, unless the Federal
Reserve Board finds that the anti-competitive effects of a merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In addition,
under the Community Reinvestment Act of 1977, as amended (the "CRA"), the
Federal Reserve Board must take into account the record of performance of the
existing institutions in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institutions.
Four of FNB's six banking subsidiaries have an outstanding CRA rating with the
appropriate federal regulator. The other two of FNB's banking subsidiaries have
a satisfactory rating with the appropriate federal regulator. First Naples,
Southwest's lead banking subsidiary, has an outstanding CRA rating with the
appropriate federal regulator. Cape Coral, Southwest's other banking subsidiary,
has not yet been rated by the appropriate federal regulator, as it was formed in
1994.
Applicable federal law provides for the publication of notice and public
comment on applications filed with the Federal Reserve Board and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until between 15 and 30 days
following the date of applicable federal regulatory approval, during which time
the United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the
34
<PAGE> 42
effectiveness of the regulatory agency's approval unless a court specifically
ordered otherwise. FNB and Southwest believe that the Merger does not raise
substantial antitrust or other significant regulatory concerns and that any
divestitures that may be required in order to consummate the Merger will not be
material to the financial condition or results of operations of FNB or Southwest
prior to the Effective Time, or FNB after the Effective Time.
FNB's rights to exercise the Stock Option under the Stock Option Agreement
is also subject to the prior approval of the Federal Reserve Board, because the
exercise of the Stock Option under the Stock Option Agreement would result in
FNB owning more than 5% of the outstanding shares of Southwest Common Stock. In
considering whether to approve FNB's right to exercise the Stock Option, the
Federal Reserve Board would generally apply the same statutory criteria it would
apply to its consideration of approval of the Merger.
FLORIDA BANKING DEPARTMENT. The Merger is subject to the approval of or
other action by the Florida Banking Department because it is an interstate
banking Merger. Applications will be filed with the Florida Banking Department,
which will review the application to determine whether, and under what
restrictions, conditions, requirements or limitations, if any, the law of the
state in which the out-of-state bank holding company making the acquisition has
its principal place of business permits bank holding companies with their
principal place of business in Florida and which are not controlled by an
out-of-state bank holding company (a "Florida BHC") to acquire banks and bank
holding companies in that state. In addition, the Florida Banking Department
will approve the application only if the banks being acquired with offices only
in Florida have been in existence and continuously operating for more than two
years. Because Cape Coral was not formed until December 7, 1994, the Merger
cannot be consummated prior to December 8, 1996 under this law. Because FNB and
Southwest believe that Pennsylvania law would permit a Florida BHC to acquire
banks and bank holding companies in Pennsylvania and because the Merger will not
be consummated prior to December 16, 1996, FNB and Southwest believe that the
Florida Banking Department will approve the Merger. See "THE MERGER -- Effective
Time".
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION. FNB and Southwest
will file all applications and notices and have taken (or will take) other
appropriate action with respect to any requisite approvals or other action of
any governmental authority. FNB anticipates submitting an application seeking
Federal Reserve Board approval of the Merger and of its acquisition of up to
19.9% of the outstanding shares of Southwest Common Stock pursuant to a
potential exercise of the Stock Option and making a similar filing with the
Florida Banking Department in April 1996.
The Merger Agreement provides that the obligation of each of FNB and
Southwest to consummate the Merger is conditioned upon the receipt of all
requisite regulatory approvals, including the approvals of the Federal Reserve
Board and the Florida Banking Department. There can be no assurance that any
governmental agency will approve or take any other required action with respect
to the Merger, and, if approvals are received or action is taken, there can be
no assurance as to the date of such approvals or action, that such approvals or
action will not be conditioned upon matters that would cause the parties to
abandon the Merger, or that no action will be brought challenging such approvals
or action, including a challenge by the United States Department of Justice or,
if such a challenge is made, the result thereof.
FNB and Southwest are not aware of any governmental approvals or actions
that may be required for consummation of the Merger other than as described
above. Should any other approval or action be required, FNB and Southwest
currently contemplate that such approval or action would be sought.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCES THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER
AGREEMENT. SEE "-- CONDITIONS PRECEDENT TO THE MERGER". THERE CAN LIKEWISE BE NO
ASSURANCE THAT THE UNITED STATES DE-
35
<PAGE> 43
PARTMENT OF JUSTICE WILL NOT CHALLENGE THE MERGER, OR, IF SUCH A CHALLENGE
IS MADE, AS TO THE RESULT THEREOF.
See "-- Effective Time of the Merger", "-- Conditions Precedent to the
Merger" and "-- Modification, Waiver and Termination".
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of FNB Common Stock to be issued to shareholders of Southwest in
the Merger have been registered under the Securities Act. Such shares may be
traded freely and without restriction by those shareholders not deemed to be
"affiliates" of Southwest as that term is defined under the Securities Act. Any
subsequent transfer of such shares, however, by any person who is an affiliate
of Southwest at the time the Merger is submitted for vote or consent of the
shareholders of Southwest will, under existing law, require either (a) the
further registration under the Securities Act of the shares of FNB Common Stock
to be transferred, (b) compliance with Rule 145 promulgated under the Securities
Act (permitting limited sales under certain circumstances) or (c) the
availability of another exemption from registration. An "affiliate" of
Southwest, as defined by the rules promulgated pursuant to the Securities Act,
is a person who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Southwest. In
addition, under requirements for pooling-of-interests method of accounting, the
shares of FNB Common Stock issued to affiliates are not transferable until such
time as financial results covering at least 30 days of combined operations of
FNB and Southwest have been published. The foregoing restrictions are expected
to apply to the directors, executive officers and the holders of 10% or more of
the Southwest Common Stock (and to certain relatives or the spouse of any such
person and any trusts, estates, corporations, or other entities in which any
such person has a 10% or greater beneficial or equity interest). Stop transfer
instructions will be given by FNB to the transfer agent with respect to the FNB
Common Stock to be received by persons subject to the restrictions described
above. Southwest has agreed that, not later than 30 days prior to the Effective
Time, it will use its best efforts to obtain from each of those persons
identified by Southwest as affiliates appropriate agreements that each such
individual will not make any further sales of shares of FNB Common Stock
received upon consummation of the Merger except in compliance with the
restrictions described in this paragraph.
VOLUNTARY DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
FNB has a voluntary dividend reinvestment and stock purchase plan that
provides, for those shareholders who elect to participate, that dividends on FNB
Common Stock or FNB Preferred Stock (as defined herein) will be used to purchase
either original issue common shares or common shares in the open market at the
market value of FNB Common Stock on a quarterly basis. The plan also permits
participants to invest in additional shares of FNB Common Stock through
voluntary cash payments, within certain dollar limitations, at the then-current
market price of such stock at the time of purchase on any of 12 monthly
investment dates each year. It is anticipated that FNB will continue its
voluntary dividend reinvestment and stock purchase plan and that shareholders of
Southwest who receive shares of FNB Common Stock in the Merger will have the
right to participate therein.
36
<PAGE> 44
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
FNB Common Stock is listed on the Nasdaq SmallCap Market under the trading
symbol "FBAN". As of December 31, 1995, FNB Common Stock was held of record by
approximately 3,735 persons. The following table sets forth the high ask and low
bid prices of the FNB Common Stock as reported by the Dow Jones for the periods
indicated.
Since , 1996, Southwest Common Stock has been traded on the
Nasdaq National Market under the trading symbol " ". Prior to
, 1996, Southwest Common Stock was traded on the over-the-counter
market under the trading symbol "SWBA". The following table sets forth the high
ask and low bid prices for Southwest Common Stock as reported by the Dow Jones
for the indicated periods. As of the Record Date, Southwest Common Stock was
held of record by approximately persons.
<TABLE>
<CAPTION>
FNB SOUTHWEST
SALES PRICES SALES PRICES
----------------------- -----------------------
HIGH ASK LOW BID HIGH ASK LOW BID
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
First Quarter............................ 13 39/64 8 55/64 7 11/16 6 47/64
Second Quarter........................... 15 7/64 12 3/32 N/A N/A
Third Quarter............................ 14 47/64 12 1/4 N/A N/A
Fourth Quarter........................... 14 47/64 12 59/64 9 1/8 9 1/8
YEAR ENDED DECEMBER 31, 1994:
First Quarter............................ 14 33/64 11 51/64 N/A N/A
Second Quarter........................... 15 23/32 12 1/64 N/A N/A
Third Quarter............................ 17 9/64 14 17/32 11 49/64 10 19/64
Fourth Quarter........................... 15 61/64 14 3/64 12 1/4 10 19/64
YEAR ENDED DECEMBER 31, 1995:
First Quarter............................ 16 3/16 14 3/64 12 3/4 10 25/32
Second Quarter........................... 19 15 15/64 13 3/4 11 1/32
Third Quarter............................ 21 1/4 18 14 12 3/4
Fourth Quarter........................... 21 3/4 19 3/4 14 1/4 13 1/4
YEAR ENDING DECEMBER 31, 1996:
First Quarter............................
Second Quarter (through ,
1996)..................................
</TABLE>
DIVIDENDS
The following table sets forth the cash dividends declared per share of FNB
Common Stock and Southwest Common Stock, respectively, for the periods
indicated. The ability of either FNB or Southwest to pay dividends to its
shareholders is subject to certain restrictions. See "INFORMATION ABOUT FNB" and
"INFORMATION ABOUT SOUTHWEST".
37
<PAGE> 45
<TABLE>
<CAPTION>
FNB SOUTHWEST
DIVIDENDS DIVIDENDS
---------- ----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
First Quarter....................................... .06 0
Second Quarter...................................... .06 0
Third Quarter....................................... .06 0
Fourth Quarter...................................... .06 0
YEAR ENDED DECEMBER 31, 1994:
First Quarter....................................... .06 0
Second Quarter...................................... .07 0
Third Quarter....................................... .07 0
Fourth Quarter...................................... .07 0
YEAR ENDED DECEMBER 31, 1995:
First Quarter....................................... .07 0
Second Quarter...................................... .07 0
Third Quarter....................................... .10 0
Fourth Quarter...................................... .13 0
YEAR ENDING DECEMBER 31, 1996:
First Quarter....................................... .16 0
Second Quarter (through , 1996)...........
</TABLE>
INFORMATION ABOUT FNB
FNB is a financial services holding company headquartered in Hermitage,
Pennsylvania. It provides a broad range of financial services to its customers
through its bank, savings and loan and consumer finance subsidiaries in
Pennsylvania, eastern Ohio and southwestern New York. The FNB main office is
located at Hermitage Square, Hermitage, Pennsylvania 16148 and its telephone
number is (412) 981-6000.
FNB was formed in 1974 as the holding company of its then sole subsidiary,
First National, formerly First National Bank of Mercer County. Since its
formation, FNB has acquired and currently operates four other banks, one savings
and loan institution and one consumer finance company in Pennsylvania, eastern
Ohio and southwestern New York. As of December 31, 1995, FNB's bank, savings and
loan and consumer finance subsidiaries, all of which are wholly-owned by FNB,
had $1.7 billion in assets, $1.4 billion in deposits and 93 branches. In April
1996, it is anticipated that FNB will cease to be a savings and loan holding
company because it anticipates merging, upon receipt of approval from the Office
of the Comptroller of the Currency, its only savings and loan subsidiary into
First National.
FNB, through its subsidiaries, provides a full range of financial services,
principally to consumers and small- to medium-sized businesses in its market
areas. FNB's business strategy has been to focus primarily on providing quality,
community-based financial services adapted to the needs of each of the markets
it serves. FNB has emphasized its community orientation by preserving the names
and local boards of directors of its subsidiaries, by allowing its subsidiaries
autonomy in decision-making and thus enabling them to respond to customer
requests more quickly, and by concentrating on transactions within its market
areas. However, while FNB has sought to preserve the identities and autonomy of
its subsidiaries, it has established centralized credit analysis, loan review,
investment, audit and data processing functions. The centralization of these
processes has enabled FNB to maintain consistent quality of these functions and
to achieve certain economies of scale.
FNB's lending philosophy is to minimize credit losses by following uniform
credit approval standards (which include independent analysis of realizable
collateral value), diversifying its loan portfolio, maintaining a relatively
modest average loan size and conducting ongoing review and management of the
loan portfolio. FNB is an active residential mortgage lender, and its commercial
loans are generally to established local businesses. FNB does not have a
significant amount of construction loans, and has no highly leveraged
transaction loans or loans to foreign countries.
38
<PAGE> 46
No material portion of the deposits of FNB's bank or savings and loan
subsidiaries has been obtained from a single or small group of customers, and
the loss of any customer's deposits or a small group of customers' deposits
would not have a material adverse effect on the business of FNB.
FNB has three other operating subsidiaries, Penn-Ohio Life Insurance
Company ("Penn-Ohio"), Mortgage Service Corporation and F.N.B. Building
Corporation. Penn-Ohio underwrites, as a reinsurer, credit life and accident and
health insurance sold by FNB's subsidiaries. These activities are incidental to
FNB banking business. Mortgage Service Corporation services mortgage loans for
unaffiliated financial institutions. F.N.B. Building Corporation owns real
estate that is leased to certain of its affiliates. FNB has one non-operating
subsidiary, SWAC. On February 1, 1996, FNB created Lambda Corporation, a Florida
corporation, to serve as an acquisition vehicle for its merger with Southwest.
On February 26, 1996, FNB changed the name of Lambda Corporation to SWAC.
As of December 31, 1995, FNB and its subsidiaries had 926 full-time
equivalent employees.
As part of its operations, FNB regularly evaluates the potential
acquisition of, and holds discussions with, various financial institutions and
other businesses of a type eligible for bank holding company investment. In
addition, FNB regularly analyzes the values of, and submits bids for, the
acquisition of customer-based funds and other liabilities and assets of such
financial institutions and other businesses. As a general rule, FNB publicly
announces such material acquisitions when a definitive agreement has been
reached.
For further information about FNB, reference is made to the FNB Annual
Report on Form 10-K for the year ended December 31, 1995, which is incorporated
herein by reference. Shareholders of Southwest desiring copies of such document
may contact FNB at its address or telephone number indicated under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
INFORMATION ABOUT SOUTHWEST
Southwest is a registered bank holding company headquartered in Naples,
Florida which owns 100% of the outstanding capital stock of First Naples and
Cape Coral (the "SW Banks"). Southwest was incorporated under the laws of the
state of Florida in 1988 as a mechanism to enhance the SW Banks' ability to
serve their customers' requirements for financial services. The SW Banks are
full service commercial banks without trust powers. The SW Banks offer a full
range of interest bearing and non-interest bearing accounts, including
commercial and retail checking accounts, individual retirement accounts,
negotiable order of withdrawal accounts, money market accounts, certificates of
deposit, commercial loans and consumer direct/indirect installment loans.
Southwest conducts its banking operations through seven banking offices,
five of which are located in the Naples, Florida metropolitan area and two in
the Cape Coral, Florida metropolitan area. According to the United States Census
Bureau, Naples is the sixth fastest growing metropolitan area in the country,
with a population growth of 16% from 1990 to 1994.
At December 31, 1995, Southwest had total assets of approximately $386
million and stockholders' equity of approximately $30 million.
On February 2, 1996, Southwest announced that it had entered into a
definitive agreement with FNB which provided for the acquisition of Southwest by
FNB. Pursuant to the agreement, at the Effective Time of the Merger, each
outstanding share of Southwest common stock will be exchanged for .78 of a share
of FNB Common Stock, subject to adjustment under certain circumstances.
For further information concerning Southwest, reference is made to the
Southwest Annual Report on Form 10-K for the fiscal year ended December 31,
1995, a copy of which is being delivered to the Southwest shareholders with this
Proxy Statement-Prospectus and is incorporated herein by reference. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
39
<PAGE> 47
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS FOR THE MERGER
The following unaudited pro forma condensed combined financial statements
(the "Pro Forma Statements") combine the historical unaudited consolidated
financial statements of FNB and Southwest on the assumption that the Merger had
been effective December 31, 1995. Merger costs are not considered to be
material, and therefore have not been included in the pro forma adjustments. The
Merger of a wholly-owned subsidiary of FNB with and into Southwest will be
accounted for as a pooling-of-interests in accordance with GAAP. These
statements should be read in conjunction with the historical consolidated
financial statements of FNB and Southwest, including the notes thereto; the
notes to this unaudited Pro Forma Condensed Combined Balance Sheet; the
unaudited Pro Forma Condensed Combined Income Statements; and the
"SUMMARY -- Comparative Unaudited Per Share Data", including the notes thereto.
The Pro Forma Statements are intended for informational purposes and may
not be indicative of the combined financial position or results of operations
that actually would have occurred had the transaction been consummated during
the periods or as of the dates indicated, or which will be attained in the
future. The Pro Forma Statements should be read in conjunction with the 1995
Annual Reports on Form 10-K of FNB and Southwest.
40
<PAGE> 48
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995 -- UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FNB SOUTHWEST ADJUSTMENTS COMBINED
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks....................... $ 59,795 $ 25,136 $ 84,931
Interest bearing deposits with banks.......... 2,603 2,603
Federal funds sold............................ 22,335 31,724 54,059
Securities available for sale................. 223,479 50,402 (2,460)(2) 271,421
Securities held to maturity................... 136,969 23,834 160,803
Loans available for sale...................... 10,154 10,154
Loans, net of unearned income................. 1,212,741 238,251 1,450,992
Allowance for loan losses..................... (21,550) (1,585) (23,135)
--------- --------- --------- ----------
NET LOANS................................. 1,201,345 236,666 1,438,011
--------- --------- --------- ----------
Premises and equipment........................ 22,504 14,414 36,918
Other assets.................................. 37,963 4,286 422(2) 42,671
--------- --------- --------- ----------
$1,706,993 $ 386,462 $ (2,038) $2,091,417
========== ========== ========== ============
LIABILITIES
Deposits:
Non-interest bearing...................... $ 167,700 $ 46,179 $ 213,879
Interest bearing.......................... 1,274,409 278,652 1,553,061
--------- --------- --------- ----------
Total deposits....................... 1,442,109 324,831 1,766,940
Short-term borrowings......................... 55,224 28,277 83,501
Other liabilities............................. 25,988 3,410 29,398
Long-term debt................................ 39,755 39,755
--------- --------- --------- ----------
TOTAL LIABILITIES.................... 1,563,076 356,518 1,919,594
--------- --------- --------- ----------
STOCKHOLDERS' EQUITY
Preferred stock............................... 4,516 4,516
Common stock.................................. 17,268 366 (366)(4) 22,699
5,431(3)
Additional paid-in capital.................... 58,631 28,323 (28,323)(4) 80,634
22,003(3)
Retained earnings............................. 60,034 1,462 61,496
Net unrealized securities gains............... 3,932 182 (783)(2) 3,331
Employee stock ownership plan obligation...... (389) (389)
Treasury stock................................ (464) (464)
--------- --------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY........... 143,917 29,944 (2,038) 171,823
--------- --------- --------- ----------
$1,706,993 $ 386,462 $ (2,038) $2,091,417
========== ========== ========== ============
Common shares outstanding at period end....... 8,611,814 3,654,089 (172,621)(1) 11,327,359
========== ========== ========== ============
</TABLE>
- ---------------
(1) As of December 31, 1995, FNB owned 172,621 shares of Southwest Common Stock.
(2) Adjust securities by Southwest Common Stock owned by FNB with a value of
$2,459,849; adjust net unrealized securities gains associated with the stock
and the related deferred taxes.
(3) Issuance of 2,715,545 shares of FNB Common Stock in exchange for all the
outstanding shares of Southwest Common Stock net of the book value of
Southwest Common Stock owned by FNB.
(4) Elimination of par value of $.10 per share of Southwest Common Stock.
41
<PAGE> 49
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995 -- UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FNB SOUTHWEST ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees........................ $ 113,768 $20,812 $134,580
Securities:
Taxable................................. 18,150 3,737 21,887
Tax exempt.............................. 1,452 1,452
Dividends............................... 612 612
Other........................................ 1,374 835 2,209
----------- --------- ---------
TOTAL INTEREST INCOME................... 135,356 25,384 160,740
----------- --------- ---------
INTEREST EXPENSE
Deposits..................................... 51,589 9,652 61,241
Short-term borrowings........................ 3,209 2,104 5,313
Long-term debt............................... 3,258 3,258
----------- --------- ---------
TOTAL INTEREST EXPENSE.................. 58,056 11,756 69,812
----------- --------- ---------
NET INTEREST INCOME..................... 77,300 13,628 90,928
Provision for loan losses.................... 5,652 835 6,487
----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 71,648 12,793 84,441
----------- --------- ---------
NON-INTEREST INCOME
Insurance commissions and fees............... 4,284 4,284
Service charges.............................. 7,144 2,682 9,826
Trust........................................ 1,390 1,390
Gain on sale of securities................... 514 15 529
Gain on sale of loans........................ 272 272
Other........................................ 1,404 12 1,416
----------- --------- ---------
TOTAL NON-INTEREST INCOME............... 15,008 2,709 17,717
----------- --------- ---------
86,656 15,502 102,158
----------- --------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits............... 29,108 6,716 35,824
Net occupancy................................ 4,920 1,041 5,961
Amortization of intangibles.................. 1,238 8 1,246
Equipment.................................... 3,338 1,439 4,777
Deposit insurance............................ 2,527 236 2,763
Promotional.................................. 2,305 686 2,991
Insurance claims paid........................ 1,738 1,738
Other........................................ 14,776 2,814 17,590
----------- --------- ---------
TOTAL NON-INTEREST EXPENSES............. 59,950 12,940 72,890
----------- --------- ---------
INCOME BEFORE INCOME TAXES.............. 26,706 2,562 29,268
Income taxes................................. 8,623 855 9,478
----------- --------- ---------
NET INCOME.............................. $ 18,083 $ 1,707 $ 0 $ 19,790
========== ========= =========== =========
NET INCOME PER COMMON SHARE
PRIMARY................................. $ 2.00 $ .44 $ 1.67
========== ========= =========
FULLY DILUTED........................... $ 1.90 $ .44 $ 1.62
========== ========= =========
</TABLE>
42
<PAGE> 50
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994 -- UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FNB SOUTHWEST ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees........................ $ 103,210 $12,705 $115,915
Securities:
Taxable................................. 18,592 2,616 21,208
Tax exempt.............................. 1,546 1,546
Dividends............................... 559 559
Other........................................ 972 94 1,066
----------- --------- ---------
TOTAL INTEREST INCOME................... 124,879 15,415 140,294
----------- --------- ---------
INTEREST EXPENSE
Deposits..................................... 44,251 5,436 49,687
Short-term borrowings........................ 3,108 870 3,978
Long-term debt............................... 2,869 2,869
----------- --------- ---------
TOTAL INTEREST EXPENSE.................. 50,228 6,306 56,534
----------- --------- ---------
NET INTEREST INCOME..................... 74,651 9,109 83,760
Provision for loan losses.................... 8,450 605 9,055
----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 66,201 8,504 74,705
----------- --------- ---------
NON-INTEREST INCOME
Insurance commissions and fees............... 4,195 4,195
Service charges.............................. 6,457 1,440 7,897
Trust........................................ 1,504 1,504
Gain on sale of securities................... 1,281 2 1,283
Loss on sale of loans........................ (331) (331)
Other........................................ 1,276 1,276
----------- --------- ---------
TOTAL NON-INTEREST INCOME............... 14,382 1,442 15,824
----------- --------- ---------
80,583 9,946 90,529
----------- --------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits............... 27,688 4,814 32,502
Net occupancy................................ 4,536 673 5,209
Amortization of intangibles.................. 1,687 15 1,702
Equipment.................................... 3,838 824 4,662
Deposit insurance............................ 3,719 366 4,085
Promotional.................................. 2,054 446 2,500
Insurance claims paid........................ 1,820 1,820
Other........................................ 14,949 1,916 16,865
----------- --------- ---------
TOTAL NON-INTEREST EXPENSES............. 60,291 9,054 69,345
----------- --------- ---------
INCOME BEFORE INCOME TAXES.............. 20,292 892 21,184
Income taxes................................. 6,747 242 6,989
----------- --------- ---------
NET INCOME.............................. $ 13,545 $ 650 $ 0 $ 14,195
========== ========= =========== =========
NET INCOME PER COMMON SHARE
PRIMARY................................. $ 1.48 $ .19 $ 1.17
========== ========= =========
FULLY DILUTED........................... $ 1.44 $ .19 $ 1.17
========== ========= =========
</TABLE>
43
<PAGE> 51
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993 -- UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FNB SOUTHWEST ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees........................ $ 99,514 $ 9,152 $108,666
Securities:
Taxable................................. 23,663 1,945 25,608
Tax exempt.............................. 839 839
Dividends............................... 572 572
Other........................................ 924 89 1,013
----------- --------- ---------
TOTAL INTEREST INCOME................... 125,512 11,186 136,698
----------- --------- ---------
INTEREST EXPENSE
Deposits..................................... 49,550 4,524 54,074
Short-term borrowings........................ 3,011 135 3,146
Long-term debt............................... 2,778 2,778
----------- --------- ---------
TOTAL INTEREST EXPENSE.................. 55,339 4,659 59,998
----------- --------- ---------
NET INTEREST INCOME..................... 70,173 6,527 76,700
Provision for loan losses.................... 9,498 240 9,738
----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 60,675 6,287 66,962
----------- --------- ---------
NON-INTEREST INCOME
Insurance commissions and fees............... 4,328 4,328
Service charges.............................. 6,266 995 7,261
Trust........................................ 1,365 1,365
Gain on sale of securities................... 514 234 748
Gain on sale of loans........................ 1,851 67 1,918
Other........................................ 1,701 1,701
----------- --------- ---------
TOTAL NON-INTEREST INCOME............... 16,025 1,296 17,321
----------- --------- ---------
76,700 7,583 84,283
----------- --------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits............... 27,860 3,006 30,866
Net occupancy................................ 4,265 497 4,762
Amortization of intangibles.................. 2,020 29 2,049
Equipment.................................... 3,889 604 4,493
Deposit insurance............................ 3,575 286 3,861
Promotional.................................. 1,864 272 2,136
Insurance claims paid........................ 1,802 1,802
Other........................................ 16,454 1,284 17,738
----------- --------- ---------
TOTAL NON-INTEREST EXPENSES............. 61,729 5,978 67,707
----------- --------- ---------
INCOME BEFORE INCOME TAXES.............. 14,971 1,605 16,576
Income taxes................................. 4,499 600 5,099
----------- --------- ---------
NET INCOME.............................. $ 10,472 $ 1,005 $ 0 $ 11,477
========== ========= =========== =========
NET INCOME PER COMMON SHARE
PRIMARY................................. $ 1.12 $ .47 $ 1.04
========== ========= =========
FULLY DILUTED........................... $ 1.11 $ .47 $ 1.04
========== ========= =========
</TABLE>
44
<PAGE> 52
DESCRIPTION OF FNB CAPITAL STOCK AND SOUTHWEST CAPITAL STOCK
FNB COMMON STOCK
GENERAL. FNB is authorized to issue 20,000,000 shares of FNB Common Stock,
of which 8,611,814 shares were outstanding as of December 31, 1995. FNB Common
Stock is traded on the Nasdaq SmallCap Market under the trading symbol "FBAN".
Chemical Mellon acts as the transfer agent and the registrar for FNB Common
Stock.
As of December 31, 1995, approximately 1.67 million shares of FNB Common
Stock were reserved for issuance under various employee benefit plans and the
voluntary dividend reinvestment plan of FNB. After taking into account the
shares reserved as described above, the number of authorized shares of FNB
Common Stock available for other corporate purposes as of December 31, 1995 was
approximately 9.74 million. Since that date, approximately 3.12 million
additional shares have been reserved for issuance in connection with the Merger.
For the 1996 Annual Meeting of FNB shareholders on April 24, 1996, the FNB
Board has proposed that the FNB Charter be amended to increase the number of
authorized shares of FNB Common Stock from 20,000,000 shares to 100,000,000
shares. The increase will enable FNB to issue FNB Common Stock in connection
with any potential acquisitions FNB might make using FNB Common Stock as
consideration and to further other corporate purposes such as declaring stock
dividends.
VOTING AND OTHER RIGHTS. The holders of FNB Common Stock are entitled to
one vote per share, and, in general, a majority of votes cast with respect to a
matter is sufficient to authorize action upon routine matters. Directors are
elected by a plurality of the votes cast, and each shareholder entitled to vote
in such election is entitled to vote each share of stock for as many persons as
there are directors to be elected. In elections for directors, shareholders do
not have the right to cumulate their votes. The FNB Series A Preferred Stock (as
defined herein) votes as a class with the FNB Common Stock. See "-- FNB
Preferred Stock"; "COMPARISON OF SHAREHOLDER RIGHTS -- Amendment of Articles of
Incorporation and By-laws" and "-- Vote Required for Extraordinary Corporate
Transaction".
In the event of liquidation, holders of FNB Common Stock would be entitled
to receive pro rata any assets legally available for distribution to
shareholders with respect to shares held by them, subject to any prior rights of
any FNB Preferred Stock (as defined and described below) then outstanding.
FNB Common Stock does not have any preemptive rights, redemption
privileges, sinking fund privileges or conversion rights. All the outstanding
shares of FNB Common Stock are, and upon issuance the shares of FNB Common Stock
to be issued to shareholders of Southwest will be, validly issued, fully paid
and nonassessable.
DISTRIBUTIONS. The holders of FNB Common Stock are entitled to receive
such dividends or distributions as the FNB Board may declare out of funds
legally available for such payments. The payment of distributions by FNB is
subject to the restrictions of Pennsylvania law applicable to the declaration of
distributions by a business corporation. A corporation generally may not
authorize and make distributions if, after giving effect thereto, it would be
unable to meet its debts as they become due in the usual course of business or
if the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if it were to be dissolved at
the time of distribution, to satisfy claims upon dissolution of shareholders who
have preferential rights superior to the rights of the holders of its common
stock. In addition, the payment of distributions to shareholders is subject to
any prior rights of outstanding FNB Preferred Stock. Share dividends, if any are
declared, may be paid from authorized but unissued shares.
The ability of FNB to pay distributions is affected by the ability of its
subsidiaries to pay dividends. The ability of FNB's subsidiaries, as well as of
FNB, to pay dividends in the future currently is, and could be further,
influenced by bank regulatory requirements and capital guidelines.
45
<PAGE> 53
FNB PREFERRED STOCK
GENERAL. FNB has authorized 20,000,000 shares of preferred stock, $10.00
par value (the "FNB Preferred Stock"). The FNB Board has the authority to issue
FNB Preferred Stock in one or more series and to fix the dividend rights,
dividend rate, liquidation preference, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions), and the number of
shares constituting any such series, without any further action by the
shareholders unless such action is required by applicable rules or regulations
or by the terms of other outstanding series of FNB Preferred Stock. Any shares
of FNB Preferred Stock which may be issued may rank prior to shares of FNB
Common Stock as to payment of dividends and upon liquidation. FNB had 24,838
shares of FNB Series A Preferred Stock (the "FNB Series A Preferred Stock")
issued and outstanding as of December 31, 1995 and 426,800 shares of FNB Series
B 7 1/2% Cumulative Convertible Preferred Stock (the "FNB Series B Preferred
Stock") issued and outstanding as of December 31, 1995.
THE FOLLOWING SUMMARY OF THE FNB SERIES A PREFERRED STOCK AND FNB SERIES B
PREFERRED STOCK IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DESCRIPTION
THEREOF CONTAINED IN THE FNB CHARTER ATTACHED AS EXHIBIT 3.1 TO THE
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1992,
WHICH IS INCORPORATED HEREIN BY REFERENCE.
FNB SERIES A PREFERRED STOCK. The FNB Series A Preferred Stock was created
for the purpose of acquiring Reeves Bank. Holders of the FNB Series A Preferred
are entitled to 4.9 votes for each share held. The holders do not have
cumulative voting rights in the election of directors. Dividends are cumulative
from the date of issue and are payable at a rate of $.42 per share each quarter.
The FNB Series A Preferred is convertible at the option of the holder into
shares of the FNB Common Stock having a market value of $25.00 at time of
conversion. FNB has the right to require the conversion of the balance of all
outstanding shares at the conversion rate at any time after 50% of the 49,512
shares issued are no longer outstanding. During 1995, 450 shares of the FNB
Series A Preferred were converted to 617 shares of FNB Common Stock. At December
31, 1995, 31,148 shares of FNB Common Stock were reserved by FNB for the
conversion of the remaining 24,838 outstanding shares.
FNB SERIES B PREFERRED STOCK. The FNB Series B Preferred Stock was issued
during 1992 for the purpose of raising capital for the acquisition of 13 banking
branches in the Erie, Pennsylvania area. Holders of the FNB Series B Preferred
Stock have no voting rights. Dividends are cumulative from the date of issue and
are payable at a rate of $.46875 per share each quarter. The FNB Series B
Preferred Stock has a stated value of $25.00 per share and is convertible at the
option of the holder at any time into shares of FNB Common Stock at a price of
$12.83 per share. FNB has the right to redeem the FNB Series B Preferred Stock
for cash on or after May 15, 1996, as set forth in the prospectus dated May 8,
1992. During 1995, 4,200 shares of FNB Series B Preferred Stock were converted
to 8,179 shares of FNB Common Stock. At December 31, 1995, 831,362 shares of FNB
Common Stock were reserved by FNB for the conversion of the remaining 426,800
outstanding shares of FNB Series B Preferred Stock.
SOUTHWEST COMMON STOCK
GENERAL. Southwest is authorized to issue 25,000,000 shares of Southwest
Common Stock, of which shares were issued and outstanding as of the
Record Date. Since , 1996, Southwest Common Stock has traded on the
Nasdaq National Market under the trading symbol " ". Prior to
, 1996, Southwest Common Stock was traded on the over-the-counter
market under the trading symbol "SWBA". Chemical Mellon acts as the transfer
agent and the registrar for the Southwest Common Stock.
SOUTHWEST PREFERRED STOCK
Southwest is authorized to issue 100,000 shares of preferred stock, $.10
par value ("Southwest Preferred Stock"), none of which are issued and
outstanding. The Southwest Board has the authority to issue Southwest Preferred
Stock in one or more series and to fix the dividend rights, dividend rate,
liquidation
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preference, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the number
of shares constituting any such series, without any further action by the
shareholders unless such action is required by applicable rules or regulations
or by the terms of other outstanding series of Southwest Preferred Stock. Any
shares of Southwest Preferred Stock which may be issued may rank prior to shares
of Southwest Common Stock as to payment of dividends and upon liquidation.
COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Time, the shareholders of Southwest, a Florida
corporation, will become shareholders of FNB, a Pennsylvania corporation, and
Pennsylvania law will govern shareholder rights after the Merger. Differences
between the FBCA and the PBCL and between the Southwest Charter and the
Southwest By-laws and the FNB Charter and the FNB By-laws will result in various
changes in the rights of shareholders of Southwest.
The following is a summary of all material differences between the rights
of FNB shareholders under Pennsylvania law, the FNB Charter and the FNB By-laws,
as compared with those of Southwest shareholders under Florida law, the
Southwest Charter and Southwest By-laws. This summary does not purport to be a
complete description of the provisions discussed and is qualified in its
entirety by the PBCL, the FBCA, the Southwest Charter, the Southwest By-laws,
the FNB Charter and the FNB By-laws, to which Southwest shareholders are
referred.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the PBCL, an FNB director may be removed without cause by the FNB
shareholders entitled to elect the director or by the class of directors in
which such director had been chosen. The FNB Charter contains a provision that
requires the affirmative vote of at least 75% of the outstanding shares of FNB
Common Stock entitled to vote to remove the entire FNB Board, a class of
directors or any member of the FNB Board during his term without cause.
Under the FBCA, a Southwest director may be removed by the Southwest
shareholders with or without cause; provided that, if a director is elected by a
voting group, only the shareholders of that voting group may participate in the
vote to remove him. The Southwest Charter provides that a director may be
removed, with or without cause, at any regular or special meeting of
shareholders called for that purpose by the holders of 75% of the outstanding
shares of each class of stock entitled to vote in elections of directors.
The PBCL and the FNB By-laws provide that vacancies on the FNB Board,
including vacancies resulting from an increase in the number of directors, may
be filled by a majority vote of the remaining directors, although no less than a
quorum, or by a sole remaining director, and each person so selected shall serve
until the next selection of the class for which such director has been chosen,
and until a successor has been selected and qualified.
The FBCA and the Southwest By-laws provide that vacancies on the Southwest
Board, including vacancies resulting from an increase in the number of
directors, may be filled by a majority vote of the remaining directors, though
less than a quorum, or by the shareholders at any meeting held during the
existence of such vacancy. The Southwest By-laws and the Southwest Charter
further provide that vacancies on the Southwest Board resulting from removal
from office shall be filled by the vote of 75% of the outstanding shares of each
class of stock entitled to vote in the elections of directors. A director
elected to fill a vacancy, not resulting from an increase in the number of
directors, shall have the same remaining term as that of his or her predecessor
in office. If the number of directors is changed, an increase or decrease will
be proportioned among the classes so as to maintain the number of directors in
each class as 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 shall coincide with the remaining term of that class, but
in no event will a decrease in the number of directors shorten the term of any
incumbent director.
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QUORUM OF SHAREHOLDERS
The PBCL and the FNB By-laws provide that a quorum for a meeting of
shareholders of FNB consists of the presence of shareholders, in person or
represented by proxy, entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
meeting.
The FBCA, the Southwest By-laws and the Southwest Charter provides that the
holders of a majority of the stock issued, outstanding and entitled to vote
thereon, present in person or represented by proxy, shall constitute a quorum at
all meetings of the shareholders of Southwest and shall be requisite for the
transaction of business. The FBCA further provides that in no event shall a
quorum consist of less than one-third of the share entitled to vote.
ADJOURNMENT AND NOTICE OF SHAREHOLDER MEETINGS
Both the FNB By-laws and the Southwest By-Laws provide that, if a quorum is
not present or represented at a shareholder meeting, the shareholders entitled
to vote may adjourn the meeting without notice other than an announcement at the
meeting. Both the FNB and Southwest By-laws further provide that the
determination of shareholders of record entitled to notice of or to vote at any
meeting of shareholders will apply to any adjournment thereof.
Under the PBCL and the FNB By-laws, notice of shareholder meetings must be
given at least ten days prior to any meeting called to consider a fundamental
corporate change or at least five days prior to the meeting in any other case.
Under the FBCA and the Southwest By-laws, notice of shareholder meetings must be
provided to each shareholder of record entitled to vote at such meeting not less
than ten nor more than 60 days prior to the meeting.
CALL OF SPECIAL SHAREHOLDER MEETINGS
The FNB By-laws provide that special meetings of the shareholders may be
called only by the Chairman of the Board, the President or the Secretary of FNB
pursuant to a resolution or at the written direction of at least 75% of the
members of the FNB Board. The Southwest By-laws provide that special meetings of
the shareholders may be called by the President or the Chairman of the Southwest
Board. In addition, a special meeting of the Southwest shareholders may be
called by the President or Secretary upon written request by a majority of all
directors of Southwest or by Southwest shareholders owning not less than
one-tenth of all shares entitled to vote.
SHAREHOLDER CONSENT IN LIEU OF MEETING
The PBCL permits any action which may be taken at a meeting of the
shareholders may be taken without a meeting, if, prior or subsequent to the
action, a consent thereto of all the shareholders who would be entitled to vote
at a meeting for such purpose is filed with the Secretary of FNB.
The FBCA and the Southwest By-laws provide that any action required to be
taken at any annual or special meeting of shareholders, or any action which may
be taken at any annual or special meeting of such shareholders, 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 having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Southwest By-laws further
provide that, if any class of shares is entitled to vote thereon as a class,
such written consent shall be required of the holders of a majority of the
shares of each class of shares entitled to vote as a class thereon and of the
total shares entitled to vote thereon. Under Florida law and the Southwest
By-laws, within ten days after obtaining such authorization by written consent,
notice must be given to those shareholders who have not consented in writing.
The notice must summarize the material features of the authorized action, and,
if the action voted on was a merger, consolidation, or sale or exchange of
assets for which dissenters' rights are provided under Florida law, the notice
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.
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DISSENTERS' RIGHTS
Under the PBCL, shareholders may perfect dissenters' rights with regard to
corporate actions involving certain mergers; consolidations; sale, lease or
exchange of substantially all the assets of the corporation (under limited
circumstances); or elimination of cumulative voting.
Under the FBCA, dissenters' appraisal rights are available in connection
with corporate actions involving certain mergers, share exchanges,
consolidations, sales or other dispositions of all or substantially all of the
property of the corporation (other than in the ordinary course of business, the
approval of certain control-share acquisitions, and amendments of the articles
of incorporation where such amendment would adversely affect the shareholder by:
(i) altering or abolishing any preemptive rights attached to such shareholder's
shares; (ii) altering or abolishing the voting rights pertaining to such
shareholder's shares, except as such rights may be affected by the voting rights
of new shares then being authorized of any existing or new class or series of
shares; (iii) effecting an exchange, cancellation, or reclassification of any of
such shareholder's shares, when such amendment would alter or abolish the
shareholder's voting rights or alter his or her percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued dividends or
other arrearages; (iv) reducing the stated redemption price of any of the
shareholder's redeemable shares, altering or abolishing any provision relating
to any sinking fund for the redemption or purchase of any of his or her shares,
or making any of the shareholder's shares subject to redemption when they are
not otherwise redeemable; (v) making non-cumulative, in whole or in part,
dividends on any of his or her preferred shares which had theretofore been
cumulative; (vi) reducing the dividend preference of any of his or her preferred
shares; or (vii) reducing any stated preferential amount payable on the
shareholder's preferred shares upon voluntary or involuntary liquidation.
Under the corporate laws of Florida and Pennsylvania, dissenters' rights
generally are denied in the case of a merger or share exchange or a proposed
sale or exchange of property when a corporation's shares are listed on a
national securities exchange or held of record by more than 2,000 persons.
DERIVATIVE ACTIONS
Derivative actions to enforce a secondary right against any present or
former officer or director of the corporation because the corporation refuses to
enforce rights that may properly be asserted by it may be brought under the PBCL
by a shareholder, even if the shareholder was not a shareholder at the time of
the alleged wrongdoing, if there is a strong prima facie case in favor of the
claim asserted and if the court determines in its discretion that serious
injustice will result without such action.
Under the FBCA, a derivative action may be brought only by a person who was
a shareholder of the corporation at the time of the alleged wrongdoing unless
the person became a shareholder through transfer by operation of law from one
who was a shareholder at that time.
DIVIDENDS AND DISTRIBUTIONS
Subject to any restrictions in a corporation's charter, the PBCL and the
FBCA generally provide that a corporation may make distributions to its
shareholders unless after giving effect thereto (1) the corporation would not be
able to pay its debts as they become due in the usual course of business, or (2)
the corporation's assets would be less than the sum of its total liabilities
plus the amount that would be needed upon the dissolution of the corporation to
satisfy the preferential rights of shareholders having superior preferential
rights to those shareholders receiving the distribution. The FNB Charter does
not contain any restrictions on the payment of dividends or the making of
distributions to shareholders. The Southwest Charter provides that the Southwest
Board may distribute a portion of the assets of the corporation to its
shareholders out of the corporation's capital surplus.
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DIRECTOR QUALIFICATIONS AND NUMBER
The articles of incorporation or by-laws of a Pennsylvania corporation
specify the number of directors. If not otherwise fixed, a Pennsylvania
corporation shall have three directors. The PBCL and the FNB By-laws provide
that the directors need not be state residents or shareholders of the
corporation to qualify to serve.
The FNB By-laws also provide that the FNB Board shall consist of such
number of directors as may be determined by the FNB Board, which number shall be
not less than five nor more than 25. By resolution, the FNB Board has set the
present size of the FNB Board at 22 directors. The FNB By-laws further provide
that the FNB Board shall be divided into four classes, with each director having
a four-year term.
The board of directors of a Florida corporation must consist of one or more
individuals, the precise number to be specified or fixed in accordance with the
articles of incorporation or by-laws. Under the FBCA, directors must be at least
18 years of age but need not be shareholders of the corporation or state
residents to qualify to serve on the board. The Southwest Charter and the
Southwest By-laws provide that the Southwest Board shall consist of not less
than six nor more than eighteen persons, the exact number of directors to be
determined from time to time by the affirmative vote of a majority of the entire
Southwest Board. By resolution, the Southwest Board has set the present size at
eight directors. The Southwest shareholders are entitled to elect all of the
members of the Southwest Board. The Southwest By-laws and the Southwest Charter
further provide that the Southwest Board shall be divided into three classes,
with each director having a three-year term.
After the Merger, three members of the Southwest Board will be elected
members of the FNB Board.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The PBCL permits a corporation to indemnify its directors and officers
against expenses, judgments, fines and amounts paid in settlement incurred by
them in connection with any pending, threatened or completed action or
proceeding, and permits such indemnification against expenses incurred in
connection with any pending, threatened or completed derivative action, if the
director or officer has acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. Furthermore, Pennsylvania law provides that
expenses incurred in defending any action or proceeding may be paid by the
corporation in advance of the final disposition upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined that the director or officer is not entitled to be
indemnified by the corporation.
In Pennsylvania, the statutory provisions for indemnification and
advancement of expenses are non-exclusive with respect to any other rights, such
as contractual rights (or under a by-law or vote of shareholders or
disinterested directors), to which a person seeking indemnification or
advancement of expenses may be entitled. Such contractual or other rights may,
for example, provide for indemnification against judgments, fines and amounts
paid in settlement incurred by the indemnified person in connection with
derivative actions. The PBCL permits such derivative action indemnification in
any case except where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
The PBCL permits a corporation to purchase and maintain insurance on behalf
of any director or officer of the corporation against any liability asserted
against the director or officer and incurred in such capacity, whether or not
the corporation would have the power to indemnify the director or officer
against such liability. FNB has directors' and officers' liability insurance
underwritten by Reliance Insurance Company.
The FNB Charter provides that its directors, officers and any other person
designated by the FNB Board are entitled to be indemnified to the fullest extent
now permitted by law.
The FBCA and the Southwest By-laws permit a corporation to indemnify a
director and officer 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, whether formal or informal (other than an
action by or any right of
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the corporation) by reason of the fact that he or she is or was a director or
officer or is now serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding. These indemnification rights
apply if the director or officer acted in good faith and in a manner in which he
or she reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In addition, under
the FBCA and the Southwest By-laws, Southwest may indemnify and hold harmless an
officer or director who is a party in an action by or in the right of the
corporation against expenses (including attorneys' fees) and amounts paid in
settlement not exceeding estimated expenses of litigating the action to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if the director or officer has acted in good
faith and in a manner in which he or she reasonably believed to be in or not
opposed to the best interest of the corporation, except indemnification is not
authorized where there is an adjudication of liability, unless the court in
which such proceeding was brought, or any other court of competent jurisdiction,
shall determine, in view of all the circumstances, that such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
Both Florida law and the Southwest By-laws provide that indemnification of
the costs and expenses of defending any action is required to be made to any
officer or director who is successful (on the merits or otherwise) in defending
an action of the type referred to in the immediately preceding paragraph. Except
with regard to the costs and expenses of successfully defending an action as may
be ordered by a court, indemnification as described in the previous paragraph is
only required to be made to a director or officer if a determination is made
that indemnification is proper under the circumstances. Such determination shall
be made: (i) by Southwest's Board by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding; (ii) by a
majority vote of a committee duly designated by the Southwest Board consisting
of two or more directors not at the time parties to the action, suit or
proceeding; (iii) by independent legal counsel selected by specified groupings
of the Southwest Board; or (iv) by the Southwest 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. The
reasonableness of the expenses to be indemnified is determined in the same
manner as the determination of whether the indemnification is permissible.
Florida law and the Southwest By-laws further provide that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation.
Under Florida law and the Southwest By-laws, the provisions for
indemnification and advancement of expenses are not exclusive. Accordingly, a
corporation may make any other or further indemnification or advancement of
expenses of any of its officers or directors under any by-law, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
such office. Under the FBCA, indemnification or advancement of expenses,
however, shall not be made to or on behalf of any officer or director if a
judgment or other final adjudication establishes that his or her actions or
omissions were material to the cause of action so adjudicated and constitute:
(i) a violation of the criminal law, unless the officer or director had
reasonable cause to believe that his or her conduct was lawful or had no
reasonable cause to believe that his or her conduct was unlawful; (ii) a
transaction from which the officer or director derived an improper personal
benefit; (iii) in the case of a director, a circumstance under which the
liability provisions of the FBCA Section 607.0834 (relating to unlawful
distributions) are applicable; or (iv) willful misconduct or a conscious
disregard for the best interest of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Florida law and the Southwest By-laws permit a corporation to purchase and
maintain insurance on behalf of any director or officer of the corporation
against any liability asserted against the director or officer
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and incurred in such capacity, whether or not the corporation would have the
power to indemnify the director or officer against such liability.
Pursuant to Southwest's By-laws, if Southwest pays any expenses or other
amounts by way of indemnification, otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
Southwest, Southwest 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. The 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.
DIRECTOR LIABILITY
The by-laws of a Pennsylvania corporation may include a provision limiting
the personal liability of directors for monetary damages for actions taken as a
director, except to the extent that the director has breached or failed to
perform his or her duties to the corporation and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. The FNB
By-laws contain such a provision limiting the liability of its directors to the
fullest extent permitted by law.
Under Florida law, a director is not liable for monetary damages for any
statement, vote, decision, or failure to act, regarding corporate management or
policy, unless the director breached or failed to perform his duties as a
director and the director's breach of, or failure to perform, those duties
constitutes a violation of criminal law, self dealing, willful misconduct or
recklessness.
AMENDMENT OF ARTICLES OF INCORPORATION AND BY-LAWS
The PBCL requires the affirmative vote of the holders entitled to cast at
least a majority of the votes actually cast on an amendment to the articles of
incorporation, provided that shareholder approval is not required for certain
non-material amendments, such as a change in the corporate name, a provision for
perpetual existence, or, if the corporation has only one class of shares
outstanding, a change in the number and par value of the authorized shares to
effect a stock split. The FNB Charter provides that the FNB Charter may be
amended by FNB as provided by the PBCL and all rights conferred upon the
shareholders therein are granted subject to such reservation. Under the PBCL,
the power to adopt, amend or repeal by-laws may be vested by the by-laws in the
directors, with certain statutory exceptions for certain actions and subject to
the power of shareholders to change such action. The PBCL provides that, unless
the articles of incorporation otherwise provide, the board of directors does not
have the authority to adopt or change a by-law on any subject that is committed
expressly to the shareholders by statute. The FNB Charter and the FNB By-laws
provide that the FNB By-laws may be amended by the affirmative vote of at least
75% of the FNB Board or by the affirmative vote of the holders of at least 75%
of the outstanding FNB Common Stock entitled to vote thereon.
The FBCA generally requires the affirmative vote of the holders of at least
a majority of the votes actually cast on an amendment to the articles of
incorporation; provided, however, a majority of the votes entitled to be cast on
the amendment is required with respect to an amendment that would create
dissenters' rights. Under Florida law, shareholder approval is not required for
certain non-material amendments. The Southwest Charter provide that the
Southwest Charter may only be amended by the affirmative vote or consent of the
holders of at least 50% of the shares of each class of stock of the corporation
entitled to vote in elections of directors; provided, however, the Southwest
Charter further provide that the affirmative vote or consent of the holders of
75% of the outstanding shares of each class of the stock of the corporation
entitled to vote in elections of directors is required to amend provisions
relating to the number and qualification of directors, relating to certain
covered transactions, relating to certain business combinations and relating to
the factors that the Southwest Board may consider in evaluating a tender offer.
Under Florida law, a corporation's by-laws may be amended or repealed by
the board of directors or shareholders; provided, however, that the board may
not amend or repeal the corporation's by-laws if the articles of incorporation
reserve such power to the shareholders or the shareholders, in amending or
appealing
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the by-laws, expressly provide that the board of directors may not amend or
repeal the by-laws or a particular by-law provision. In addition, a by-law that
fixes a greater quorum or voting requirement for the board may be amended or
repealed under Florida law only by the shareholders if originally adopted by the
shareholders, or either by the shareholders or by the board if originally
adopted by the board of directors. The Southwest By-laws provide that the
Southwest By-laws may be altered or amended and new by-laws adopted by the
shareholders or by the Southwest Board at any regular or special meeting of the
Southwest Board; provided, however, that action by the shareholders with respect
to the by-laws shall be taken by the affirmative vote or consent of the holders
of at least 75% of the shares of each class of stock of the corporation entitled
to vote in elections of directors. Action by the directors with respect to the
Southwest By-laws requires the affirmative vote or consent of a majority of all
directors then holding office.
VOTE REQUIRED FOR EXTRAORDINARY CORPORATE TRANSACTIONS
Under the PBCL generally, a merger, consolidation, share exchange,
dissolution or sale of substantially all of a corporation's assets other than in
the ordinary course of business must be approved by the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon. Except
as otherwise provided by the by-laws of a corporation, the shareholders of a
corporation do not have to approve a board of directors-approved plan of merger
if, among other situations, (i) the surviving or new corporation is a domestic
business corporation with articles of incorporation that are identical to the
articles of incorporation of the constituent corporation (except for changes
permitted by a board without shareholder approval under the PBCL), (ii) each
share of the constituent corporation outstanding immediately prior to the
effective date of the merger is to continue to be or to be converted into an
identical share of the surviving or new corporation after the effective date of
the merger, and (iii) the shareholders of the constituent corporation are to
hold in the aggregate shares of the surviving or new corporation to be
outstanding immediately after effectiveness of the plan of merger entitled to
cast at least a majority of the votes entitled to be cast generally for the
election of directors.
The FNB Charter requires the affirmative vote of at least 75% of the
outstanding shares of FNB Common Stock entitled to vote to approve a merger,
consolidation, or sale, lease, exchange or other disposition, in a single
transaction or series of related transactions, of all or substantially all or a
substantial part of the properties or assets of FNB, unless the FNB Board has
approved and recommended the transaction prior to the consummation thereof.
Except as otherwise provided by law, or by the Southwest Charter or the
Southwest By-laws with respect to an extraordinary corporate transaction with
Interested Persons (as defined herein), a majority of the votes cast is
generally required for any action by Southwest's shareholders. See
"-- Interested Shareholder Transactions".
INTERESTED SHAREHOLDER TRANSACTIONS
The PBCL provides that, if a shareholder of a corporation is a party to a
sale of assets transaction, share exchange, merger or consolidation involving
the corporation or a subsidiary, or if a shareholder is to be treated
differently in a corporate dissolution from other shareholders of the same
class, then approval must be obtained of the shareholders entitled to cast at
least a majority of the votes which all shareholders other than the interested
shareholder are entitled to cast with respect to the transaction, without
counting the votes of the interested shareholder. Such additional shareholder
approval is not required if the consideration to be received by the other
shareholders in such transaction for shares of any class is not less than the
highest amount paid by the interested shareholder in acquiring shares of the
same class, or if the proposed transaction is approved by a majority of the
board of directors other than certain directors ("disqualified directors")
affiliated or associated with, or nominated by, the interested shareholder. The
PBCL provides that a director who has held office for at least 24 months prior
to the date of vote on the proposed transaction is not a disqualified director.
Further, the PBCL prohibits certain business combinations between the
corporation and an interested shareholder except under specified circumstances.
An "interested shareholder" in this instance is one who, directly or indirectly,
is the beneficial owner of shares entitling that person to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors of the corporation or is an affiliate or
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associate of such corporation and at any time within the five-year period
immediately prior to the date in question was the beneficial owner, directly or
indirectly, of shares entitling that person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of directors of
the corporation. A "business combination" includes a merger, consolidation,
share exchange or division of the corporation or any subsidiary of the
corporation with the interested shareholder or with, involving or resulting in
any other corporation which is, or, after the merger, consolidation, share
exchange or division would be, an affiliate or associate of the interested
shareholder. A "business combination" also includes a sale or other disposition
to the interested shareholder or any affiliate or associate of the interested
shareholder of assets of the corporation or any subsidiary (1) having an
aggregate market value equal to 10% or more of the aggregate market value of the
corporation's consolidated assets, (2) having an aggregate market value equal to
10% or more of the aggregate market value of all the outstanding shares of such
corporation, or (3) representing 10% or more of the consolidated earning power
or net income of such corporation. A "business combination" also includes
certain transactions with an interested shareholder involving the issuance of
shares of a corporation or its subsidiary having an aggregate market value equal
to 5% or more of the aggregate market value of all outstanding shares under
certain circumstances, the adoption of a plan for the liquidation or dissolution
of the corporation pursuant to certain agreements with an interested shareholder
and certain reclassifications and loans involving the interested shareholder.
The prohibition against such business combinations does not apply under
specified circumstances and if the corporation has opted out of this provision.
FNB has not opted out of this statutory provision.
The FBCA contains a number of provisions which require supermajority
approval for certain affiliate transactions. Southwest, however, has made an
election in the Southwest Charter providing that such provisions shall not apply
to the corporation.
The Southwest Charter contains provisions requiring supermajority
shareholder approval to effect certain extraordinary corporate transactions
which are not approved by the Board of Directors. The Southwest Charter requires
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each class of Southwest Common Stock entitled to vote in elections of
directors to approve any merger, consolidation, disposition of all or a
substantial part of the assets of the corporation or a subsidiary of the
corporation, exchange of securities requiring shareholder approval or
liquidation of the corporation ("Covered Transaction"), if any person who
together with his affiliates and associates beneficially owns 5% or more of any
voting stock of the corporation (an "Interested Person") is a party to the
transaction; provided that 75% of the entire Southwest Board has not approved
the transaction. In addition, the Southwest Charter requires the separate
approval of the holders of a majority of the shares of each class of stock of
the corporation entitled to vote in elections of directors which are not
beneficially owned, directly or indirectly, by an Interested Person, of any
merger, consolidation, disposition of all or a substantial part of the assets of
the corporation or a subsidiary of the corporation, or exchange of securities
requiring shareholder approval (a "Business Combination"), if an Interested
Person is a party to such transaction; provided, that such approval is not
required if (a) the consideration to be received by the holders of the stock of
the corporation meets certain minimal levels determined by a formula under the
Southwest Charter (generally, the highest price paid by the Interested Person
for any shares which he or she has acquired), (b) there has been no reduction in
the average dividend rate from that which 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 provisions of the Southwest Charter may be amended, altered, or repealed
only by the affirmative vote or consent of the holders of at least 75% of the
shares of each class of stock of the corporation entitled to vote in elections
of directors.
FIDUCIARY DUTY
Under the PBCL a director may, in considering the best interests of a
corporation, consider (1) the effects of any action on shareholders, employees,
suppliers, customers and creditors of the corporation, and upon communities in
which offices or other facilities of the corporation are located, (2) the
short-term and long-term interests of the corporation, including the possibility
that the best interests of the corporation may
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be served by the continued independence of the corporation, (3) the resources,
intent and conduct of any person seeking to acquire control of the corporation,
and (4) all other pertinent factors.
The FNB Charter provides that the FNB Board, in evaluating a proposal for
an extraordinary corporate transaction, shall consider all relevant factors,
including the economic effect, both immediate and long-term, upon the FNB
shareholders, including shareholders, if any, who will not participate in the
transaction; the social and economic effect on the employees, depositors and
customers of, and others dealing with, FNB and its subsidiaries and on the
communities in which FNB and its subsidiaries operate or are located; whether
the proposal is acceptable based on the historical and current operating results
or financial condition of FNB; whether a more favorable price could be obtained
for FNB's securities in the future; the reputation and business practices of the
offeror and its management and affiliates as they would affect the employees,
depositors and customers of FNB and its subsidiaries; and the future value of
FNB's stock; and any antitrust or other legal and regulatory issues that are
raised by the proposal. The FNB Charter further provides that, if the FNB Board
determines that such a proposal should be rejected, it may take any lawful
action to accomplish its purposes.
Under Florida law, a director is required to discharge his or her duties in
good faith, with the care an ordinarily prudent person in the like position
would exercise under similar circumstances and in a manner reasonably believed
to be in the best interest of the corporation. In discharging his or her duties,
a director is entitled to rely on: (i) information, opinions, reports, or
statements, including financial statements and other financial data, if
presented or prepared by officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented; (ii) legal counsel, public accountants or other persons as to matters
the director reasonably believes are within the person's professional or expert
competence; or (iii) a committee of the board of which the director is not a
member if the director reasonably believes the committee merits confidence. In
addition, in discharging his or her duties, a director may consider such factors
as the director deems relevant, including the long-term prospectus and interest
of the corporation and its shareholders, and the social, economic, legal, or
other effects of any action on the employees, suppliers, customers of the
corporation or its subsidiaries, the communities and society in which the
corporation or its subsidiaries operate, and the economy of the state and the
nation.
The Southwest Charter charges the Southwest Board to consider, in
connection with the exercise of its business judgment in determining what is in
the best interest of the corporation and its shareholders, not only the
consideration being offered in any tender offer in relation to the then-current
market price of the corporation stock, but also to consider such consideration
in relation to the then-current value of the corporation in a freely negotiated
transaction and in relation to the Southwest Board's then-estimate of the future
value of the corporation as an independent entity. In addition, the Southwest
Charter charges the Southwest Board to consider such other factors it determines
to be relevant, including 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.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
FNB is subject to various statutory "anti-takeover" provisions of the PBCL,
including Subchapters 25E, 25F, 25G and 25H of the PBCL. Subchapter 25E of the
PBCL (relating to control transactions) provides that if any person or group
acquires 20% or more of the voting power of a covered corporation, the remaining
shareholders may demand from such person or group the fair value of their
shares, including a proportionate amount of any control premium. Subchapter 25F
of the PBCL (relating to business combinations) delays for five years and
imposes conditions upon business combinations between an interested shareholder
and the corporation. As described above, the term "business combination" is
defined broadly to include various transactions utilizing a corporation's assets
for purchase price amortization or refinancing purposes, and an "interested
shareholder" is defined generally as the beneficial owner of at least 20% of a
corporation's voting shares. See "-- Interested Shareholder Transactions".
Subchapter 25G of the PBCL (relating to control-share acquisitions) prevents a
person who has acquired 20% or more of the voting power of a covered corporation
from voting such shares unless the disinterested shareholders approve such
voting rights. Failure to
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obtain such approval exposes the owner to the risk of a forced sale of stock to
the issuer. If shareholder approval is obtained, the corporation is also subject
to Subchapters 25I and 25J of the PBCL. Subchapter 25I of the PBCL provides for
a minimum severance payment to certain employees terminated within two years of
the approval. Subchapter 25J of the PBCL prohibits the abrogation of certain
labor contracts prior to their stated date of expiration. Subchapter 25H of the
PBCL (relating to disgorgement) applies in the event that (1) any person or
group publicly discloses that the person or group may acquire control of the
corporation or (2) a person or group acquires (or publicly discloses an offer or
intent to acquire) 20% or more of the voting power of the corporation and, in
either case, sells shares within 18 months thereafter. Any profits from sales of
equity securities of the corporation by the person or group during the 18-month
period belong to the corporation if the securities that were sold were acquired
during the 18-month period or within 24 months prior thereto. Subchapters 25E,
25F, 25G and 25H of the PBCL contain a wide variety of transactional and status
exemptions, exclusions and safe harbors.
In addition, the PBCL permits an amendment of the corporation's charter or
other corporation action, if approved by shareholders generally, to provide
mandatory special treatment for specified groups of nonconsenting shareholders
of the same class by providing, for example, that shares of common stock held
only by designated shareholders of record, and no other shares of common stock,
shall be cashed out at a price determined by the corporation, subject to
applicable dissenters' rights. The PBCL also provides that directors may, in
discharging their duties, consider the interests of a number of different
constituencies, including shareholders, employees, suppliers, customers,
creditors and the communities in which the corporation is located. Directors are
not required to consider the interests of shareholders to a greater degree than
other constituencies' interests. The PBCL expressly provides that directors do
not violate their fiduciary duties solely by relying on poison pills or the
anti-takeover provisions of the PBCL.
The business combination provisions of the PBCL may have the effect of
deterring merger proposals, tender offers or other attempts to effect changes in
control of FNB that are not negotiated with and approved by the FNB Board. FNB
is not aware of any effort or intent to gain control of FNB or any effort to
organize a proxy contest or to accumulate FNB's shares.
Additionally, the following provisions of the FNB Charter and the FNB
By-laws may be considered to have anti-takeover implications: (1) the ability of
the FNB Board to fill the vacancies (but only until the next selection of the
class of directors for which such director has been chosen) resulting from an
increase in the number of directors; (2) the ability of the FNB Board, if the
proposal to increase the number of authorized shares of FNB Common Stock to
100,000,000 shares is approved by FNB shareholders at the 1996 Annual Meeting of
FNB shareholders, to issue substantial amounts of FNB Common Stock without the
need for shareholder approval, which FNB Common Stock, among other things and in
certain circumstances, may be used to dilute the stock ownership of holders of
FNB Common Stock seeking to obtain control of FNB; (3) the ability of the FNB
Board to establish the rights of, and to issue, substantial amounts of FNB
Preferred Stock without the need for shareholder approval which FNB Preferred
Stock, among other things, may be used to create voting impediments with respect
to changes in control of FNB or, to dilute the stock ownership of holders of FNB
Common Stock seeking to obtain control of FNB; (4) the supermajority voting
requirements for certain extraordinary corporate transactions; and (5) the broad
range of factors that the FNB Board may consider in evaluating such a proposal,
and the broad range of actions it may take to reject such a proposal, if it so
decides.
Section 607.0902 of the FBCA restricts the voting rights of certain shares
of a corporation's stock when those shares are acquired by a party who, by such
acquisition, would control at least one-fifth of all voting rights of the
corporation's issued and outstanding stock. The statute provides that the
acquired shares (the "control shares") will, upon such acquisition, cease to
have any voting rights. The acquiring party may, however, petition the
corporation to have voting rights re-assigned to the control shares by way of an
"acquiring person's statement" submitted to the corporation in compliance with
the requirements of the statute. Upon receipt of such request, the corporation
must submit, for shareholder approval, the acquiring person's request to have
voting rights re-assigned to the control shares. Voting rights may be reassigned
to the control shares by a resolution of a majority of the corporation's
shareholders for each class and series of stock. If such a resolution is
approved, and the voting rights re-assigned to the control shares represent a
majority of
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all voting rights of the corporation's outstanding voting stock, then, unless
the corporation's articles of incorporation or by-laws provide otherwise, all
shareholders of the corporation shall be able to exercise dissenter's rights in
accordance with Florida law.
The corporation may, by amendment to its articles of incorporation or
by-laws, provide that, if the party acquiring the control shares does not submit
an acquiring person's statement in accordance with the statute, the corporation
may redeem the control shares at any time during the period ending 60 days after
the acquisition of control shares. If the acquiring party files an acquiring
person's statement, the control shares are not subject to redemption by the
corporation unless the shareholders, acting on the acquiring party's request,
deny full voting rights to the control shares.
The statute does not alter the voting rights of any stock of the
corporation acquired in any of the following manners: (i) pursuant to the laws
of intestate succession or pursuant to a gift or testamentary transfer; (ii)
pursuant to the satisfaction of a pledge or other security interest created in
good faith and not for the purpose of circumventing the statute; (iii) pursuant
to either a merger or share exchange if the corporation is a party to the
agreement or plan of merger or share exchange; (iv) pursuant to any savings,
employee stock ownership or other benefit plan of the corporation; or (v)
pursuant to an acquisition of shares specifically approved by the board of
directors of the corporation.
Although Southwest has not done so, it has the option to preclude
application of this statute by a provision in the Southwest Charter or the
Southwest By-laws.
In addition, there are various provisions in the Southwest Charter and the
Southwest By-laws that may serve as anti-takeover protections including: (1) the
staggered Southwest Board; (2) the ability of the Southwest Board to fill
vacancies (but only until the next selection of the class of directors for which
such director has been chosen) resulting from an increase in the number of
directors; (3) the supermajority voting requirements for certain corporate
transactions with interested persons; and (4) the broad range of factors that
the Southwest Board may consider in evaluating a tender offer proposal. In
addition, the Southwest Charter authorizes the Southwest Board, without further
shareholder action, to issue from time to time, up to 100,000 shares of
Southwest Preferred Stock. The Southwest Board is empowered to divide any and
all of the shares of the Southwest Preferred Stock into series and to fix and
determine the relative rights and preferences of the shares of any series so
established.
Neither FNB nor Southwest currently has a shareholders' rights plan.
Shareholders' rights plans, in a variety of forms, are common to many
corporations incorporated in the United States and serve to afford a
corporation's board of directors the opportunity to withstand an unsolicited
takeover attempt while providing the board sufficient time to evaluate the offer
and its adequacy and to consider alternative measures or transactions that may
be appropriate in responding to the offer. Both the PBCL and FBCA permit
shareholders' rights plans in general and permit the adoption of shareholders'
rights plans by a board of directors without shareholder approval.
LEGAL OPINIONS
The legality of the shares of FNB Common Stock to be issued to the holders
of Southwest Common Stock pursuant to its Merger will be passed upon by Cohen &
Grigsby, P.C., Pittsburgh, Pennsylvania. Cohen & Grigsby, P.C. has from time to
time acted as counsel in advising FNB and its affiliates with respect to certain
matters and in connection with various transactions. Cohen & Grigsby, P.C. did
not act as counsel to FNB or its affiliates with respect to the Merger or any
transaction in connection therewith.
The Merger Agreement provides as a condition to each party's obligation to
consummate the Merger that FNB and Southwest receive the opinion of Wachtell,
Lipton, Rosen & Katz, New York, New York, special counsel to FNB, substantially
to the effect that the Merger will constitute a "reorganization" under Section
368 of the Code.
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EXPERTS
The consolidated financial statements of FNB incorporated by reference in
FNB's Annual Report on Form 10-K for the year ended December 31, 1995, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report, incorporated therein and incorporated herein by reference. As to 1993,
their report is based in part on the reports of S.R. Snodgrass, A.C. independent
auditors. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
The consolidated financial statements of Southwest incorporated in this
Proxy Statement-Prospectus by reference to the Southwest Annual Report on Form
10-K for the year ended December 31, 1995 have been so incorporated in reliance
on the report of Hill, Barth & King, Inc., independent auditors, given on the
authority of such firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
The 1997 Annual Meeting of Southwest shareholders is tentatively scheduled
to be held in April 1997, subject to the earlier consummation of the Merger. In
the event that the 1997 Annual Meeting of Southwest shareholders is held,
proposals of shareholders intended to be presented at that meeting must be
received by December 19, 1996 for inclusion in Southwest's proxy statement and
form of proxy relating to such meeting. The submission of such proposals by
shareholders and the consideration of such proposals by Southwest for inclusion
in next year's proxy statement and form of proxy are subject to the applicable
rules and regulations of the Commission.
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the Southwest Board
knows of no matters that will be presented for consideration at the Special
Meeting other than as described in this Proxy Statement-Prospectus. However, if
any other matters shall properly come before the Special Meeting or any
adjournments or postponements thereof and be voted upon, the enclosed proxies
shall be deemed to confer discretionary authority on the individuals named as
proxies therein to vote the shares represented by such proxies as to any such
matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of Southwest.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
F.N.B. CORPORATION,
SOUTHWEST AFFILIATION CORPORATION
AND
SOUTHWEST BANKS, INC.
DATED AS OF FEBRUARY 2, 1996
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Parties.............................................................................. A-1
Preamble............................................................................. A-1
ARTICLE 1 -- TRANSACTIONS AND TERMS OF MERGER........................................ A-1
1.1 Merger....................................................................... A-1
1.2 Time and Place of Closing.................................................... A-1
1.3 Effective Time............................................................... A-1
1.4 Execution of Stock Option Agreement.......................................... A-2
ARTICLE 2 -- TERMS OF MERGER......................................................... A-2
2.1 Charter...................................................................... A-2
2.2 Bylaws....................................................................... A-2
2.3 FNB Board of Directors....................................................... A-2
ARTICLE 3 -- MANNER OF CONVERTING SHARES............................................. A-2
3.1 Conversion of Shares......................................................... A-2
3.2 Anti-Dilution Provisions..................................................... A-2
3.3 Shares Held by Southwest or FNB.............................................. A-2
3.4 Fractional Shares............................................................ A-3
3.5 Conversion of Stock Options.................................................. A-3
ARTICLE 4 -- EXCHANGE OF SHARES...................................................... A-4
4.1 Exchange Procedures.......................................................... A-4
4.2 Rights of Former Southwest Shareholders...................................... A-4
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF SOUTHWEST............................. A-5
5.1 Organization, Standing, and Power............................................ A-5
5.2 Authority; No Breach By Agreement............................................ A-5
5.3 Capital Stock................................................................ A-6
5.4 Southwest Subsidiaries....................................................... A-6
5.5 SEC Filings; Financial Statements............................................ A-6
5.6 Absence of Certain Changes or Events......................................... A-7
5.7 Tax Matters.................................................................. A-7
5.8 Assets....................................................................... A-8
5.9 Environmental Matters........................................................ A-8
5.10 Compliance With Laws......................................................... A-9
5.11 Labor Relations.............................................................. A-9
5.12 Employee Benefit Plans....................................................... A-9
5.13 Material Contracts........................................................... A-11
5.14 Legal Proceedings............................................................ A-11
5.15 Reports...................................................................... A-12
5.16 Statements True and Correct.................................................. A-12
5.17 Accounting, Tax and Regulatory Matters....................................... A-12
5.18 State Takeover Laws.......................................................... A-12
5.19 Charter Provisions........................................................... A-12
5.20 Derivatives Contracts........................................................ A-12
</TABLE>
A-i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF FNB................................... A-13
6.1 Organization, Standing, and Power............................................ A-13
6.2 Authority; No Breach By Agreement............................................ A-13
6.3 Capital Stock................................................................ A-13
6.4 SEC Filings; Financial Statements............................................ A-14
6.5 Absence of Certain Changes or Events......................................... A-14
6.6 Tax Matters.................................................................. A-14
6.7 Compliance With Laws......................................................... A-14
6.8 Legal Proceedings............................................................ A-15
6.9 Reports...................................................................... A-15
6.10 Statements True and Correct.................................................. A-15
6.11 Accounting, Tax and Regulatory Matters....................................... A-16
6.12 Environmental Matters........................................................ A-16
6.13 Derivatives Contracts........................................................ A-16
ARTICLE 7 -- CONDUCT OF BUSINESS PENDING CONSUMMATION................................ A-16
7.1 Affirmative Covenants of Southwest........................................... A-16
7.2 Negative Covenants of Southwest.............................................. A-16
7.3 Covenants of FNB............................................................. A-18
7.4 Adverse Changes in Condition................................................. A-18
7.5 Reports...................................................................... A-19
ARTICLE 8 -- ADDITIONAL AGREEMENTS................................................... A-19
8.1 Registration Statement; Proxy Statement; Shareholder Approval................ A-19
8.2 Exchange Listing............................................................. A-19
8.3 Applications................................................................. A-19
8.4 Filings with State Offices................................................... A-19
8.5 Agreement as to Efforts to Consummate........................................ A-19
8.6 Investigation and Confidentiality............................................ A-20
8.7 Press Releases............................................................... A-20
8.8 Certain Actions.............................................................. A-20
8.9 Accounting and Tax Treatment................................................. A-20
8.10 State Takeover Laws.......................................................... A-21
8.11 Charter Provisions........................................................... A-21
8.12 Agreement of Affiliates...................................................... A-21
8.13 Employee Benefits and Contracts.............................................. A-21
8.14 Indemnification.............................................................. A-22
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE....................... A-22
9.1 Conditions to Obligations of Each Party...................................... A-22
9.2 Conditions to Obligations of FNB............................................. A-23
9.3 Conditions to Obligations of Southwest....................................... A-24
ARTICLE 10 -- TERMINATION............................................................ A-25
10.1 Termination.................................................................. A-25
10.2 Effect of Termination........................................................ A-26
10.3 Non-Survival of Representations and Covenants................................ A-26
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 11 -- MISCELLANEOUS.......................................................... A-26
11.1 Definitions.................................................................. A-26
11.2 Expenses..................................................................... A-32
11.3 Brokers and Finders.......................................................... A-32
11.4 Entire Agreement............................................................. A-32
11.5 Amendments................................................................... A-32
11.6 Waivers...................................................................... A-32
11.7 Assignment................................................................... A-33
11.8 Notices...................................................................... A-33
11.9 Governing Law................................................................ A-34
11.10 Counterparts................................................................. A-34
11.11 Captions..................................................................... A-34
11.12 Interpretations.............................................................. A-34
11.13 Enforcement of Agreement..................................................... A-34
11.14 Severability................................................................. A-34
Signatures........................................................................... A-35
</TABLE>
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1. Form of Stock Option Agreement. (Section 1.4).
2. Form of agreement of affiliates of Southwest. (Section 8.12).
</TABLE>
A-iv
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of February 2, 1996, by and among F.N.B. CORPORATION ("FNB"), a
Pennsylvania corporation having its principal office located in Hermitage,
Pennsylvania; SOUTHWEST AFFILIATION CORPORATION, a newly incorporated Florida
corporation and a wholly-owned subsidiary of FNB ("Merger Sub"); and SOUTHWEST
BANKS, INC. ("Southwest"), a Florida corporation having its principal office
located in Naples, Florida.
PREAMBLE
The Boards of Directors of Southwest and FNB are of the opinion that the
strategic affiliation described herein is in the best interests of the parties
and their respective shareholders. This Agreement provides for the acquisition
of Southwest by FNB pursuant to the merger of Merger Sub with and into
Southwest. At the effective time of such merger, the outstanding shares of the
capital stock of Southwest shall be converted into the right to receive shares
of the common stock of FNB (except as provided herein). As a result,
shareholders of Southwest shall become shareholders of FNB. Further, it is the
current intention of FNB, subsequent to the effective time of this strategic
affiliation, to retain the management team of Southwest with the authority and
responsibility for operating Southwest and its subsidiaries in substantially
same manner and fashion as historically operated by such management team. The
transactions described in this Agreement are subject to the approvals of the
shareholders of Southwest, the Board of Governors of the Federal Reserve System,
the Florida Department of Banking and Finance, 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 for accounting purposes shall qualify
for treatment as a pooling of interests.
Immediately after the execution and delivery of this Agreement, as a
condition and inducement to FNB's willingness to enter into this Agreement,
Southwest and FNB are entering into a stock option agreement (the "Stock Option
Agreement"), in substantially the form of Exhibit 1, pursuant to which Southwest
is granting to FNB an option to purchase shares of Southwest Common Stock.
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, Merger Sub shall be merged with and into Southwest in accordance
with the provisions of the FBCA (the "Merger"). Southwest shall be the Surviving
Corporation resulting from the Merger and shall continue to be governed by the
Laws of the State of Florida. 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 Southwest, Merger Sub and FNB.
1.2 Time and Place of Closing. The closing will take place at 9:00 A.M. on
the date that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their chief executive officers or chief financial officers, may
mutually agree. The place of closing shall be at such location as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Florida
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Florida (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
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reasonable efforts to cause the Effective Time to occur on or before the fifth
business day (as designated by FNB) following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Merger, and (ii) the date on which the shareholders
of Southwest approve this Agreement to the extent such approval is required by
applicable Law; provided, however, that in no event shall the Effective Time
occur prior to January 1, 1997, unless FNB determines in its sole discretion to
permit the Effective Time to occur prior to January 1, 1997, but not earlier
than December 16, 1996.
1.4 Execution of Stock Option Agreement. Immediately after the execution
of this Agreement and as a condition thereto, Southwest is executing and
delivering to FNB the Stock Option Agreement.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. The Articles of Incorporation of Southwest in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of Southwest in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 FNB Board of Directors. Following the Effective Time, the number of
members of the FNB Board of Directors shall be increased by three, and three of
the then current directors of Southwest shall be nominated by the FNB Board of
Directors and elected to such Board.
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 FNB, Merger Sub or Southwest, or the shareholders of any of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of FNB Capital Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of common stock of the Merger Sub issued and
outstanding immediately prior to the Effective Time shall become and be
converted into one share of Southwest Common Stock and shall remain issued
and outstanding.
(c) Each share of Southwest Common Stock (excluding shares held by any
Southwest Company or any FNB Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted) issued
and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for 0.78 shares of FNB Common Stock
(subject to possible adjustment pursuant to Section 10.1(g) of this
Agreement, the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event FNB changes the number of
shares of FNB Common Stock issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend or similar recapitalization 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 Shares Held by Southwest or FNB. Each of the shares of Southwest
Common Stock held by any Southwest Company or by any FNB Company, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
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3.4 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Southwest Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of FNB 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 FNB Common Stock multiplied
by the market value of one share of FNB Common Stock at the Effective Time. The
market value of one share of FNB Common Stock at the Effective Time shall be the
average of the high bid and low asked prices of such common stock in the
over-the-counter market, as reported by Nasdaq (or, if not reported thereby, any
other authoritative source selected by FNB) on the last trading day preceding
the Effective Time. No such holder will be entitled to dividends, voting rights,
or any other rights as a shareholder in respect of any fractional shares.
3.5 Conversion of Stock Options.
(a) At the Effective Time, each option, warrant or other right to purchase
shares of Southwest Common Stock pursuant to outstanding stock options, warrant
agreements or stock appreciation rights ("Southwest Options") granted by
Southwest under the Southwest Stock Plans identified in Section 3.5 of the
Southwest Disclosure Memorandum, which are outstanding at the Effective Time,
whether or not exercisable, shall be converted into and become rights with
respect to FNB Common Stock, and FNB shall assume each Southwest Option, in
accordance with the terms of the Southwest Stock Plan, stock option agreement or
warrant agreement by which it is evidenced, except that from and after the
Effective Time, (i) FNB and its Compensation Committee shall be substituted for
Southwest and the Compensation Committee of Southwest's Board of Directors
(including, if applicable, the entire Board of Directors of Southwest)
administering such Southwest Stock Plan, (ii) each Southwest Option assumed by
FNB may be exercised solely for shares of FNB Common Stock (or cash in the case
of stock appreciation rights), (iii) the number of shares of FNB Common Stock
subject to such Southwest Option shall be equal to the number of shares of
Southwest Common Stock subject to such Southwest Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, and (iv) the per share exercise
price under each such Southwest Option shall be adjusted by dividing the per
share exercise price under each such Southwest Option by the Exchange Ratio and
rounding down to the nearest cent. Notwithstanding the provisions of clause
(iii) of the preceding sentence, FNB shall not be obligated to issue any
fraction of a share of FNB Common Stock upon exercise of Southwest Options and
any fraction of a share of FNB Common Stock that otherwise would be subject to a
converted Southwest Option shall represent the right to receive a cash payment
equal to the product of such fraction and the difference between the market
value of one share of FNB Common Stock and the per share exercise price of such
Option. In addition, notwithstanding the provisions of clauses (iii) and (iv) of
the first sentence of this Section 3.5, each Southwest Option which is an
"incentive stock option" shall be adjusted as required by Section 424 of the
Internal Revenue Code, and the regulations promulgated thereunder, so as not to
constitute a modification, extension, or renewal of the option within the
meaning of Section 424(h) of the Internal Revenue Code. Southwest agrees to take
all necessary steps to effectuate the foregoing provisions of this Section 3.5.
(b) As soon as practicable after the Effective Time, FNB shall deliver to
the participants in each Southwest Stock Plan an appropriate notice setting
forth such participant's rights pursuant thereto and the grants pursuant to such
Southwest Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 3.5(a) after giving effect to
the Merger), and FNB shall comply with the terms of each Southwest Stock Plan to
ensure, to the extent required by, and subject to the provisions of, such
Southwest Stock Plan, that Southwest Options which qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time.
At or prior to the Effective Time, FNB shall take all corporate action
necessary to reserve for issuance sufficient shares of FNB Common Stock for
delivery upon exercise of Southwest Options assumed by it in accordance with
this Section 3.5. As soon as practicable after the Effective Time, FNB shall
file a registration statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), with respect to the shares of FNB
Common Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding. With respect to those
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individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the 1934 Act, where applicable, FNB shall
administer the Southwest Stock Plan assumed pursuant to this Section 3.5 in a
manner that complies with Rule 16b-3 promulgated under the 1934 Act to the
extent the Southwest Stock Plan complied with such rule prior to the Merger.
(c) All restrictions or limitations on transfer with respect to Southwest
Common Stock awarded under the Southwest Stock Plans or any other plan, program,
or arrangement of any Southwest Company, to the extent that such restrictions or
limitations shall not have already lapsed, and except as otherwise expressly
provided in such plan, program, or arrangement, shall remain in full force and
effect with respect to shares of FNB Common Stock into which such restricted
stock is converted pursuant to Section 3.1 of this Agreement.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, FNB and
Southwest shall cause the exchange agent selected by FNB (the "Exchange Agent")
to mail to the former shareholders of Southwest appropriate transmittal
materials (which shall specify that delivery shall be effected, and risk of loss
and title to the certificates theretofore representing shares of Southwest
Common Stock shall pass, only upon proper delivery of such certificates to the
Exchange Agent). After the Effective Time, each holder of shares of Southwest
Common Stock (other than shares to be canceled pursuant to Section 3.3 of this
Agreement) 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 3.4 of this Agreement, each holder of shares of Southwest
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 FNB Common Stock to which such holder may be
otherwise entitled (without interest). FNB shall not be obligated to deliver the
consideration to which any former holder of Southwest Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's certificate
or certificates representing the shares of Southwest Common Stock for exchange
as provided in this Section 4.1. The certificate or certificates of Southwest
Common Stock so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding, neither FNB nor
the Exchange Agent shall be liable to a holder of Southwest 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 Southwest Shareholders. At the Effective Time, the
stock transfer books of Southwest shall be closed as to holders of Southwest
Common Stock immediately prior to the Effective Time and no transfer of
Southwest 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 Southwest Common Stock (other than shares to be canceled pursuant to Section
3.3 of this Agreement) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 3.1
and 3.4 of this Agreement in exchange therefor, subject, however, to FNB'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 Southwest
in respect of such shares of Southwest 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 FNB on the FNB 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 FNB Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Southwest 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
Southwest Common Stock
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certificate, both the FNB 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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SOUTHWEST
Southwest hereby represents and warrants to FNB as follows:
5.1 Organization, Standing, and Power. Southwest is a corporation duly
organized, validly existing, and in good standing 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. Southwest is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions 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 Southwest.
5.2 Authority; No Breach by Agreement.
(a) Southwest has 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 Southwest, subject to the
approval of this Agreement by the holders of a majority of the outstanding
shares of Southwest Common Stock other than those shares beneficially owned by
FNB, which is the only shareholder vote required for approval of this Agreement
and consummation of the Merger by Southwest. Subject to such requisite
shareholder approval, this Agreement represents a legal, valid, and binding
obligation of Southwest, enforceable against Southwest 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
Southwest Board of Directors has received from The Robinson-Humphrey Company,
Inc. a letter dated as of the date of this Agreement 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 Southwest Common Stock.
(b) Neither the execution and delivery of this Agreement by Southwest, nor
the consummation by Southwest of the transactions contemplated hereby, nor
compliance by Southwest with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of Southwest's Articles of
Incorporation or Bylaws, or, (ii) except as disclosed in Section 5.2(b)(ii) of
the Southwest Disclosure Memorandum, 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 Southwest Company under, any Contract or Permit of any Southwest
Company, 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 Southwest, 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 Southwest Company 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
the NASD, 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,
or under the HSR Act, 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 Southwest, no notice to, filing
with, or Consent of, any public
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body or authority is necessary for the consummation by Southwest of the Merger
and the other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of Southwest consists of (i) 25,000,000
shares of Southwest Common Stock, of which 3,654,089 shares are issued and
outstanding as of the date of this Agreement and not more than 4,000,855 shares
will be issued and outstanding at the Effective Time, and (ii) 100,000 shares of
preferred stock, par value $0.10 per share, none of which is issued and
outstanding. All of the issued and outstanding shares of capital stock of
Southwest are duly and validly issued and outstanding and are fully paid and
nonassessable under the FBCA. None of the outstanding shares of capital stock of
Southwest has been issued in violation of any preemptive rights of the current
or past shareholders of Southwest. Southwest has reserved 651,194 shares of
Southwest Common Stock for issuance under the Southwest Stock Plans, pursuant to
which options and warrants to purchase not more than 452,930 shares of Southwest
Common Stock are outstanding.
(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 Southwest outstanding and no outstanding Rights
relating to the capital stock of Southwest.
5.4 Southwest Subsidiaries. Southwest has disclosed in Section 5.4 of the
Southwest Disclosure Memorandum all of the Southwest Subsidiaries as of the date
of this Agreement. Except as disclosed in Section 5.4 of the Southwest
Disclosure Memorandum, Southwest or one of its Subsidiaries owns all of the
issued and outstanding shares of capital stock of each Southwest Subsidiary. No
equity securities of any Southwest Subsidiary are or may become required to be
issued (other than to another Southwest Company) by reason of any Rights, and
there are no Contracts by which any Southwest Subsidiary is bound to issue
(other than to another Southwest Company) additional shares of its capital stock
or Rights or by which any Southwest Company is or may be bound to transfer any
shares of the capital stock of any Southwest Subsidiary (other than to another
Southwest Company). There are no Contracts relating to the rights of any
Southwest Company to vote or to dispose of any shares of the capital stock of
any Southwest Subsidiary. All of the shares of capital stock of each Southwest
Subsidiary held by a Southwest Company are fully paid and nonassessable under
the applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Southwest Company free and clear
of any Lien. Each Southwest 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. Each Southwest
Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions 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 Southwest. Each Southwest 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.
5.5 SEC Filings; Financial Statements.
(a) Southwest has filed and made available to FNB all forms, reports, and
documents required to be filed by Southwest with the SEC since December 31, 1992
(collectively, the "Southwest SEC Reports"). The Southwest SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the 1933 Act and the 1934 Act, as the case may be, and (ii) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated in such Southwest SEC Reports or necessary in order to make the
statements in such Southwest SEC Reports, in light of the circumstances under
which they were made, not misleading. Except for Southwest Subsidiaries that are
registered as a broker, dealer or investment advisor, none of Southwest's
Subsidiaries is required to file any forms, reports, or other documents with the
SEC. Southwest has made available to FNB a copy of the
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balance sheets and the related consolidated statements of income, consolidated
statement of changes in shareholders' equity (including related notes and
schedules) of its subsidiary banks as of and for the period ended December 31,
1995 and any draft consolidated statements or earnings releases for Southwest
and its consolidated subsidiaries as of and for the period ended December 31,
1995 that have been prepared by Southwest as of the date of this Agreement.
(b) Each of the Southwest Financial Statements (including, in each case,
any related notes) contained in the Southwest SEC Reports, including any
Southwest SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, 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,
or, in the case of unaudited statements, as permitted by Form 10-QSB of the
SEC), and fairly presented the consolidated financial position of Southwest and
its Subsidiaries as 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.
5.6 Absence of Certain Changes or Events. Since September 30, 1995, except
as disclosed in Section 5.6 of the Southwest Disclosure Memorandum, (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
Southwest, and (ii) the Southwest 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
Southwest provided in Article 7 of this Agreement.
5.7 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any of the
Southwest Companies have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on Southwest, and all Tax Returns filed are complete and accurate
in all material respects to the Knowledge of Southwest. 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 Southwest, except as reserved against in the Southwest
Financial Statements delivered prior to the date of this Agreement or as
disclosed in Section 5.7 of the Southwest Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) Except as disclosed in Section 5.7 of the Southwest Disclosure
Memorandum, none of the Southwest Companies has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for any of the
Southwest Companies for the period or periods through and including the date of
the respective Southwest Financial Statements has been made and is reflected on
such Southwest Financial Statements, except as disclosed in Section 5.7 of the
Southwest Disclosure Memorandum.
(d) Deferred Taxes of the Southwest Companies have been adequately provided
for in the Southwest Financial Statements.
(e) Each of the Southwest 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
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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 Southwest.
(f) Except as disclosed in Section 5.7 of the Southwest Disclosure
Memorandum, none of the Southwest Companies has made any payments, is 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 the
Southwest Companies.
(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the Southwest Companies that occurred during or after
any Taxable Period in which the Southwest Companies incurred a net operating
loss that carries over to any Taxable Period ending after December 31, 1994.
(i) No Southwest Company has filed any consent under Section 341(f) of the
Internal Revenue Code concerning collapsible corporation.
(j) All material elections with respect to Taxes affecting the Southwest
Companies as of the date of this Agreement have been or will be timely made as
set forth in Section 5.7 of the Southwest Disclosure Memorandum. After the date
hereof, other than as set forth in Section 5.7 of the Southwest Disclosure
Memorandum, no election with respect to Taxes will be made without the prior
written consent of FNB, which consent will not be unreasonably withheld.
(k) No Southwest Company has or has had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or convention between
the United States and such foreign country.
5.8 Assets. Except as disclosed in Section 5.8 of the Southwest Disclosure
Memorandum, the Southwest Companies have good and marketable title, free and
clear of all Liens, to all of their respective Assets. All tangible properties
used in the businesses of the Southwest Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with Southwest's past practices. All Assets which are
material to Southwest's business on a consolidated basis, held under leases or
subleases by any of the Southwest Companies, 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.
The Southwest Companies currently maintain insurance in amounts, scope, and
coverage as disclosed in Section 5.8 of the Southwest Disclosure Memorandum.
None of the Southwest Companies has 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
Section 5.8 of the Southwest Disclosure Memorandum, there are presently no
claims pending under such policies of insurance and no notices have been given
by any Southwest Company under such policies. The Assets of the Southwest
Companies include all Assets required to operate the business of the Southwest
Companies as presently conducted.
5.9 Environmental Matters.
(a) To the Knowledge of Southwest, except as disclosed in Section 5.9 of
the Southwest Disclosure Memorandum, each Southwest Company, 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 Southwest.
(b) Except as disclosed in Section 5.9 of the Southwest Disclosure
Memorandum, to the Knowledge of Southwest, there is no Litigation pending or
threatened before any court, governmental agency, or authority or other forum in
which any Southwest Company or any of its Loan Properties or Participation
Facilities (or any Southwest 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
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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 Southwest.
(c) To the Knowledge of Southwest, except as disclosed in Section 5.9 of
the Southwest Disclosure Memorandum, 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 Southwest.
(d) To the Knowledge of Southwest, except as disclosed in Section 5.9 of
the Southwest Disclosure Memorandum, there have been no releases of Hazardous
Material in, on, under, or affecting any Participation Facility or Loan Property
of a Southwest Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Southwest.
5.10 Compliance With Laws. Southwest is duly registered as a bank holding
company under the BHC Act. Each Southwest 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 Southwest, 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 Southwest. None
of the Southwest Companies:
(a) is 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 Southwest; and
(b) has 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 any Southwest Company 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 Southwest, (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 Southwest, or (iii) requiring any
Southwest Company 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.
5.11 Labor Relations. No Southwest Company is the subject of any
Litigation asserting that it or any other Southwest Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Southwest Company to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving any Southwest Company,
pending or threatened, or to the Knowledge of Southwest, is there any activity
involving any Southwest Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
5.12 Employee Benefit Plans.
(a) Southwest has disclosed in Section 5.12 of the Southwest Disclosure
Memorandum, and has delivered or made available to FNB 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 plan, 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 any Southwest Company or ERISA Affiliate (as defined
below) thereof for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees,
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retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Southwest Benefit
Plans"). Any of the Southwest 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 "Southwest ERISA Plan." Each Southwest ERISA Plan which is also a
"defined benefit plan" (as defined in Section 4140) of the Internal Revenue
Code) is referred to herein as a "Southwest Pension Plan." No Southwest Pension
Plan is or has been a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(b) Except as disclosed in Section 5.12 of the Southwest Disclosure
Memorandum, all Southwest 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 Southwest, and each Southwest 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 Southwest is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. Except as
disclosed in Section 5.12 of the Southwest Disclosure Memorandum, to the
Knowledge of Southwest, no Southwest Company has engaged in a transaction with
respect to any Southwest Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any Southwest Company
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 Southwest.
(c) Except as disclosed in Section 5.12 of the Southwest Disclosure
Memorandum, no Southwest 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 Section 5.12 of the
Southwest Disclosure Memorandum, since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
any Southwest Pension Plan, (ii) no change in the actuarial assumptions with
respect to any Southwest Pension Plan, and (iii) no increase in benefits under
any Southwest 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 Southwest or materially adversely affect
the funding status of any such plan. Neither any Southwest Pension Plan nor any
"single- employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Southwest Company, or the
single-employer plan of any entity which is considered one employer with
Southwest 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
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 Southwest. No Southwest Company has provided,
or is required to provide, security to a Southwest 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 any Southwest Company 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 Southwest. No Southwest Company has 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 Southwest.
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 Southwest Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof
(e) Except as disclosed in Section 5.12 of the Southwest Disclosure
Memorandum, no Southwest Company has any Liability for retiree health and life
benefits under any of the Southwest Benefit Plans and there are no restrictions
on the rights of such Southwest Company to amend or terminate any such plan
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without incurring any Liability thereunder, which Liability is reasonably likely
to have a Material Adverse Effect on Southwest.
(f) Except as disclosed in Section 5.12 of the Southwest Disclosure
Memorandum, 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 Southwest Company
from any Southwest Company under any Southwest Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Southwest 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 Southwest.
(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 any Southwest Company 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 Southwest Financial Statements to the extent
required by and in accordance with GAAP.
5.13 Material Contracts. Except as disclosed in Section 5.13 of the
Southwest Disclosure Memorandum, none of the Southwest Companies, nor any of
their respective Assets, businesses, or operations, is a party to, or is bound
or affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $100,000, (ii) any Contract
relating to the borrowing of money by any Southwest Company or the guarantee by
any Southwest Company of any such obligation (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 that would be required to be filed as an exhibit to a Form
10-KSB filed by Southwest with the SEC as of the date of this Agreement that has
not been filed as an exhibit to Southwest's Form 10-KSB filed for the fiscal
year ended December 31, 1994, or in another SEC Document and identified to FNB
(together with all Contracts referred to in Sections 5.8 and 5.12(a) of this
Agreement, the "Southwest Contracts"). With respect to each Southwest Contract
and except as disclosed in Section 5.13 of the Southwest Disclosure Memorandum:
(i) the Contract is in full force and effect; (ii) no Southwest Company is in
Default thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Southwest; (iii)
no Southwest Company has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
Southwest, 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 Southwest, or has repudiated or waived any material provision
thereunder. Except for Federal Home Loan Bank advances, all of the indebtedness
of any Southwest Company for money borrowed is prepayable at any time by such
Southwest Company without penalty or premium.
5.14 Legal Proceedings. Except as disclosed in Section 5.14 of the
Southwest Disclosure Memorandum, there is no Litigation instituted or pending,
or, to the Knowledge of Southwest, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any Southwest Company, 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 Southwest, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any Southwest
Company, that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Southwest. Section 5.14 of the Southwest Disclosure
Memorandum includes a summary report of all Litigation as of the date of this
Agreement to which any Southwest Company is a party and which names a Southwest
Company as a defendant or cross-defendant and where the estimated maximum
exposure to be $100,000 or more.
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5.15 Reports. Since January 1, 1992, or the date of organization if later,
each Southwest Company has timely filed 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 (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 Southwest).
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.
5.16 Statements True and Correct. None of the information supplied or to
be supplied by any Southwest Company or any Affiliate thereof for inclusion in
the Registration Statement to be filed by FNB 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 any Southwest Company or any Affiliate thereof for inclusion in the
Proxy Statement to be mailed to Southwest's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by a Southwest
Company or any Affiliate thereof 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 Southwest, 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 any Southwest Company or any Affiliate thereof 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.
5.17 Accounting, Tax and Regulatory Matters. No Southwest Company or any
Affiliate thereof has 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 for
pooling-of-interests accounting treatment or 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.
5.18 State Takeover Laws. Each Southwest Company has taken all necessary
action to exempt the transactions contemplated by this Agreement from any
applicable "moratorium," "control share," "fair price," "business combination,"
or other anti-takeover laws and regulations of the State of Florida
(collectively, "Takeover Laws").
5.19 Charter Provisions. Each Southwest Company 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 Incorporation, Bylaws, or other governing
instruments of any Southwest Company or restrict or impair the ability of FNB or
any of its Subsidiaries to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Southwest Company that may be
directly or indirectly acquired or controlled by it.
5.20 Derivatives Contracts. Except as disclosed in Section 5.20 of the
Southwest Disclosure Memorandum, neither Southwest nor any of its Subsidiaries
is a party to or has 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
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contract (including various combinations thereof) (each a "Derivatives
Contract"), except for those Derivatives Contracts set forth in Section 5.20 of
the Southwest Disclosure Memorandum.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF FNB
FNB hereby represents and warrants to Southwest as follows:
6.1 Organization, Standing, and Power. FNB is a corporation duly
organized, validly existing, and in good standing under the Laws of the
Commonwealth of Pennsylvania, and has the corporate power and authority to carry
on its business as now conducted and to own, lease, and operate its material
Assets. FNB is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions 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 FNB.
6.2 Authority; No Breach By Agreement.
(a) FNB has 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 FNB. This Agreement
represents a legal, valid, and binding obligation of FNB, enforceable against
FNB 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 FNB, nor the
consummation by FNB of the transactions contemplated hereby, nor compliance by
FNB with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of FNB's Articles of Incorporation or Bylaws, 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 FNB Company under, any
Contract or Permit of any FNB Company, 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 FNB, 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 FNB Company 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
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,
or under the HSR Act, 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 FNB, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
FNB of the Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of FNB consists of
20,000,000 shares of FNB Common Stock, of which 8,611,814 shares were issued and
outstanding as of December 31, 1995 and (ii) 20,000,000 shares of FNB Preferred
Stock, of which 451,638 shares were issued and outstanding as of December 31,
1995. All of the issued and outstanding shares of FNB Capital Stock are, and all
of the shares of FNB Common Stock to be issued in exchange for shares of
Southwest Common Stock upon consummation of the Merger, 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 PBCL. None of the
outstanding shares of FNB Capital
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Stock has been, and none of the shares of FNB Common Stock to be issued in
exchange for shares of Southwest Common Stock upon consummation of the Merger
will be, issued in violation of any preemptive rights of the current or past
shareholders of FNB.
6.4 SEC Filings; Financial Statements.
(a) FNB has filed and made available to Southwest all forms, reports, and
documents required to be filed by FNB with the SEC since December 31, 1992,
other than registration statements on Forms S-4 and S-8 (collectively, the "FNB
SEC Reports"). The FNB SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the 1933 Act and the 1934
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such FNB SEC Reports or
necessary in order to make the statements in such FNB SEC Reports, in light of
the circumstances under which they were made, not misleading.
(b) Each of the FNB Financial Statements (including, in each case, any
related notes) contained in the FNB SEC Reports, including any FNB SEC Reports
filed after the date of this Agreement until the Effective Time, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, 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 or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC), and fairly
presented the consolidated financial position of FNB and its Subsidiaries as 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.
6.5 Absence of Certain Changes or Events. Since September 30, 1995, except
as disclosed in the FNB 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 FNB, and (ii) the FNB 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 FNB
provided in Article 7 of this Agreement.
6.6 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any of the FNB
Companies have been timely filed or requests for extensions have been timely
filed, granted, and have not expired for periods ended on or before December 31,
1995, and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, except to the extent that all such failures to
file, taken together, are not reasonably likely to have a Material Adverse
Effect on FNB, and all Tax Returns filed are complete and accurate in all
material respects. 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 FNB, except as
reserved against in the FNB 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
FNB Companies for the period or periods through and including the date of the
respective FNB Financial Statements has been made and is reflected on such FNB
Financial Statements.
(c) Deferred Taxes of the FNB Companies have been adequately provided for
in the FNB Financial Statements.
6.7 Compliance With Laws. FNB is duly registered as a bank holding company
under the BHC Act. Each FNB 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
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likely to have, individually or in the aggregate, a Material Adverse Effect on
FNB, 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 FNB. No FNB Company:
(a) is 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 FNB; and
(b) has 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 any FNB Company 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 FNB, (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 FNB, or (iii) requiring any FNB Company 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.
6.8 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of FNB, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any FNB Company, 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 FNB, nor are there any Orders of any
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any FNB Company, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FNB.
6.9 Reports. Since January 1, 1992, or the date of organization if later,
each FNB Company 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 FNB). 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.
6.10 Statements True and Correct. None of the information supplied or to
be supplied by any FNB Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by FNB 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 any FNB Company or any Affiliate thereof for inclusion in the Proxy
Statement to be mailed to Southwest's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by any FNB Company or
any Affiliate thereof 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 Southwest, 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 any FNB Company or any Affiliate thereof 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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6.11 Accounting, Tax and Regulatory Matters. No FNB Company or any
Affiliate thereof has 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.
6.12 Environmental Matters.
(a) To the Knowledge of FNB, except as disclosed in Section 6.12 of the FNB
Disclosure Memorandum, each FNB Company, 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 FNB.
(b) Except as disclosed in Section 6.12 of the FNB Disclosure Memorandum,
there is no Litigation pending, or, to the Knowledge of FNB, threatened before
any court, governmental agency, or authority or other forum in which any FNB
Company or any of its Loan Properties or Participation Facilities (or any FNB
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 FNB.
(c) To the Knowledge of FNB, except as disclosed in Section 6.12 of the FNB
Disclosure Memorandum, 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 FNB.
(d) To the Knowledge of FNB, except as disclosed in Section 6.12 of the FNB
Disclosure Memorandum, there have been no releases of Hazardous Material in, on,
under, or affecting any Participation Facility or Loan Property of a FNB
Company, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FNB.
6.13 Derivatives Contracts. Neither FNB nor any of its Subsidiaries is a
party to or has agreed to enter into a Derivatives Contract, except for those
Derivatives Contracts set forth in Section 6.13 of the FNB Disclosure
Memorandum.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Southwest. Unless the prior written consent
of FNB shall have been obtained, and except as otherwise expressly contemplated
herein, Southwest shall and shall cause each of its Subsidiaries to (i) operate
its business only in the usual, regular, and ordinary course, (ii) preserve
intact its business organization and Assets and maintain its rights and
franchises, (iii) use its reasonable efforts to maintain its current employee
relationships, and (iv) take no action which would (a) 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)
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
7.2 Negative Covenants of Southwest. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement,
Southwest covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the
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prior written consent of the chief executive officer, president, chief financial
officer, or any executive vice president of FNB:
(a) amend the Articles of Incorporation, Bylaws, or other governing
instruments of any Southwest Company or, except as expressly contemplated
by this Agreement; or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Southwest Company to another
Southwest Company) in excess of an aggregate of $100,000 (for the Southwest
Companies on a consolidated basis) except in the ordinary course of the
business of Southwest Subsidiaries consistent with past practices (which
shall include, for Southwest Subsidiaries that are depository institutions,
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 any
Southwest Company 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 that are disclosed in the
Southwest Disclosure Memorandum); 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 Southwest Company, or declare or pay any dividend
or make any other distribution in respect of Southwest's capital stock; or
(d) except for this Agreement, or pursuant to the Stock Option
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 Section 7.2(d) of the Southwest Disclosure
Memorandum, 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 Southwest Common Stock or any other capital stock of any
Southwest Company, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any
security convertible into any such stock; or
(e) adjust, split, combine, or reclassify any capital stock of any
Southwest Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Southwest Common
Stock, or sell, lease, mortgage, or otherwise dispose of or otherwise
encumber (x) any shares of capital stock of any Southwest Subsidiary
(unless any such shares of stock are sold or otherwise transferred to
another Southwest Company) 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 other than a wholly owned Southwest Subsidiary, 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 a depository institution Subsidiary 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 employees or
officers of any Southwest Company, except in accordance with past practice
disclosed in Section 7.2(g) of the Southwest Disclosure Memorandum or as
required by Law; 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 or as otherwise disclosed in Section 7.2(g) of the
Southwest Disclosure Memorandum; enter into or amend any severance
agreements with officers of any Southwest Company; grant any material
increase in fees or other increases in compensation or other benefits to
directors of any Southwest Company except in
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accordance with past practice disclosed in Section 7.2(g) of the Southwest
Disclosure Memorandum; 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 any Southwest
Company and any Person (unless such amendment is required by Law) that the
Southwest Company 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) except as disclosed in Section 7.2(i) of the Southwest Disclosure
Memorandum, adopt any new employee benefit plan of any Southwest Company or
make any material change in or to any existing employee benefit plans of
any Southwest Company 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) except as disclosed in Section 7.2(k) of the Southwest Disclosure
Memorandum, commence any Litigation other than in accordance with past
practice or settle any Litigation involving any Liability of any Southwest
Company for material money damages or restrictions upon the operations of
any Southwest Company; or
(l) except in the ordinary course of business, modify, amend, or
terminate any material Contract or waive, release, compromise, or assign
any material rights or claims; or
(m) except for transactions in the ordinary course of business
consistent with past practice, make any investment in excess of $100,000
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 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; or
(o) agree to, or make any commitment to, take any of the actions
prohibited by this Section 7.2.
7.3 Covenants of FNB. From the date of this Agreement until the earlier of
the Effective Time or the termination of this Agreement, FNB 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 FNB Common Stock and the business prospects of the FNB
Companies, 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 any FNB Company from discontinuing or disposing of any of its Assets or
business if such action is, in the judgment of FNB, desirable in the conduct of
the business of FNB and its Subsidiaries. FNB further covenants and agrees that
it will not, without the prior written consent of the Chairman and Chief
Executive Officer of Southwest, which consent shall not be unreasonably
withheld, amend the Articles of Incorporation or Bylaws of FNB, in each case in
any manner adverse to the holders of Southwest 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 or any of its
Subsidiaries 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,
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warranties, or covenants contained herein, and to use its reasonable efforts to
prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party 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). 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.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval. As soon
as practicable after execution of this Agreement, FNB shall file the
Registration Statement with the SEC, and shall use its reasonable 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 FNB Common
Stock upon consummation of the Merger. Southwest shall furnish all information
concerning it and the holders of its capital stock as FNB may reasonably request
in connection with such action. Southwest 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 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) Southwest shall prepare and file with the SEC a Proxy
Statement 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 Southwest shall recommend (subject to compliance with their
fiduciary duties as advised by counsel) to its shareholders the approval of this
Agreement, and (iv) the Board of Directors and officers of Southwest shall
(subject to compliance with their fiduciary duties as advised by counsel) use
their reasonable efforts to obtain such shareholders' approval.
8.2 Exchange Listing. Southwest shall use its reasonable best efforts to
list, prior to the record date for determining shareholders entitled to vote at
the Shareholders' Meeting, for trading on the Nasdaq as national market
securities, the shares of Southwest Common Stock.
8.3 Applications. FNB shall promptly prepare and file, and Southwest 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.
8.4 Filings With State Offices. Upon the terms and subject to the
conditions of this Agreement, FNB shall execute and file the Florida Certificate
of Merger with the Secretary of State of the State of Florida in connection with
the Closing.
8.5 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 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 using its reasonable efforts to lift or rescind any
Order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied
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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. Each Party shall use, and shall cause each of its Subsidiaries to
use, its reasonable efforts to obtain all Consents necessary or desirable for
the consummation of the transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreements, each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party.
(c) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant, or agreement of the other Party or which
has had or is reasonably likely to have a Material Adverse Effect on the other
Party.
8.7 Press Releases. Prior to the Effective Time, Southwest and FNB 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 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no Southwest Company nor any Affiliate thereof
nor any Representatives thereof retained by any Southwest Company shall directly
or indirectly solicit any Acquisition Proposal by any Person. Except to the
extent necessary to comply with the fiduciary duties of Southwest's Board of
Directors as advised by Smith, Gambrell & Russell or other outside counsel
reasonably acceptable to FNB, no Southwest Company or any Affiliate or
Representative thereof shall furnish any nonpublic information that it is not
legally obligated to furnish or negotiate with respect to, any Acquisition
Proposal, but Southwest 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. Southwest
shall promptly notify FNB orally and in writing in the event that it receives
any inquiry or proposal relating to any such transaction. Southwest 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 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 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. Southwest undertakes and agrees to use its reasonable
efforts to cause the Merger, and to take no action that would cause the Merger
not, to qualify for pooling-of-interests accounting treatment.
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8.10 State Takeover Laws. Each Southwest Company shall take all necessary
steps to exempt the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable Takeover
Laws.
8.11 Charter Provisions. Each Southwest Company 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 Incorporation, Bylaws, or other governing
instruments of any Southwest Company or restrict or impair the ability of FNB or
any of its Subsidiaries to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Southwest Company that may be
directly or indirectly acquired or controlled by it.
8.12 Agreement of Affiliates. Southwest has disclosed in Section 8.12 of
the Southwest Disclosure Memorandum all Persons whom it reasonably believes are
"affiliates" of Southwest for purposes of Rule 145 under the 1933 Act. Southwest
shall use its reasonable efforts to cause each such Person to deliver to FNB not
later than 30 days prior to the Effective Time, a written agreement,
substantially in the form of Exhibit 2, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of Southwest 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 FNB 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 until such time as financial results
covering at least 30 days of combined operations of FNB and Southwest have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. Shares of FNB Common Stock issued to such
affiliates of Southwest in exchange for shares of Southwest Common Stock shall
not be transferable until such time as financial results covering at least 30
days of combined operations of FNB and Southwest have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the written
agreement referred to in this Section 8.12 (and FNB shall be entitled to place
restrictive legends upon certificates for shares of FNB Common Stock issued to
affiliates of Southwest pursuant to this Agreement to enforce the provisions of
this Section 8.12). FNB shall not be required to maintain the effectiveness of
the Registration Statement under the 1933 Act for the purposes of resale of FNB
Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective Time, FNB
shall provide generally to officers and employees of the Southwest Companies
employee benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of FNB Common Stock), on terms and
conditions which when taken as a whole are no less favorable than those
currently provided by Southwest or those currently provided by the FNB Companies
to their similarly situated officers and employees; provided, that, for a period
of 12 months after the Effective Time, FNB shall provide generally to officers
and employees of Southwest Companies severance benefits in accordance with the
policies of Southwest as disclosed in Section 8.13 of the Southwest Disclosure
Memorandum. For purposes of participation and vesting (but not benefit accrual
under any employee benefit plans of FNB and its subsidiaries other than the
Southwest Benefit Plans) under such employee benefit plans, the service of the
employees of the Southwest Companies prior to the Effective Time shall be
treated as service with a FNB Company participating in such employee benefit
plans. FNB shall, and shall cause its Subsidiaries to, honor in accordance with
their terms all employment, severance, consulting, and other compensation
Contracts disclosed in Section 8.13 of the Southwest Disclosure Memorandum
between any Southwest Company 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 Southwest Benefit Plans;
provided, however, that all such Contracts shall have been amended prior to the
signing of this Agreement to provide that the Merger and the other transactions
contemplated by the Agreement shall not constitute a "change of control" or
otherwise give rise to any rights of acceleration, payment or other special
rights under any such Contracts.
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8.14 Indemnification.
(a) FNB shall indemnify, defend, and hold harmless the present and former
directors, officers, employees, and agents of the Southwest Companies (each, an
"Indemnified Party") against all Liabilities 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 Southwest's Articles of Incorporation 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 FNB is required to effectuate any indemnification, FNB 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 FNB
and the Indemnified Party.
(b) If FNB or any of its successors or assigns shall consolidate with or
merge into any other Person and shall not be the continuing or surviving Person
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 FNB shall assume the obligations set forth
in this Section 8.14.
(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.
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 11.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of Southwest shall have
approved this Agreement, 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. 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 Section 9.1(c)
of the Southwest Disclosure Memorandum) 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 be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated
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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 FNB Common Stock issuable pursuant to the Merger shall have been
received.
(f) Pooling of Interests. Ernst & Young LLP, FNB's independent public
accountants, shall have issued a letter dated as of the Effective Time, to
Southwest and FNB, respectively, to the effect that the Merger shall be
accounted for as a pooling-of-interests under GAAP.
(g) Tax Matters. Each Party shall have received a written opinion or
opinions from counsel 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 Southwest Common Stock for FNB
Common Stock will not give rise to gain or loss to the shareholders of
Southwest 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 Southwest and FNB reasonably
satisfactory in form and substance to such counsel.
9.2 Conditions to Obligations of FNB. The obligations of FNB 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 FNB 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 Southwest 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 Southwest 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 Southwest 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 Southwest 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 Southwest; 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 Southwest 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. Southwest shall have delivered to FNB (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 Southwest'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
consummation of the transactions contemplated hereby, all in such
reasonable detail as FNB and its counsel shall request.
(d) Affiliates Agreements. FNB shall have received from each
affiliate of Southwest the affiliates letter referred to in Section 8.12 of
this Agreement, to the extent necessary to assure in the reasonable
judgment of FNB that the transactions contemplated hereby will qualify for
pooling-of-interests accounting treatment.
(e) Cumulative Earnings. As of the close of the most recent calendar
quarter (or if the Effective Time shall occur within 20 days following the
close of a calendar quarter, then as of the next preceding calendar
quarter) cumulative earnings reported by Southwest since December 31, 1995
shall be greater
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than or equal to the amount calculated by multiplying (a) $500,000 by (b)
the number of full calendar quarters which have passed since December 31,
1995 and for which earnings have been reported as of such date. As used in
this Section "reported" means reported on Southwest's financial statements
prepared in accordance with GAAP applied on a basis consistent with
Southwest's financial statements for the years ended December 31, 1995 and
1994, as included in Southwest's reports to the Securities and Exchange
Commission on Forms 10-K-SB or Southwest's annual reports to shareholders
subject to any subsequent adjustments required to be reported whether or
not such adjustments have, as yet, been reported with the following
adjustments, if any, net of related income tax savings and costs, which
were reflected in net income for the relevant period(s) added back into or
deducted from net income for the applicable period: (i) investment banking
expenses, outside legal and accounting fees, or other costs (including
severance and extraordinary restructuring costs) and expenses associated
with or resulting from the Merger, (ii) gains or losses on sales of assets
outside of the ordinary course of business, (iii) any expense related to
the exercise of options or the lapses of restrictions on restricted stock;
and (iv) any other expenses which are incurred in connection with the
transactions contemplated by this Agreement upon which FNB and Southwest
shall mutually agree.
9.3 Conditions to Obligations of Southwest. The obligations of Southwest
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 Southwest pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of FNB 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 FNB 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 FNB 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 FNB 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 FNB; 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 FNB 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. FNB shall have delivered to Southwest (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 9.3(a) and 9.3(b) of
this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by FNB'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 Southwest and its
counsel shall request.
(d) Fairness Opinion. Southwest shall have received from The
Robinson-Humphrey Company, 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 Southwest Common Stock.
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ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Southwest, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of the Board of Directors of FNB and the Board
of Directors of Southwest; or
(b) By the Board of Directors of either Party (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(a) of this Agreement in the case of Southwest and Section
9.3(a) in the case of FNB 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(a) of this Agreement in the case of Southwest and Section 9.3(a) of
this Agreement in the case of FNB; or
(c) By the Board of Directors of either Party in the event of a
material breach by the other Party of any covenant or agreement 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 breach;
or
(d) By the Board of Directors of either Party in the event (i) any
Consent of any Regulatory Authority required for consummation of the Merger
and the other transactions 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 Southwest 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 Party in the event that the
Merger shall not have been consummated by July 31, 1997, 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 the Board of Directors of either Party (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(a) of this Agreement in the case of Southwest and Section
9.3(a) in the case of FNB 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
(g) By Southwest, if its Board of Directors determines by a vote of a
majority of the members of its entire Board of Directors, at any time
during the ten-day period commencing two days after the Determination Date,
if the Designated Price on the Determination Date of shares of FNB Common
Stock shall be less than $19.00; subject, however, to the following four
sentences. If Southwest refuses to consummate the Merger pursuant to this
Section 10.1(g), it shall give prompt written notice thereof to FNB;
provided, that such notice of election to terminate may be withdrawn at any
time within the aforementioned ten-day period. During the five-day period
commencing with its receipt of such notice, FNB shall have the option,
subject to Southwest's written agreement, to elect to increase the Exchange
Ratio to equal the quotient obtained by dividing (1) the product of $19.00
and the Exchange Ratio (as then in effect) by (2) the Designated Price. If
FNB makes an election contemplated by the preceding sentence, within such
five-day period, it shall give prompt written notice to Southwest of such
election and the revised Exchange Ratio, whereupon, provided that Southwest
agrees to permit such an election
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by executing a written acceptance thereof, no termination shall occur
pursuant to this Section 10.1(g) and this Agreement shall remain in effect
in accordance with its terms (except as the Exchange Ratio shall have been
so modified), and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this Section 10.1(g).
10.2 Effect of Termination. 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 Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b), 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 in
the Stock Option Agreement), FNB shall be entitled to a cash payment from
Southwest in an amount equal to $1 million upon the occurrence of any Subsequent
Triggering Event (as defined in the Stock Option Agreement) within twelve months
following the date of such termination (or such longer period as shall exist
under the Stock Option Agreement until the occurrence of an Exercise Termination
Date (as defined in the Stock Option Agreement)). In the event this Agreement is
terminated as a result of FNB's failure to satisfy any of its representations,
warranties or covenants set forth herein, FNB shall reimburse Southwest for its
reasonable out-of-pocket expenses relating to the Merger in an amount not to
exceed $250,000.
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 the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any
of its Subsidiaries.
"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 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.
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"BHC Act" shall mean the Federal Bank Holding Company Act of 1956, as
amended.
"Confidentiality Agreements" shall mean those certain Confidentiality
Agreements, between Southwest and FNB entered into in connection with the
discussions relating to 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 or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking 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, Assets, or business.
"Default" shall mean (i) any breach or violation of or default under
any Contract, Order, or Permit, (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, Order, or Permit, 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, Order, or Permit, where, in any
such event, such Default is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on a Party.
"Derivatives Contract" shall have the meaning set forth in Section
5.20 hereof.
"Designated Price" shall mean the average of the mid-point of the
closing high bid and low asked prices of FNB Common Stock in the
over-the-counter market, as reported by Nasdaq or such other trading system
or exchange upon which the FNB Common Stock shall then be traded for the
twenty consecutive full trading days in which such shares are traded ending
at the close of trading on the Determination Date.
"Determination Date" shall mean the day prior to the date on which the
Consent of the Board of Governors of the Federal Reserve System is
received.
"Effective Time" shall have the meaning set forth in Section 1.3
hereof.
"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.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section 5.12(c)
hereof.
"Exchange Agent" shall have the meaning set forth in Section 4.1
hereof.
"Exchange Ratio" shall have the meaning set forth in Section 3.1(c)
hereof.
"Exhibits" 1 and 2 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.
"FNB" shall have the meaning set forth in the first paragraph hereof.
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"FNB Capital Stock" shall mean, collectively, the FNB Common Stock,
the FNB Preferred Stock, and any other class or series of capital stock of
FNB.
"FNB Common Stock" shall mean the $2 par value common stock of FNB.
"FNB Companies" shall mean, collectively, FNB and all FNB
Subsidiaries.
"FNB Disclosure Memorandum" shall mean the written information
entitled "FNB Corporation Disclosure Memorandum" delivered prior to the
date of this Agreement to Southwest describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made.
"FNB Financial Statements" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of FNB as of
September 30, 1995, and as of December 31, 1994 and 1993, and the related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for the six months ended
September 30, 1995, and for each of the three years ended December 31,
1994, 1993, and 1992, as filed by FNB in SEC Documents, and (ii) the
consolidated statements of condition of FNB (including related notes and
schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) included in SEC Documents filed with respect to periods
ended subsequent to September 30, 1995.
"FNB Preferred Stock" shall mean the $10 par value preferred stock of
FNB.
"FNB SEC Reports" shall have the meaning set forth in Section 6.4(a)
hereof.
"FNB Subsidiaries" shall mean the Subsidiaries of FNB, which shall
include any corporation, bank, savings association, or other organization
acquired as a Subsidiary of FNB in the future and owned by FNB at the
Effective Time.
"FBCA" shall mean the Florida Business Corporation Act.
"Florida Certificate of Merger" shall mean the Certificate of Merger
to be executed by FNB and filed with the Secretary of State of the State of
Florida relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"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
hereof.
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"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.
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"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.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost, or expense (including
costs of investigation, collection, and defense), claim, deficiency,
guaranty, or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" 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, and (ii) for depository institution
Subsidiaries of a Party, pledges to secure deposits, and other Liens
incurred in the ordinary course of the banking business.
"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 (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
Party, its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"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 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" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event, change, or
occurrence which, individually or together with any other event, change, or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) 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 hereof.
"Merger Sub" shall have the meaning set forth in the first paragraph
hereof.
"Nasdaq" shall mean the Nasdaq Stock Market.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local, or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
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"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 Southwest or FNB, and "Parties" shall mean
both Southwest and FNB.
"PBCL" shall mean the Pennsylvania Business Corporation Law.
"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 or
its securities, Assets, or business.
"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 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 Southwest to
solicit the approval of its shareholders of the transactions contemplated
by this Agreement, which shall include the prospectus of FNB relating to
the issuance of the FNB Common Stock to holders of Southwest 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 FNB
under the 1933 Act with respect to the shares of FNB Common Stock to be
issued to the shareholders of Southwest in connection with the transactions
contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the
Governors of the Federal Reserve System, the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, all state
regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD, and the SEC.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant or other representative of a Person.
"Rights" shall mean all arrangements, calls, commitments, 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 by which a Person is or may be bound to issue 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
Southwest to be held pursuant to Section 8.1 of this Agreement, including
any adjournment or adjournments thereof.
"Southwest" shall have the meaning set forth in the first paragraph
hereof.
"Southwest Benefits Plans" shall have the meaning set forth in Section
5.12(a) hereof.
"Southwest Common Stock" shall mean the $0.10 par value common stock
of Southwest.
"Southwest Companies" shall mean, collectively, Southwest and all
Southwest Subsidiaries.
"Southwest Contract" shall have the meaning set forth in Section 5.13.
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"Southwest Disclosure Memorandum" shall mean the written information
entitled "Southwest Corporation Disclosure Memorandum" delivered prior to
the date of this Agreement to FNB describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"Southwest ERISA Plan" shall have the meaning set forth in Section
5.12(a) hereof.
"Southwest Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Southwest
as of September 30, 1995, and as of December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the six months
ended September 30, 1995, and for each of the three fiscal years ended
December 31, 1994, 1993, and 1992, as filed by Southwest in SEC Documents,
and (ii) the consolidated balance sheets of Southwest (including related
notes and schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) included in SEC Documents filed with respect to periods
ended subsequent to September 30, 1995.
"Southwest Pension Plan" shall have the meaning set forth in Section
5.12(a) hereof.
"Southwest Stock Plans" shall mean the existing stock option and other
stock-based compensation plans and warrant instruments of Southwest set
forth in Section 3.5 of the Southwest Disclosure Memorandum.
"Southwest Options" shall have the meaning set forth in Section 3.5(a)
hereof.
"Southwest SEC Reports" shall have the meaning set forth in Section
5.5(a) hereof.
"Southwest Subsidiaries" shall mean the Subsidiaries of Southwest,
which shall include the Southwest Subsidiaries described in Section 5.4 of
this Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Southwest in the future and owned
by Southwest at the Effective Time.
"Stock Option Agreement" shall have the meaning set forth in the
Preamble hereof.
"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.
"Surviving Corporation" shall mean Southwest as the surviving
corporation resulting from the Merger.
"Takeover Laws" shall have the meaning set forth in Section 5.18
hereof.
"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)
hereof.
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"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 FNB and
Southwest 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 FNB and Southwest 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. Except for The Robinson-Humphrey Company, Inc.
as to Southwest and except for McConnell, Budd & Downes, Inc. as to FNB, 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 or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees 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 Southwest or FNB, each of Southwest
and FNB, 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 (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except for the
Confidentiality Agreements). Nothing in this Agreement expressed or implied, is
intended to confer upon any Person, other than the Parties or their respective
successors, any rights, remedies, obligations, or liabilities under or by reason
of this Agreement, other than as provided in Sections 8.14 of this Agreement.
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 Southwest Common Stock, there shall be made
no amendment that reduces or modifies in any material respect the consideration
to be received by holders of Southwest Common Stock without the further approval
of such shareholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, FNB, 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 Southwest, to waive or extend the time for the compliance or
fulfillment by Southwest of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of FNB
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 FNB.
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(b) Prior to or at the Effective Time, Southwest, 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 FNB, to waive or extend the time for the compliance or fulfillment
by FNB of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of Southwest 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 Southwest.
(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.
11.7 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.
11.8 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 other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
<TABLE>
<S> <C>
Southwest: 900 Goodlette Road
North Naples, Florida 33940
Telecopy Number: 813-435-7658
Attention: Chairman and Chief
Executive Officer
Copy to Counsel: Smith, Gambrell & Russell
3343 Peachtree Road, NE
Suite 1800
Atlanta, Georgia 30326
Telecopy Number: 404-264-2658
Attention: Robert Schwartz
FNB: Hermitage Square
Hermitage, PA 16148
Telecopy Number: 412-983-3515
Attention: Chairman and Chief
Executive Officer
Copy to Counsel: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy Number: (212) 403-2000
Attention: Craig M. Wasserman
</TABLE>
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11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the Commonwealth of Pennsylvania, without regard to
any applicable conflicts of Laws, except to the extent that the Laws of the
State of Florida relate to the consummation of the Merger.
11.10 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.
11.11 Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No Party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all Parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 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.
11.14 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.
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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.
F.N.B. CORPORATION
By: /s/ PETER MORTENSEN
------------------------------------
Name: Peter Mortensen
Title: Chairman of the Board and
President
SOUTHWEST BANKS, INC.
By: /s/ GARY L. TICE
------------------------------------
Name: Gary L. Tice
Title: Chairman of the Board,
President,
and Chief Executive Officer
SOUTHWEST AFFILIATION CORPORATION
By: /s/ PETER MORTENSEN
------------------------------------
Name: Peter Mortensen
Title: President
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<PAGE> 106
APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated February 2, 1996, between F.N.B. Corporation,
a Pennsylvania corporation ("Grantee"), and Southwest Banks, Inc., a Florida
corporation ("Issuer").
W I T N E S S E T H :
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto prior to this Agreement; and
WHEREAS, as a condition and inducement to Grantee's pursuit of the
transactions contemplated by the Merger Agreement and in consideration therefor,
Issuer has agreed to grant Grantee the Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 727,163 fully
paid and nonassessable shares of the common stock, $0.10 par value, of Issuer
("Common Stock"), at a price per share equal to $15 (as adjusted as set forth
herein, the "Option Price"); provided, that in no event shall the number of
shares for which this Option is exercisable exceed 19.9% of the issued and
outstanding shares of Common Stock. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, it equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option,
notwithstanding the provisions of the Confidentiality Agreements (as defined in
the Merger Agreement) in whole or part, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined). Each of the following shall be an
Exercise Termination Event: (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in accordance
with the provisions thereof if such termination occurs prior to the occurrence
of an Initial Triggering Event; or (iii) the passage of 12 months (or such
longer period as provided in Section 10) after termination of the Merger
Agreement if such termination follows the occurrence of an Initial Triggering
Event. The term "Holder" shall mean the holder or holders of the Option. The
rights set forth in Sections 7 and 9 shall terminate when the right to exercise
the Option terminates (other than as a result of a complete exercise of the
Option) as set forth herein.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (as hereinafter defined) (each
an "Issuer Subsidiary"), without having received Grantee'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 Agreement 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 Grantee or any
of its Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors
of Issuer shall have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction other than
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as contemplated by the Merger Agreement or this Agreement. For purposes of
this Agreement, (a) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of
Issuer, (y) a purchase, lease or other acquisition of all or substantially
all of the assets or deposits of Issuer or any Significant Subsidiary of
Issuer, 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 Issuer or any Significant Subsidiary of
Issuer, and (b) "Subsidiary" shall have the meaning set forth in Rule 12b-2
under the 1934 Act;
(ii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer 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 shares of 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);
(iii) The shareholders of the Issuer shall not have approved the
transactions contemplated by the Merger Agreement at the meeting held for
that purpose or any adjustment thereof, or such meeting shall not have been
held or shall have been canceled prior to termination of the Merger
Agreement, in either case, after Issuer's Board of Directors shall have
withdrawn or modified (or publicly announced its intention to withdraw or
modify or interest in withdrawing or modifying) its recommendation that the
shareholders of Issuer approve the transactions contemplated by the Merger
Agreement, or Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed (or publicly announced its intention to authorize, recommend or
propose or interest in authorizing, recommending or proposing) an agreement
to engage in an Acquisition Transaction, with any person other than Grantee
or a Grantee Subsidiary;
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders to engage in
an Acquisition Transaction;
(v) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and such breach would entitle Grantee to terminate
the Merger Agreement; or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee 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 of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice prior to an Exercise
Termination Event (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of shares it will purchase pursuant to
such exercise and (ii) a place and date not earlier than three business days nor
later than 10 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to or
approval of the Federal Reserve Board or any other regulatory agency is required
in connection with such purchase, the Holder shall promptly file the required
notice or application for approval, shall promptly notify the Issuer of
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<PAGE> 108
such filing, and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable thereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (1) the reference to the resale restrictions
of the Securities Act of 1933 (the "1933 Act") in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
Holder shall have delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance satisfactory to Issuer, to
the effect that such legend is not required for purposes of the 1933 Act; (ii)
the reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the proceeding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended, or any state or other federal banking law, prior approval
of or notice to the Federal Reserve Board or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices and
providing such
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<PAGE> 109
information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date.
5. The number of shares of Common Stock purchasable upon the exercise of
the Option shall be subject to adjustment from time to time as provided in this
Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, splitups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted and proper provision shall be made so that, in the
event that any additional shares of Common Stock are to be issued or
otherwise become outstanding as a result of any such change (other than
pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after
such issuance and together with shares of Common Stock previously issued
pursuant to the exercise of the Option (as adjusted on account of any of
the foregoing changes in the Common Stock), it equals 19.9% of the number
of shares of Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10) (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to permit
the sale or other disposition of any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 120 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The Issuer shall bear the costs of such
registrations (including, but not limited to, attorneys' fees, printing costs
and filing fees). The foregoing notwithstanding, if, at the time of any request
by Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, the number of Option
Shares otherwise to be covered in the registration statement contemplated hereby
may be reduced; provided, however, that after any such required reduction the
number of Option Shares to be included in such offering for the
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account of the Holder shall constitute at least 25% of the total number of
shares to be sold by the Holder and Issuer in the aggregate; and provided
further, however, that if such reduction occurs, then the Issuer shall file a
registration statement for the balance as promptly as practical thereafter as to
which no reduction pursuant to this Section 6 shall be permitted or occur and
the Holder shall thereafter be entitled to one additional registration. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies.
7. (a) Upon the occurrence of a Repurchase Event (as hereinafter defined)
that occurs prior to an Exercise Termination Event, (i) at the request of the
Holder, delivered prior to an Exercise Termination Event (or such later period
as provided in Section 10), Issuer shall repurchase the Option from the Holder
at a price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to the occurrence of an Exercise Termination Event (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "Repurchase Event" shall
occur if (i) any person (the term "person" for purposes of this Agreement having
the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the 1934 Act,
and the rules and regulations thereunder) other than Grantee or any of its
Subsidiaries shall have acquired beneficial ownership, or the right to acquire
beneficial ownership, or any "group" (as such term is defined under the 1934
Act) shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 50% or more of the then-outstanding shares of 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), or (ii) any of the transactions described in Section
8(a)(i), 8(a)(ii), or 8(a)(iii) shall be consummated. The term "Market/Offer
Price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the three-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or substantially all of Issuer's assets or deposits, the sum of the net
price paid in such sale for such assets or deposits, the sum of the net price
paid in such sale for such assets or deposits and the current market value of
the remaining net assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
divided by the number of shares of Common Stock of Issuer outstanding at the
time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder or Owner, as the case may be,
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within ten business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
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(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within ten business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivery to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares whether in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Purchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering, and (ii) deliver, as appropriate, either (A) to the
Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, or (B)
to the Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
8. (a) In the event that, prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or a Grantee Subsidiary, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its or any Significant Subsidiary's assets or deposits to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets or deposits (or the assets or deposits of a Significant
Subsidiary of Issuer).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined
in Section 7.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
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(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect for
such purpose to the provisions of Section 9), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the three-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within ten business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within ten business
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days after the date on which the Substitute Option Issuer is no longer so
prohibited; provided, however, that if the Substitute Option Issuer is at any
time after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing.
10. The periods for exercise of certain rights under Sections 2, 6, 7, 9
and 12 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights (for so long as the Holder is using
commercially reasonable efforts to obtain such regulatory approvals), and for
the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason or
such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and dear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder following such
Subsequent Triggering Event; provided, however that until the date 30 days
following the date on which the Federal Reserve Board has approved applications
by Grantee to acquire the shares of Common Stock subject to the Option, Grantee
may not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the voting shares of issuer, (iii) an
assignment to a single party (i.e., a broker or investment banker) for the
purpose of conducting a widely disbursed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board.
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13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation applying to the Federal Reserve
Board under the Bank Holding Company Act for approval to acquire the shares
issuable hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
14. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
15. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 5 hereof), it
is the express intention of Issuer to allow the Holder to acquire or to require
Issuer to repurchase such lesser number of shares as may be permissible, without
any amendment or modification hereof.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
17. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
18. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
19. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
20. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
21. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties had caused this Agreement to be
executed on its behalf by their officers thereunto duly authorized, all as the
date first above written.
F.N.B. CORPORATION
By: /s/ PETER MORTENSEN
------------------------------------
Name: Peter Mortensen
Title: Chairman of the Board and
President
SOUTHWEST BANKS, INC.
By: /s/ GARY L. TICE
------------------------------------
Name: Gary L. Tice
Title: Chairman of the Board,
President,
and Chief Executive Officer
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<PAGE> 116
APPENDIX C
[THE ROBINSON-HUMPHREY COMPANY, INC. LETTERHEAD]
February 2, 1996
Board of Directors
Southwest Banks, Inc.
P.O. Box 413043
Naples, Florida 33941-3043
Gentlemen:
In connection with the proposed acquisition of Southwest Banks, Inc.
("Southwest") by FNB Corporation ("FNB") (the "Merger"), you have asked us to
render an opinion as to whether the financial terms of the Merger, as provided
in the Agreement and Plan of Merger dated as of February 2, 1996 among such
parties (the "Merger Agreement"), are fair, from a financial point of view, to
the stockholders of Southwest. Under the terms of the Merger, holders of all
outstanding shares of Southwest stock will receive consideration equal to 0.78
shares of FNB common stock for each Southwest share held. Based on a closing
price per share for FNB of $21.3125, the implied purchase price per share as of
February 1, 1996 was $16.6238 per Southwest share.
Our firm, as part of its investment banking business, is frequently
involved in the valuation of securities as related to public underwritings,
private placements, mergers, acquisitions, recapitalizations and other purposes.
In connection with our study for rendering this opinion, we have reviewed
the Merger Agreement, FNB's financial results for fiscal years 1990 through 1995
and certain documents and information we deem relevant to our analysis. We have
also held discussions with senior management of FNB for the purpose of reviewing
the historical and current operations of, and outlook for FNB, industry trends,
the terms of the proposed Merger, and related matters.
We have also studied published financial data concerning certain other
publicly traded banks which we deem comparable to FNB as well as certain
financial data relating to acquisitions of other banks that we deem relevant or
comparable. In addition, we have reviewed other published information, performed
certain financial analyses and considered other factors and information which we
deem relevant.
We have reviewed similar information and data relating to Southwest
including its historical financial statements, for fiscal years 1990 through
1995.
In rendering this opinion, we have relied upon the accuracy of the Merger
Agreement, the financial information listed above, and other information
furnished to us by FNB and Southwest. We have not separately verified this
information nor have we made an independent evaluation of any of the assets or
liabilities of FNB and Southwest.
Based upon the foregoing and upon current market and economic conditions,
we are of the opinion that, from a financial point of view, the consideration as
provided in the Agreement and Plan of Merger is fair to the stockholders of
Southwest.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
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PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Numbered Paragraph 6.b of the FNB Charter provides as follows:
Directors and Officers of the Corporation shall be indemnified as of
right to the fullest extent now or hereafter permitted by law in connection
with any actual or threatened action, suit or proceedings, civil, criminal,
administrative, investigative or other (whether brought by or in the right
of the Corporation or otherwise), arising out of their service to the
Corporation or to another organization at the request of the Corporation,
or because of their positions with the Corporation. Persons who are not
Directors or Officers of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board
of Directors of the Corporation. The Corporation may purchase and maintain
insurance to protect itself and any such Director, Officer or other person
against any liability, cost or expense asserted against or incurred by him
in respect of such service, whether or not the Corporation would have the
power to indemnify him against such liability by law or under the
provisions of this paragraph. The provisions of this paragraph shall be
applicable to persons who have ceased to be Directors or Officers, and
shall inure to the benefit of the heirs, executors and administrators of
persons entitled to indemnity hereunder.
Article IX of the FNB By-laws provides that FNB shall indemnify each
director and officer of FNB and of its controlled subsidiaries made or
threatened to be made a party to any civil, criminal, administrative action,
suit or proceeding (whether brought by or in the name of FNB or otherwise)
arising out of such director's or officer's service to FNB or to another
organization at FNB's request against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such director and officer in connection with such action, suit or proceeding.
Indemnification shall not be made with respect to actions, suits or proceedings
where the act or omission giving rise to the claim for indemnification has been
determined to have constituted willful misconduct or recklessness or where
prohibited by law. In addition, expenses incurred by each director and officer
in defending any such action, suit or proceeding shall be paid by FNB in advance
of the final disposition of such action, suit or proceeding if an undertaking
(in form and scope satisfactory to FNB) shall have been furnished to FNB to
repay amounts so advanced if and to the extent it shall ultimately be determined
that such officer or director is not entitled to indemnification and certain
other conditions shall have been satisfied. FNB may purchase and maintain
insurance, create a fund of any nature, grant a security interest or otherwise
secure or insure in any manner its indemnification obligations.
Section 1741 of the PBCL provides that a corporation shall (subject to the
provisions described in the second succeeding paragraph) have the power to
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that such person is or was a
representative of the corporation, or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons in connection
with the action or proceeding if such person acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action or
proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that such
person did not act in good faith and in a manner which he reasonably believed to
be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 1742 of the PBCL provides that a corporation shall (subject to the
provisions described in the succeeding paragraph) have the power to indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation to
procure a
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judgment in its favor by reason of the fact that such person is or was a
representative of the corporation, or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense of the settlement of the action 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. Indemnification shall
not be made in respect of any claim, issue or matter as to which such person has
been adjudged to be liable to the corporation unless and only to the extent that
the court of common pleas of the county in which the registered office of the
corporation is located or the court in which the action was brought determines
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 that the court of common pleas or other court deems
proper.
Under Section 1744 of the PBCL, any such indemnification (unless ordered by
a court) shall be made by the corporation only as authorized in a specific case
upon a determination that indemnification of the representative is proper in the
circumstances because such person has met the applicable standard of conduct.
Such determination shall be made:
(1) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding;
or
(2) If such quorum is not obtainable or, even if obtainable, a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) By the shareholders.
Notwithstanding the above, Section 1743 provides that to the extent that a
representative of the corporation has been successful on the merits or otherwise
in defense of any action or proceeding referred to above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Under Section 1745 of the PBCL, expenses (including attorneys' fees)
incurred in defending any action or proceeding may be paid by the corporation in
advance of the final disposition of the action or proceeding upon receipt of an
undertaking by or on behalf of the representative to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
corporation.
Section 1746 of the PBCL further provides that the indemnification provided
by Sections 1741, 1742 and 1743 and the advancement of expenses provided by
Section 1745 shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of shareholders, disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding that office. A corporation may create a fund of any
nature, which may, but need not be, under the control of a trustee, or otherwise
secure or insure in any manner its indemnification obligations, whether arising
under or pursuant to Section 1746 or otherwise. Indemnification pursuant to
Section 1746 shall not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness.
Indemnification pursuant to Section 1746 under any by-law, agreement, vote
of shareholders, or directors or otherwise may be granted for any action taken
or any failure to take any action and may be made whether or not the corporation
would have the power to indemnify the person under any other provision of law
except as provided in such Section 1746 and whether or not the indemnified
liability arises or arose from any threatened, pending or completed action by or
in the right of the corporation. Section 1746 declares such indemnification to
be consistent with the public policy of Pennsylvania.
THE FOREGOING IS ONLY A GENERAL SUMMARY OF CERTAIN ASPECTS OF PENNSYLVANIA
LAW DEALING WITH INDEMNIFICATION OF DIRECTORS AND OFFICERS AND DOES NOT PURPORT
TO BE COMPLETE. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELEVANT
STATUTES WHICH CONTAIN DETAILED SPECIFIC PROVISIONS REGARDING THE CIRCUMSTANCES
UNDER WHICH AND THE PERSON FOR WHOSE
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BENEFIT INDEMNIFICATION SHALL OR MAY BE MADE AND ACCORDINGLY ARE
INCORPORATED HEREIN BY REFERENCE AS EXHIBIT 99.4 OF THIS REGISTRATION STATEMENT.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits and financial statement schedules are filed with or
incorporated by reference in this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, by and among F.N.B. Corporation ("FNB"), Southwest
Affiliation Corporation and Southwest Banks, Inc. ("Southwest"), dated February 2,
1996 (included as Appendix A to the Proxy Statement-Prospectus).
2.2 Consent to Change Name of Party in the Agreement and Plan of Merger.
5.1 Opinion of Cohen & Grigsby, P.C.
8.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 Stock Option Agreement by and between FNB and Southwest, dated February 2, 1996
(included as Appendix B to the Proxy Statement-Prospectus).
10.2 Agreement, by and among Southwest, FNB and certain officers of Southwest, dated
February 2, 1996.
13.1 Southwest Annual Report on Form 10-K for the year ended December 31, 1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consents of Hill, Barth & King, Inc.
23.3 Consent of S.R. Snodgrass, A.C.
23.4 Consent of Cohen & Grigsby, P.C. (included in Exhibit 5.1).
23.5 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.1).
23.6 Consent of The Robinson-Humphrey Company, Inc.
24.1 Power of Attorney and Certified Resolutions.
99.1 Form of Notice of Special Meeting of Shareholders of Southwest.
99.2 Form of Proxy for Special Meeting of Shareholders of Southwest.
99.3 Form of Chairman's letter to Southwest Shareholders.
99.4 Provisions of Pennsylvania law regarding indemnification of directors and
officers.
99.5 Opinion of The Robinson-Humphrey Company, Inc. (included as Appendix C to the
Proxy Statement-Prospectus).
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effect date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no
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more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information in the Registration Statement:
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(d) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
II-4
<PAGE> 121
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE> 122
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HERMITAGE, COMMONWEALTH
OF PENNSYLVANIA, ON MARCH 26, 1996.
F.N.B. CORPORATION
By: *
Peter Mortensen
Chairman and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* Chairman, President and Director March 26, 1996
Peter Mortensen (Principal Executive Officer)
* Executive Vice President and March 26, 1996
Stephen J. Gurgovits Director
* Vice President and Director March 26, 1996
Samuel K. Sollenberger
* Executive Vice President March 26, 1996
William J. Rundorff
* Executive Vice President March 26, 1996
John W. Rose
* Vice President and Chief March 26, 1996
John D. Waters Financial Officer (Principal
Financial and
Accounting Officer)
* Director March 26, 1996
W. Richard Blackwood
* Director March 26, 1996
William B. Campbell
* Director March 26, 1996
Charles T. Cricks
* Director March 26, 1996
Henry M. Ekker, Esq.
Director
Thomas C. Elliott
</TABLE>
II-6
<PAGE> 123
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* Director March 26, 1996
Thomas W. Hodge
* Director March 26, 1996
George E. Lowe, D.D.S.
* Director March 26, 1996
Paul P. Lynch
* Director March 26, 1996
James B. Miller
* Director March 26, 1996
Robert S. Moss
* Director March 26, 1996
John R. Perkins
* Director March 26, 1996
William A. Quinn
* Director March 26, 1996
George A. Seeds
* Director March 26, 1996
William J. Strimbu
* Director March 26, 1996
Archie O. Wallace
* Director March 26, 1996
Joseph M. Walton
* Director March 26, 1996
James T. Weller
* Director March 26, 1996
Eric J. Werner, Esq.
* Director March 26, 1996
Donna C. Winner
*By: /s/ JOHN D. WATERS
John D. Waters
Attorney-In-Fact
March 26, 1996
</TABLE>
II-7
<PAGE> 124
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ------------ -------------------------------------------------------------------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger, by and among F.N.B. Corporation
("FNB"), Southwest Affiliation Corporation and Southwest Banks, Inc.
("Southwest"), dated February 2, 1996 (included as Appendix A to the
Proxy Statement-Prospectus).
2.2 Consent to Change Name of Party in the Agreement and Plan of Merger.
5.1 Opinion of Cohen & Grigsby, P.C.
8.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 Stock Option Agreement, by and between FNB and Southwest, dated
February 2, 1996 (included as Appendix B to the Proxy Statement-
Prospectus).
10.2 Agreement, by and among Southwest, FNB and certain officers of
Southwest, dated February 2, 1996.
13.1 Southwest Annual Report on Form 10-K for the year ended December 31,
1995.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Hill, Barth & King, Inc.
23.3 Consent of S.R. Snodgrass, A.C.
23.4 Consent of Cohen & Grigsby, P.C. (included in Exhibit 5.1).
23.5 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.1).
23.6 Consent of The Robinson-Humphrey Company, Inc.
24.1 Power of Attorney and Certified Resolutions.
99.1 Form of Notice of Special Meeting of Shareholders of Southwest.
99.2 Form of Proxy for Special Meeting of Shareholders of Southwest.
99.3 Form of Chairman's letter to Southwest Shareholders.
99.4 Provisions of Pennsylvania law regarding indemnification of
directors and officers.
99.5 Opinion of The Robinson-Humphrey Company, Inc. (included
as Appendix C to the Proxy Statement-Prospectus).
</TABLE>
<PAGE> 1
EXHIBIT 2.2
CONSENT TO CHANGE OF NAME OF PARTY
IN THE
AGREEMENT AND PLAN OF MERGER BY AND AMONG
F.N.B. CORPORATION,
LAMBDA CORPORATION AND SOUTHWEST BANKS, INC.
The parties to the Agreement and Plan of Merger ("the Merger
Agreement") by and among F.N.B. Corporation, Lambda Corporation and Southwest
Banks, Inc. (collectively, the "Parties"), dated February 2, 1996, in
recognition of the fact that Lambda Corporation amended its Articles of
Incorporation to change its name to Southwest Affiliation Corporation on
February __, 1996, hereby consent to the substitution of "Southwest Acquisition
Corporation" for every reference to "Lambda Corporation" in the Merger
Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf as of the 28th day of February of the year 1996.
F.N.B. CORPORATION
By: /s/ Peter Mortensen
---------------------------------------
Name: Peter Mortensen
Title: Chairman of the Board
and President
LAMBDA CORPORATION
By: /s/ Peter Mortensen
---------------------------------------
Name: Peter Mortensen
Title: President
SOUTHWEST BANKS, INC.
By: /s/ Gary L. Tice
---------------------------------------
Name: Gary L. Tice
Title: Chairman of the Board,
President, and Chief
Executive Officer
<PAGE> 1
EXHIBIT 5.1
[COHEN & GRIGSBY LETTERHEAD]
March 22, 1996
Board of Directors of
F.N.B. Corporation
Hermitage Square
Hermitage, PA 16148
Gentlemen:
We have been asked as to render this opinion in connection with the filing
by F.N.B. Corporation, a Pennsylvania corporation (the "Company"), of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission to register shares of the Company's common
stock, par value $2.00 per share (the "Common Stock"), to be issued to the
shareholders of Southwest Banks, Inc., a Florida corporation ("Southwest"), upon
consummation of the merger of Southwest Affiliation Corporation, a Florida
corporation and wholly-owned subsidiary of the Company ("SWAC"), with and into
Southwest (the "Merger") in accordance with the terms of the Agreement and Plan
of Merger (the "Agreement") dated February 2, 1996 among the Company, SWAC and
Southwest.
We have not represented the Company in connection with the negotiation,
execution or delivery of the Agreement or the Merger. In rendering this Opinion,
we have made no investigation or inquiry other than review of the Agreement, the
draft Registration Statement and the resolutions adopted by the Board of
Directors of the Company on February 2, 1996 with respect to the Merger, the
Agreement and the transactions related thereto.
In our opinion the shares of Common Stock to be issued to the shareholders
of Southwest upon consummation of the Merger, when issued in accordance with the
terms of the Agreement, will be validly issued, fully-paid and non-assessable
shares of Common Stock of the Company.
We hereby consent to the reference to us in the Prospectus/Proxy Statement
of the Company and Southwest constituting part of the Registration Statement and
to the inclusion of this letter as an exhibit to the Registration Statement.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991) as supplemented or modified by Part I, together with the Forward and
Glossary of the Pennsylvania Third Party Legal Opinion Supplement (the
"Pennsylvania Supplement") of the PBA Section of Corporation, Banking and
Business Law (1992). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord and the
Pennsylvania Supplement, and this Opinion Letter should be read in conjunction
therewith. Unless otherwise indicated, capitalized terms used in this Opinion
that are defined in the Accord or the Pennsylvania Supplement will have the same
meanings in this Opinion as the meanings set forth in the Accord or the
Pennsylvania Supplement, respectively (and, to the extent of a conflict between
the same, priority shall be given to the Accord and the Pennsylvania Supplement
in that order).
This Opinion Letter may be relied upon by you only in connection with the
transactions contemplated by the Agreement and may not be used or relied upon by
you or any other person for any purpose whatsoever, except to the extent
authorized in the Accord, without in each instance our prior written consent.
Very truly yours,
/s/ COHEN & GRIGSBY, P.C.
------------------------------------------
COHEN & GRIGSBY, P.C.
DL:JWE
<PAGE> 1
EXHIBIT 8.1
WACHTELL, LIPTON, ROSEN & KATZ
LETTER HEAD
March 26, 1996
F.N.B. Corporation
Hermitage Square
Hermitage, Pennsylvania 16148
Southwest Banks, Inc.
900 Goodlette Road
North Naples, Florida 33940
Ladies/Gentlemen:
We have acted as special counsel to F.N.B. Corporation, a Pennsylvania
corporation("FNB"), in connection with the proposed merger (the "Merger") of
Southwest Affiliation Corporation ("Merger Corporation"), a Florida corporation
and a wholly owned subsidiary of FNB, with and into Southwest Banks, Inc., a
Florida corporation ("SBI"), upon the terms and conditions set forth in the
Agreement and Plan of Merger (the "Agreement") dated as of February 2, 1996 by
and among FNB, Merger Corporation and SBI. At your request, in connection with
the filing by FNB of the Registration Statement on Form S-4 (the "Registration
Statement") in respect of the shares of FNB Common Stock to be issued in the
Merger and the Proxy Statement-Prospectus of SBI and FNB, as amended through the
date hereof (the "Proxy Statement-Prospctus") included as a part thereof, we are
rendering our opinion concerning certain federal income tax consequences of the
Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of FNB and the consent of SBI, upon the accuracy and completeness of the
statements and representations contained, respectively, in the certificates of
the officers of FNB and Merger Corporation and of SBI, which statements and
representations we have neither investigated nor verified (copies of which are
attached hereto and which are incorporated herein by reference), and have
assumed that such certificates will be complete and accurate as of the Effective
Time. We have also relied on the accuracy and completenss of the Proxy
Statement-Prospectus. Any capitalized term used and not defined herein has the
meaning given to it in the Proxy Statement-Prospectus or the appendices thereto
(including the Agreement).
We have also assumed that the transactions contemplated by the Agreement
will be consummated in accordance therewith and as described in the Proxy
Statement-Prospectus and that the Merger will qualify as a statutory merger
under the applicable laws of the State of Florida.
<PAGE> 2
Based upon and subject to the foregoing, it is our opinion that, under
currently applicable law, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), that FNB, Merger Corporation and SBI will each be a party to the
reorganization within the meaning of Section 368(b) of the Code and that,
accordingly, the following will be all the material federal income tax
consequences of the Merger:
(i) No gain or loss will be recognized by the shareholders of SBI upon the
conversion of their shares of SBI Common Stock solely into shares of
FNB Common Stock pursuant to the terms of the Merger to the extent of
such conversion;
(ii) The tax basis of the shares of FNB Common Stock into which shares of
SBI Common Stock are converted pursuant to the Merger will be the same
as the basis of such shares of SBI Common Stock exchanged therefor;
(iii) The holding period for shares of FNB Common Stock into which shares
of SBI Common Stock are converted will include the period that such
shares of SBI Common Stock were held by the holder, provided such
shares were a capital asset of the holder;
(iv) The receipt of cash in lieu of fractional shares of FNB Common Stock
by a SBI shareholder will be treated as if the fractional shares are
distributed as part of the exchange and then were redeemed by FNB;
(v) No gain or loss will be recognized by FNB or SBI as a result of the
Merger.
This opinion may not be applicable to SBI shareholders who receive their
SBI Common Stock pursuant to the exercise of employee stock options or otherwise
as compensation or who are not citizens or residents of the United States.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the caption "SUMMARY -- Certain Federal Income
Tax Consequences" and elsewhere in the Proxy Statement-Prospecuts. In giving
such consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ WACHTELL, LIPTON, ROSEN & KATZ
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT is entered into as of the 2nd day of February, 1996, by and
among Southwest Banks, Inc., a Florida corporation (the "Company"), FNB
Corporation, a Pennsylvania corporation ("FNB"), and certain officers of the
Company who are signatories to this Agreement (the "Officers").
W I T N E S S E T H:
WHEREAS, each of the Officers has entered into an employment agreement with
the Company (collectively, the "Employment Agreements") which provides, among
other things, for certain payments to such officers in the event of a change in
control of the Company (as defined in the Employment Agreements); and
WHEREAS, the Officers are holders of certain options to purchase common
stock of the Company (the "Options") granted pursuant to the Company's 1988
Incentive Stock Option Plan and represented by option agreements between such
Officer and the Company (the "Option Agreements"); and
WHEREAS, certain provisions of the Employment Agreements and the Option
Agreements would be affected by the consummation of the terms of a proposed
Agreement and Plan of Merger among the Company, FNB and a wholly-owned
subsidiary of FNB (the "Merger Agreement") pursuant to which FNB would acquire
the Company (the "Merger"); and
WHEREAS, the parties hereto desire to amend the Employment agreements to
clarify the effect of the change of control provisions thereof with respect to
the Merger and to make certain additional agreements;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties covenant and agree as follows:
1. No Change in Control. The Officers hereby agree to waive the
provisions of paragraph 10(a) of the Employment Agreements with respect to the
Merger, with the intended effect that, neither the approval and execution of the
Merger Agreement nor the consummation of the transactions contemplated thereby
shall constitute a "Change in Control" as such term is defined in the Employment
Agreements, or otherwise give rise to any rights of acceleration, payment or
other special rights under the Employment Agreements.
2. Treatment of Options. If at any time following consummation of the
proposed Merger, the employment of any of the Officers is terminated for any
reason, other than death, whether by the Officer, the Company or FNB, then upon
such termination the terminated Officer shall be entitled to receive common
stock of FNB in an amount equal in value to the excess of the fair market value
of FNB common stock on the date of termination over the per share exercise price
of the Options, multiplied by the number of shares of common stock subject to
such Options (whether or not then fully exercisable). The fair market value of
the FNB common stock shall be equal to the higher of (i) the closing price (or
the average of the closing bid and asked prices if no closing price is
available) on any nationally recognized securities exchange or automated
quotation system on which FNB's shares may be listed or quoted, or (ii) the
value as determined by the Board of Directors of FNB if there is no organized
trading market for the shares at the time such determination is made. For
purposes of this paragraph 2, and notwithstanding any provisions to the contrary
in the Employment Agreements, FNB agrees to provide 60 days notice prior to
terminating any Officer. Any payment made pursuant to this paragraph 2 shall be
in lieu of any payment that would otherwise be payable under Section 11(b) of
the Employment Agreements as such section relates to payments due under Section
10(b) of the Employment Agreements.
3. Future Change in Control of FNB. Following consummation of the
proposed Merger, if a Change in Control (as defined in the Employment
Agreements) shall occur with respect to FNB, FNB shall comply with all Change in
Control provisions of the Employment Agreements as originally written and as if
such agreements had been made directly between FNB and the Officers; provided,
however, that any payments
<PAGE> 2
made pursuant to paragraph 2 of this Agreement shall be in lieu of payments made
pursuant to Section 10(b) of the Employment Agreements.
4. Binding Effect. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective legal
representatives, successors and permitted assigns.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed on
its behalf as of the date first stated above. This Agreement may be executed in
two or more counterparts, all of which taken together shall constitute one
instrument.
"COMPANY" "OFFICERS"
SOUTHWEST BANKS, INC.
/s/ GARY L. TICE
By: /s/ LEWIS ALBERT --------------------------
------------------------ Gary L. Tice
Title: Senior Vice President &
Chief Financial Officer
/s/ GARRETT S. RICHTER
--------------------------
Garrett S. Richter
"FNB"
/s/ DAVID W. GOMER
FNB CORPORATION --------------------------
David W. Gomer
By: /s/ PETER MORTENSEN
------------------------ /s/ JAMES L. COTTRELL
Its: Chairman and President --------------------------
James L. Cottrell
/s/ C.C. COGHILL
---------------------------
C.C. Coghill
/s/ DAVID H. SCHAEFFER
---------------------------
David H. Schaeffer
/s/ ROBERT AVERY
---------------------------
Robert Avery
2
<PAGE> 1
Exhibit 13.1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
Commission File No. 0-18505
SOUTHWEST BANKS, INC.
(Exact name of registrant as specified in its charter)
STATE OF FLORIDA (State or IRS No. 65-0083473 (I.R.S.
other jurisdiction of Employer Identification No.)
incorporation or organization)
------------------------
900 GOODLETTE ROAD, NORTH
NAPLES, FLORIDA 33940
(941) 262-7600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to section 12(b) of the Exchange Act: None
Securities registered pursuant to section 12(g) of the Exchange Act: Common
Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant on February 29, 1996 was $24,188,405. As of
such date no organized trading market existed for the common stock of the
registrant. The aggregate market value is based upon the book value of the
common stock of the registrant at December 31, 1995. Solely for the purposes
of this response, executive officers, directors and beneficial owners of more
than five percent of the Company's common stock are considered the affiliates
of the Company at that date.
The number of shares outstanding of the issuer's common stock, as of February
29, 1996: 3,654,089 shares of $.10 par value common stock.
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held in 1996 is incorporated by reference in answer to Part
III of this report.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Southwest Banks, Inc. (the "Company") is a registered bank holding company
under the Federal Bank Holding Company Act of 1956, as amended, and owns 100%
of the outstanding capital stock of the First National Bank of Naples and Cape
Coral National Bank ("Banks"). The Company was incorporated under the laws of
the State of Florida on November 15, 1988 as a mechanism to enhance the Banks'
ability to serve their customers' requirements for financial services. The
holding company structure provides flexibility for expansion of the Company's
banking business through acquisition of other financial institutions and
provision of additional banking-related services which the traditional
commercial bank may not provide under present laws.
The Banks are full service commercial banks, without trust powers. The
Banks offer a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, public funds accounts, money market accounts,
individual retirement accounts, regular interest bearing statement savings
accounts, certificates of deposit, daily repurchase agreements, business
accounts (offering account analysis on all commercial relationships),
commercial loans, real estate loans and consumer direct/indirect installment
loans. In addition, the Banks provide such consumer services as discount
brokerage, notary services, photocopying, signature guarantees, incoming and
outgoing collections, postage stamps, travelers checks, U.S. Bonds, food
coupons, cashiers checks, money orders, wire transfer services, coupon
collection, foreign exchange, utility bill payments and credit references.
Moreover, safe deposit boxes, custodial services, ACH processing and account
reconciliation, overdraft checking, commercial account analysis, night
depository service, courier service and automatic teller services are
available.
MARKET AREA AND COMPETITION
According to the U.S. Census Bureau, the Southwest Florida area has been
one of the fastest growing areas in the country over the past decade.
Competition among financial institutions in the Banks' market areas is intense,
with other financial institutions having far greater financial resources than
those available to the Company.
The primary service area for the Banks encompasses the Naples and Cape
Coral, Florida metropolitan areas. There are 91 banking offices and 12 offices
of savings and loan associations within the primary service areas of the Banks.
Most of these offices are branches of or are affiliated with major holding
companies in North Carolina, Georgia, Alabama and other areas of Florida.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and
other business entities which have recently been invading the traditional
banking markets. Due to the rapid growth of Southwest Florida, it is
anticipated that additional competition will continue from new entrants to the
market.
I-1
<PAGE> 4
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance sheets
of the Company as of December 31, 1995, 1994 and 1993. This presentation
includes all major categories of interest-earning assets and interest-bearing
liabilities:
AVERAGE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . $ 17,851,997 $ 11,431,446 $ 6,457,726
------------ ------------ ------------
Interest-Earning Deposits . . . . . . . . . . . . . . . . 646,575 - 0 - 202,740
Taxable Securities . . . . . . . . . . . . . . . . . . . 55,846,699 43,453,831 34,825,054
Tax Free Securities . . . . . . . . . . . . . . . . . . 6,759,647 6,270,008 1,484,760
Federal Funds Sold . . . . . . . . . . . . . . . . . . . 14,259,153 2,630,022 3,010,592
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . 216,325,673 151,176,783 109,376,527
------------ ------------ ------------
Total Earning Assets . . . . . . . . . . . . . . . . . . 293,837,747 203,530,644 148,899,673
Other Assets . . . . . . . . . . . . . . . . . . . . . . 17,217,035 9,276,601 5,442,256
------------ ------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . $328,906,779 $224,238,691 $160,799,655
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Non Interest-Bearing Deposits . . . . . . . . . . . . . . $ 35,615,561 $ 23,964,098 $ 15,588,514
Savings Deposits . . . . . . . . . . . . . . . . . . . . 22,685,871 18,486,785 15,552,702
Other Deposits . . . . . . . . . . . . . . . . . . . . . 202,094,553 138,843,044 111,807,902
Other Liabilities . . . . . . . . . . . . . . . . . . . . 2,516,230 1,261,188 1,148,017
Other Borrowings . . . . . . . . . . . . . . . . . . . . 37,215,007 17,576,162 4,340,114
------------ ------------ ------------
Total Liabilities . . . . . . . . . . . . . . . . 300,127,222 200,131,277 148,437,249
------------ ------------ ------------
Common Stock . . . . . . . . . . . . . . . . . . . . . . 349,764 312,682 194,736
Capital Surplus . . . . . . . . . . . . . . . . . . . . . 27,876,172 23,033,777 11,755,663
Retained Earnings (Deficit) . . . . . . . . . . . . . . . 930,140 863,723 412,007
Unrealized Gain (Loss) on Available-for Sale-Securities . (108,688) (102,768) -0-
Employee Stock Ownership Plan Obligation . . . . . . . . (267,831) - 0 - -0-
------------ ------------ ------------
Total Stockholders' Equity . . . . . . . . . . . . 28,779,557 24,107,414 12,362,406
------------ ------------ ------------
Total Liabilities and Stockholders' Equity . . . . . . . $328,906,779 $224,238,691 $160,799,655
============ ============ ============
</TABLE>
I-2
<PAGE> 5
The following is a presentation of an analysis of the net interest
earnings of the Company for the years ended December 31, 1995, 1994 and 1993
with respect to each major category of interest-earning asset and each major
category of interest-bearing liability:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
-------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Interest-Earning Deposits . . . . . . . $ 646,575 $ 43,646 6.75%
Securities . . . . . . . . . . . . . . 62,606,346 3,693,915 5.90%
Federal Funds Sold . . . . . . . . . . 14,259,143 834,821 5.85%
Net Loans . . . . . . . . . . . . . . . 216,325,673 20,811,977 9.62%
------------ -----------
Total Earning Assets . . . . . . . . $293,837,737 $25,384,359 8.64% 4.64%
============ ===========
LIABILITIES AVERAGE AMOUNT INTEREST PAID AVERAGE RATE PAID
-------------- ------------- -----------------
Savings Deposits . . . . . . . . . . . $ 22,685,871 $ 658,576 2.90%
Other Deposits . . . . . . . . . . . . 202,094,553 8,993,899 4.45%
Short-Term Borrowings . . . . . . . . . 37,215,007 2,103,576 5.65%
------------ -----------
Total Interest-Bearing Liabilities . $261,995,431 $11,756,051 4.49%
============ ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
-------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Securities . . . . . . . . . . . . . . $ 49,723,839 $ 2,616,202 5.26%
Federal Funds Sold . . . . . . . . . . 2,630,022 94,456 3.59%
Net Loans . . . . . . . . . . . . . . . 151,176,783 12,704,458 8.40%
------------ -----------
Total Earning Assets . . . . . . . . $203,530,644 $15,415,116 7.57% 4.47%
============ ===========
LIABILITIES AVERAGE AMOUNT INTEREST PAID AVERAGE RATE PAID
-------------- ------------- -----------------
Savings Deposits . . . . . . . . . . . $ 18,486,785 $ 503,492 2.72%
Other Deposits . . . . . . . . . . . . 138,843,044 4,932,616 3.55%
Short-Term Borrowings . . . . . . . . . 17,576,162 870,339 4.95%
------------ -----------
Total Interest-Bearing Liabilities . $174,905,991 $ 6,306,447 3.60%
============ ===========
</TABLE>
I-3
<PAGE> 6
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
-------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Interest-Earning Deposits . . . . . . . $ 202,740 $ 8,093 3.99%
Securities . . . . . . . . . . . . . . 36,309,814 1,937,345 5.34%
Federal Funds Sold . . . . . . . . . . 3,010,592 88,920 2.95%
Net Loans . . . . . . . . . . . . . . . 109,376,527 9,151,743 8.37%
----------- -----------
Total Earning Assets . . . . . . . . $148,899,673 $11,186,101 7.51% 4.38%
============ ===========
LIABILITIES AVERAGE AMOUNT INTEREST PAID AVERAGE RATE PAID
-------------- ------------- -----------------
Savings Deposits . . . . . . . . . . . $ 15,552,702 $ 436,533 2.81%
Other Deposits . . . . . . . . . . . . 111,807,902 4,086,724 3.66%
Short-Term Borrowings . . . . . . . . . 4,340,108 135,852 3.13%
------------ -----------
Total Interest-Bearing Liabilities . $131,700,712 $ 4,659,109 3.54%
============ ===========
</TABLE>
For purposes of these analyses, non-accruing loans are included in the
average balances and tax exempt income is not reflected on a tax equivalent
basis. Loan fees included in interest earned are not material to the
presentation.
I-4
<PAGE> 7
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect of changes in average balances (volume) and rates on interest
income, interest expense and net interest income, for the periods indicated, is
shown below. The effect of a change in average balance has been determined by
applying the average rate in the earlier period to the change in average
balance in the later period, as compared with the earlier period. The effect
of a change in the average rate has been determined by applying the average
balance in the earlier period to the change in the average rate in the later
period, as compared with the earlier period. Changes resulting from average
balance/rate variances are included in changes resulting from volume.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO
----------------------------------
VOLUME RATE CHANGE
------ ---- ------
<S> <C> <C> <C>
Interest earned on:
Interest earning deposits . . . $ 43,646 $ - 0 - $ 43,646
Investment securities . . . . . 677,620 400,093 1,077,713
Federal funds sold . . . . . . 417,485 322,880 740,365
Net loans . . . . . . . . . . . 5,472,507 2,635,012 8,107,519
----------- ----------- -----------
Total interest income . . . . . 6,611,258 3,357,985 9,969,243
----------- ----------- -----------
Interest paid on:
Savings deposits . . . . . . . 114,215 40,869 155,084
Other deposits . . . . . . . . 2,245,429 1,815,854 4,061,283
Borrowings . . . . . . . . . . 972,123 261,114 1,233,237
----------- ----------- -----------
Total interest expense . . . . 3,331,767 2,117,837 5,449,604
----------- ----------- -----------
Change in
Net interest income . . . . . . $ 3,279,491 $ 1,240,148 $ 4,519,639
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO
----------------------------------
VOLUME RATE CHANGE
------ ---- ------
<S> <C> <C> <C>
Interest earned on:
Interest earning deposits . . . $ (8,093) $ - 0 - $ (8,093)
Investment securities . . . . . 716,309 (37,452) 678,857
Federal funds sold . . . . . . (11,227) 16,763 5,536
Net loans . . . . . . . . . . . 3,498,681 54,034 3,552,715
---------- --------- ----------
Total interest income . . . . . 4,195,670 33,345 4,229,015
---------- --------- ----------
Interest paid on:
Savings deposits . . . . . . . 82,448 (15,489) 66,959
Other deposits . . . . . . . . 989,486 (143,594) 845,892
Borrowings . . . . . . . . . . 411,641 322,846 734,487
---------- --------- ----------
Total interest expense . . . . 1,483,575 163,763 1,647,338
---------- --------- ----------
Change in
Net interest income . . . . . . $2,712,095 $(130,418) $2,581,677
========== ========= ==========
</TABLE>
I-5
<PAGE> 8
LOAN PORTFOLIO
The Company engages, through the Banks, in a full complement of lending
activities, including commercial, consumer/installment and real estate loans.
The Company's commercial lending is directed principally towards
businesses whose demands for funds fall within each Bank's legal lending limits
and which are potential deposit customers. This category of loans includes
loans made to individual, partnership or corporate borrowers, and obtained for
a variety of business purposes. Particular emphasis is placed on loans to
small and medium-sized businesses. A majority of the commercial loans are
collateralized by real estate mortgages. The Company's real estate loans
consist of residential and commercial first mortgage loans, second mortgage
financing and construction loans.
The Company's direct consumer loans primarily consist of installment
loans to individuals for personal, family and household purposes, including
automobile loans to individuals and pre-approved lines of credit. This
category of loans also includes loans secured by second mortgages on the
residences of borrowers for a variety of purposes including home improvements,
education and other personal expenditures. Beginning in January 1992, the
Company began issuing indirect consumer loans to individuals under agreements
with local auto retailers (the "agreements" stipulate liability on the part of
the dealer and the Company regarding collection of payments and repossession of
collateral on non-performing loans) for the purchase of automobiles. These
loans, categorized as installment, are made under the same credit criteria as
are direct consumer loans although the credit contract is among the buyer,
seller and the Banks, as assignee.
The Company has a correspondent relationship with the First National
Bank of Pennsylvania, Hermitage, Pennsylvania ("First National"), whereby the
Company solicits the sale and purchase of loan participations. Peter
Mortensen, a director of the Company, is Chairman of the Board of First
National and is Chairman of the Board, President and minority stockholder of
First National's parent holding company. Participations purchased from First
National are entered into using the same underwriting criteria that would be
applied if the Company had originated the loan. This would include credit and
collateral analyses and maintenance of a complete credit file on each purchased
participation that is identical to the credit files maintained by the Company
on its own customers.
I-6
<PAGE> 9
The following is a presentation of an analysis of maturities of loans as
of December 31, 1995:
<TABLE>
<CAPTION>
DUE IN DUE IN DUE AFTER
TYPE OF LOAN 1 YEAR OR LESS 1 TO 5 YEARS 5 YEARS TOTAL
------------ -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . $32,843,770 $ 56,733,541 $10,951,774 $100,529,085
Real estate . . . . . . . . . 5,206,987 11,745,970 40,387,615 57,340,572
Installment loans . . . . . . 1,501,996 54,309,069 674,878 56,485,943
Lines of credit . . . . . . . 12,770,162 5,517,726 5,865,577 24,153,465
----------- ------------ ----------- ------------
Total . . . . . . . . . . $52,322,915 $128,306,306 $57,879,844 $238,509,065
=========== ============ =========== ============
</TABLE>
The Company does not presently have, nor intends to implement, a rollover
policy with respect to its loan portfolio. All loans are recorded according to
original terms, and demand loans, overdrafts and loans having no stated
repayment terms or maturity are reported as due in one year or less.
At December 31, 1995, the amount of loans due after one year with
predetermined interest rates totalled approximately $88,425,000 while the
amount of loans due after one year with floating interest rates totalled
approximately $65,899,000.
The following table presents various categories of loans contained in the
Company's loan portfolio and the total amount of all loans at December 31, 1991
through 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
TYPE OF LOAN 1995 1994 1993 1992 1991
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and financial . . . $100,529,085 $ 69,099,015 $ 45,642,458 $ 34,396,890 $ 28,630,533
Real estate . . . . . . . . . . 57,340,572 30,549,065 30,549,065 25,478,557 22,370,203
Installment loans . . . . . . . 56,485,943 48,688,611 33,872,749 22,638,771 3,329,984
Lines of credit . . . . . . . . 24,153,465 20,734,649 16,605,165 11,746,447 8,953,775
------------ ------------ ------------ ------------ ------------
Subtotal . . . . . . . . . 238,509,065 186,006,407 126,669,437 94,260,665 63,284,495
Less deferred loan fees
and unearned income . . . 257,549 317,269 198,202 223,995 205,934
Allowance for
possible loan losses . . 1,585,285 1,182,157 742,489 691,436 528,428
------------ ------------ ------------ ------------ ------------
Net loans . . . . . . . . . . . $236,666,231 $184,506,981 $125,728,746 $ 93,345,235 $ 62,550,133
============ ============ ============ ============ ============
</TABLE>
I-7
<PAGE> 10
Accrual of interest is discontinued on a loan when management of the Bank
determines, after consideration of economic and business factors affecting
collection efforts, that collection of interest is doubtful.
Amounts pertaining to non-accruing loans, accruing loans which were
contractually past due 90 days or more as to principal or interest payments,
and loans which would represent troubled debt restructurings at December 31 of
each of the years 1991 through 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
TYPE OF LOAN 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accruing Loans . . . . . . . . . $1,017,489 $ - 0 - $ - 0 - $ 521,282 $ 68,445
Accruing Loans less than or equal
to 90 days past due . . . . . . . . $ 63,006 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Troubled Debt Restructurings . . . . $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
</TABLE>
Non-accruing loans at December 31, 1995 consisted of two commercial real
estate loans aggregating $258,701 and three residential mortgage loans
totalling $758,788. With respect to the loans accounted for on a non-accrual
basis at December 31, 1995, the gross interest income that would have been
recorded in the period then ended if the loan had been current in accordance
with its original terms and outstanding throughout the period or since
origination amounted to $74,538 and the amount of interest income on such loans
that was included in net income for the year ended December 31, 1995 amounted
to $49,591.
At December 31, 1995, there were no potential problem loans, except as
discussed above, where known information about possible credit problems of the
borrower caused management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms and which may result
in such loans being placed on a non-accrual basis.
I-8
<PAGE> 11
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Company's allowance for possible loan losses and loan
loss experience (charge-offs) is furnished in the following table for the years
ended December 31, 1991 through 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
TYPE OF LOAN 1995 1994 1993 1992 1991
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period. $1,182,157 $ 742,489 $ 691,436 $528,428 $ 442,190
---------- ---------- --------- -------- ---------
Charge-offs:
Installment . . . . . . . . . (354,548) (174,411) (66,472) (83,122) (24,566)
Commercial . . . . . . . . . (125,210) (66,312) (130,169) (89,584) (90,960)
Credit Cards . . . . . . . . (27,763) (17,259) (7,485) - (1,066)
Mortgage . . . . . . . . . . (20,664) - - (18,833) (10,312)
---------- ---------- --------- -------- ---------
Total Charge-Offs: . . (528,185) (257,982) (204,126) (191,539) (126,904)
Recoveries:
Installment . . . . . . . . . 96,313 33,415 12,392 14,397 4,207
Commercial . . . . . . . . . - 59,160 2,610 - -
Credit Cards . . . . . . . . - 75 177 3,763 125
Mortgage . . . . . . . . . . - - - 387 -
---------- ---------- --------- -------- ---------
Total Recoveries: . . . 96,313 92,650 15,179 18,547 4,332
---------- ---------- --------- -------- ---------
Net Charge-offs . . . . . . . . (431,872) (165,332) (188,947) (172,992) -
Provision for losses charged
to operations . . . . . . . . 835,000 605,000 240,000 336,000 208,810
---------- ---------- --------- -------- ---------
Balance at end of period . . . $1,585,285 $1,182,157 $ 742,489 $691,436 $ 528,428
========== ========== ========= ======== =========
Asset Quality Ratios:
Net charge-offs during the
period to average loans
outstanding during the
period . . . . . . . . . . . 0.18% 0.11% 0.17% 0.23% 0.23%
Allowance for loan losses
to total loans . . . . . . . 0.67% 0.64% 0.59% 0.73% 0.83%
Allowance for loan losses to
non-performing assets . . . . 103.86% 241.10% 565.04% 132.63% 539.21%
Non-performing loans to total
loans . . . . . . . . . . . . 0.43% 0.22% 0.00% 0.55% 0.11%
Non-performing assets to total
assets . . . . . . . . . . . 0.39% 0.19% 0.07% 0.36% 0.08%
</TABLE>
I-9
<PAGE> 12
At December 31, 1991 through 1995 the allowance for possible loan losses
was allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ------------------------ -------------------------------
% OF LOANS IN % OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY EACH CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ----- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Commercial and
financial . . $ 836,866 52.8% $ 580,374 37.1% $ 295,287 36.0%
Real estate . . 118,445 7.5% 88,798 25.6% 24,025 24.1%
Installment . . 346,329 21.8% 347,164 26.2% 371,931 26.8%
Lines of
credit . . . . 283,645 17.9% 165,821 11.1% 51,246 13.1%
---------- ----- ---------- ----- --------- -----
Total . . . . $1,585,285 100.0% $1,182,157 100.0% $ 742,489 100.0%
========== ===== ========== ===== ========= =====
1992 1991
------------------------- --------------------------
% OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
<S> <C> <C> <C> <C>
Commercial and
financial . . $355,622 36.5% $ 306,359 50.5%
Real estate . . 29,144 27.0% 81,102 32.0%
Installment . . 261,939 24.0% 6,660 3.3%
Lines of
credit . . . . 44,731 12.5% 134,307 14.2%
-------- ----- --------- ----
Total . . . . $691,436 100.0% $ 528,428 100.0%
======== ===== ========= =====
</TABLE>
Although the allowance for loan losses was determined by category of loans,
the entire allowance is available to absorb losses from any category.
The allowance for loan losses is established based upon management's
evaluation of the potential losses in its loan portfolio. In analyzing the
adequacy of the allowance, management considers its review as well as the
results of independent internal and external credit reviews, changes in the
composition and volume of the loan portfolio, levels of non-performing and
charged-off loans and local and national economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Provision/Allowance for Loan Losses" for a discussion of
management's analysis of the loan portfolio with respect to the establishment
of the allowance.
I-10
<PAGE> 13
INVESTMENTS
The Company invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States, other
taxable securities and in certain obligations of states and municipalities.
The Banks enter into Federal Funds transactions with their principal
correspondent banks, and primarily act as a net seller of such funds. The sale
of Federal Funds amounts to a short-term loan from the Banks to another bank.
The following table presents, at December 31, 1995, 1994 and 1993, the book
value of the Company's investments:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
INVESTMENT CATEGORY 1995 1994 1993
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Obligations of U.S. Treasury
and other U.S. Government
agencies . . . . . . . . . . . . . . . . . . $ 62,490,920 $ 40,293,618 $ 32,686,816
State and political
subdivisions . . . . . . . . . . . . . . . 6,939,567 6,685,003 3,711,879
Other securities . . . . . . . . . . . . . . . 4,805,240 4,531,376 847,475
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . $ 74,235,727 $ 51,509,997 $ 37,246,170
============ ============ ============
</TABLE>
The following table indicates the respective maturities and weighted
average yields of securities held for investment as of December 31, 1995:
<TABLE>
<CAPTION>
AMOUNT WEIGHTED AVERAGE YIELD
-------- -----------------------
<S> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies:
0 - 1 Yr . . . . . . . . . . . . . . . . . . . . . $13,280,442 . . . . . . . . . . . . . . 5.86%
1 - 5 Yrs . . . . . . . . . . . . . . . . . . . . . 23,193,775 . . . . . . . . . . . . . . 6.38%
5 - 10 Yrs . . . . . . . . . . . . . . . . . . . . 26,016,703 . . . . . . . . . . . . . . 6.63%
State & political subdivisions:
1 - 5 Yrs . . . . . . . . . . . . . . . . . . . . . 2,630,744 . . . . . . . . . . . . . . 6.27%
5 - 10 Yrs . . . . . . . . . . . . . . . . . . . . 4,308,823 . . . . . . . . . . . . . . 6.86%
Other securities:
1 - 5 Yrs . . . . . . . . . . . . . . . . . . . . . 2,000,000 . . . . . . . . . . . . . . 5.83%
No stated maturity . . . . . . . . . . . . . . . . 2,805,240 . . . . . . . . . . . . . . 7.02%
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . $74,235,727 . . . . . . . . . . . . . . 6.41%
===========
</TABLE>
The weighted average yields for tax exempt securities are computed on a tax
equivalent basis.
I-11
<PAGE> 14
DEPOSITS
The Banks offer a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, negotiable order
of withdrawal ("NOW") accounts, public funds accounts, money market accounts
with limited transactions and a weekly variable interest rate, individual
retirement accounts, including Keogh plans with stated maturities, regular
interest bearing statement savings accounts and certificates of deposit with
fixed and variable rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within the
Banks' market areas, obtained through the personal solicitation of the Banks'
officers and directors, direct mail solicitation and advertisements published
in the local media. The Banks pay competitive interest rates on time and
savings deposits. In addition, the Banks have implemented a service charge fee
schedule competitive with other financial institutions in the Banks' market
areas, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and the like.
The following table presents, for the years ended December 31, 1995, 1994
and 1993, the average amount of and average rate paid on each of the following
deposit categories:
<TABLE>
<CAPTION>
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- ------------------------------------------- -----------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Non interest-bearing
demand deposits . . $ 35,615,561 $23,964,098 $15,588,514 N/A N/A N/A
Interest-bearing
demand deposits . . $ 108,823,477 $75,337,645 $45,614,466 3.40% 3.00% 2.53%
Savings deposits . . $ 22,685,871 $18,486,785 $15,552,702 2.90% 2.72% 2.81%
Time deposits . . . . $ 93,271,076 $63,505,399 $66,193,436 5.67% 4.22% 4.43%
</TABLE>
The following table indicates amounts outstanding of time certificates of
deposit of $100,000 or more and respective maturities as of December 31, 1995:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSIT
--------------------
<S> <C>
3 months or less . . . . . . . . . . . . . . . . . . . . . . $ 6,874,462
4 - 6 months . . . . . . . . . . . . . . . . . . . . . . . . 7,754,577
7 - 12 months . . . . . . . . . . . . . . . . . . . . . . . . 11,800,698
Over 12 months . . . . . . . . . . . . . . . . . . . . . . . 1,778,092
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $28,207,829
===========
</TABLE>
I-12
<PAGE> 15
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity for
the years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on Average Assets . . . . . . . . . . . . . . . . 0.52% 0.29% 0.63%
Return on Average Equity . . . . . . . . . . . . . . . . 5.93% 2.70% 8.13%
Average Equity to Average Assets Ratio . . . . . . . . . 8.77% 10.75% 7.69%
</TABLE>
SHORT-TERM BORROWINGS
The Banks enter into various arrangements with customers to sell securities
under agreements to repurchase ("Repurchase Agreements"). The Repurchase
Agreements have been accounted for as short-term borrowings with the obligation
to repurchase the securities reflected as a non-deposit interest-bearing
liability. Amounts pertaining to Repurchase Agreements are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Balance at End of Year . . . . . . . . . $18,276,769 4.51% $11,378,411 4.98%
Maximum Outstanding During the Year . . . . $30,486,820 -- $15,908,712 --
Average Balance for the Year . . . . . . . . $25,336,826 5.42% $10,711,829 4.90%
</TABLE>
The Banks also borrow advances from the Federal Home Loan Bank (FHLB) under
terms generally ranging from 30 days to one year. These advances are secured
by residential mortgages carried in the Banks' portfolios. Amounts pertaining
to FHLB advances for 1995 are as follows:
<TABLE>
<CAPTION>
Amount WEIGHTED AVERAGE RATE
---------------------- ---------------------
<S> <C> <C>
Balance at End of Year . . . . . . . . . $10,000,000 5.90%
Maximum Outstanding During the Year . . . . $12,000,000 --
Average Balance for the Year . . . . . . . . $11,551,825 6.15%
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, the Company had no
other category of borrowings for which the average balances outstanding during
the year amounted to 30% or more of stockholders' equity.
I-13
<PAGE> 16
ASSET/LIABILITY MANAGEMENT
It is the objective of the Company to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of the Banks are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Company seeks to invest the largest portion of
its assets in commercial, consumer and real estate loans.
The Banks' asset/liability mix is monitored on a daily basis and a
quarterly report reflecting interest-sensitive assets and interest-sensitive
liabilities is prepared and presented to the Banks' Boards 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 Banks' earnings.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - INTEREST SENSITIVITY," (Page 26) for an analysis of
rate sensitive assets and liabilities.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Banks are required to purchase correspondent
services offered by larger banks, including check collections, purchase of
Federal Funds, security safekeeping, investment services, coin and currency
supplies, overline and liquidity loan participations and sales of loans to or
participations with correspondent banks.
The Banks sell loan participations to correspondent banks with respect to
loans which exceed the Banks' respective lending limits. Management of each
Bank has established a correspondent relationship with the Independent Bankers
Bank of Florida, Orlando, Florida, Central Bank of the South, Birmingham,
Alabama and NationsBank, Tampa, Florida. In addition, First National Bank of
Naples sells and purchases loan participations with First National Bank of
Pennsylvania, Hermitage, Pennsylvania, of which Peter Mortensen, a director of
the Company, is the Chairman of the Board.
EMPLOYEES
The Company presently employs 175 persons full-time and 25 persons
part-time, including 48 officers. The Company will hire additional persons as
needed on a full-time and part-time basis, including additional tellers and
customer service representatives.
MONETARY POLICIES
The results of operations of the Company are 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.
I-14
<PAGE> 17
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and
administrative policies. The business activities of the Company and the Bank
are closely supervised by a number of federal regulatory agencies, including
the Federal Reserve Board, the Comptroller of the Currency (the "Comptroller")
and the Federal Deposit Insurance Corporation ("FDIC"). The Company is
regulated by the Federal Reserve Board under the federal Bank Holding Company
Act of 1956, as amended, 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, and 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 a subsidiary bank at a time when, absent such Federal Reserve Board policy,
the Company may not deem it advisable to provide such assistance.
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act of
1994, the existing restrictions on interstate acquisitions of banks by bank
holding companies have been repealed, such that any 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. The legislation also provides that, unless an individual state
elects beforehand either (i) to accelerate the effective date, or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multistate bank operations
into a single bank subsidiary and to branch interstate through acquisitions.
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. 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, including the following activities:
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 consulting advice to nonaffiliated banks
and nonbank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions. 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 such benefits to the public as greater
convenience, increased competition or gains in efficiency that outweigh such
possible adverse effects as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
Generally, bank holding companies are required to obtain prior approval of the
Federal Reserve Board to engage in any new activity not previously approved by
the Federal Reserve Board.
As national banks, the Banks are subject to the supervision of the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, the Banks may establish branch offices anywhere
within the State of Florida. The Banks are also subject to the Florida banking
and usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit. In addition, the Banks, as subsidiaries
of the Company, are 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. In addition, a national bank may grant loans and
extensions of credit to a single person 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. 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
I-15
<PAGE> 18
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.
The Banks' loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-in-Lending Act
governing disclosures of credit terms to consumer borrowers, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit, the Fair Credit Reporting Act governing
the manner in which consumer debts may be collected by collection agencies, and
the rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws. The deposit operations of
the Banks are also subject to the Electronic Funds Transfer Act and Regulation
E issued by the Federal Reserve to implement that act, which govern automatic
deposits to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
The Banks are also subject to the provisions of the Community Reinvestment
Act of 1977, which requires the appropriate federal regulator, in connection
with its regular examination of a bank, to assess the bank's record in meeting
the credit needs of the community serviced by the bank, including low- and
moderate-income neighborhoods. The regulator's assessment of a bank's record
is made available to the public. Further, such assessment is required of any
bank that has applied, among other things, to establish a new branch office
that will accept deposits, to relocate an existing office, or to merge or
consolidate with, or acquire the assets of or assume the liabilities of, a
federally-regulated financial institution.
Both the Company and the Banks are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. In
1989, both the Federal Reserve Board and the Comptroller issued new 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
with the banks owned by the holding company. The Comptroller's risk capital
guidelines apply directly to national banks regardless of whether they are a
subsidiary of a bank holding company. Both agencies' requirements (which are
substantially similar), provide that banking organizations must have capital
equivalent to 8% of risk weighted assets. The risk weights assigned to assets
are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned to
the lowest risk category. A risk weight of 50% is assigned to loans secured by
owner-occupied one to four family residential mortgages. The aggregate amount
of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are added
together to determine total risk-weighted assets. At December 31, 1995, the
Company's total risk-based capital and tier-one ratios were 11.92% and 11.31%,
respectively. Both the Federal Reserve Board and the Comptroller 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 stockholders equity, noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries. At December 31, 1995, the Company's leverage ratio was 8.13%.
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,
excellent 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 or the BOPEC rating system for bank holding companies.
Institutions with lower ratings and institutions with high levels of risk or
experiencing or anticipating significant growth are expected to maintain ratios
100 to 200 basis points above the stated minimums.
The Comptroller amended the risk-based capital guidelines applicable to
national banks in an effort to clarify certain questions of interpretation and
implementation, specifically with regard to the treatment of purchased mortgage
servicing rights ("PMSRs") and other intangible assets. The Comptroller'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 PMSRs are retained as a part of Tier 1 capital. The Comptroller currently
maintains that only PMSRs and purchased credit card relationships meet the
criteria to be considered qualifying intangibles. The Comptroller'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 total
Tier 1 capital. The Comptroller has amended its guidelines to increase the
limitation of 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.
I-16
<PAGE> 19
In addition, the Comptroller 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 Fannie Mae, Freddie Mac and
Farmer Mac programs. The new 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.
The Comptroller, the Federal Reserve Board and the FDIC recently adopted
final regulations revising their risk-based capital guidelines to further
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
business of banking. Under the new regulations, when evaluating a bank's
capital adequacy, the agencies 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 banking agencies have proposed
a measurement process to identify banks that have high interest rate risk
exposures. Under the proposed measurement process, the agencies would employ a
supervisory model that focuses on the sensitivity of a bank's economic value to
changes in interest rate risk as well as various other quantitative factors to
determine the adequacy of an individual bank's capital for interest rate risk.
After gaining experience with the proposed supervisory measurement and
assessment process, the agencies intend to propose further regulations to
establish an explicit risk-based capital charge for interest rate risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Act"), enacted on December 19, 1991, provides for a number of reforms relating
to the safety and soundness of the deposit insurance system, supervision of
domestic and foreign depository institutions and improvement of accounting
standards. One aspect of the Act involves the development of a regulatory
monitoring system requiring prompt action on the part of banking regulators
with regard to certain classes of undercapitalized institutions. While the Act
does not change any of the minimum capital requirements, it directs each of the
federal banking agencies to issue regulations implementing the monitoring plan.
The Act creates five "capital categories" ("well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized") which are defined in the Act 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.
As an institution drops to lower capital levels, 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.
The Act also provides that banks will have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, the
Comptroller and the FDIC have adopted regulations defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits.
Both the capital standards and the safety and soundness standards which the
Act seeks to implement are designed to bolster and protect the deposit
insurance fund.
I-17
<PAGE> 20
In response to the directive issued under the Act, the regulators have
proposed regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established under the Act.
The following table reflects the proposed capital thresholds:
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
RISK-BASED RISK-BASED LEVERAGE
CAPITAL RATIO CAPITAL 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%
- ---------------------------------
</TABLE>
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) Less than 3% 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.
As national banks, the Banks are subject to examination and review by the
Comptroller. This examination is typically completed on-site at least annually
and is subject to off-site review at call. The Banks submit to the Comptroller
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
Prior to May 1, 1995, the State of Florida had a regional interstate
banking statute which authorizesd bank holding companies whose operations are
principally conducted in certain southeastern states to acquire banks and bank
holding companies located in Florida under certain conditions. Such
southeastern states included the States of Alabama, Arkansas, Georgia,
Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia, West Virginia and the District of Columbia. Such legislation has had
the effect of increasing competition among financial institutions in the Bank's
market area and in the State of Florida generally. The legislature has
recently amended this regional reciprocal interstate banking statute to
eliminate its regional nature. The new statute, which became effective on May
1, 1995, allows bank holding companies located throughout the United States to
acquire banks and bank holding companies located in Florida under certain
conditions.
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of its operations at the end of each fiscal year
and such additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of
the Company and any subsidiaries.
The scope of regulation and permissible activities of the Company and the
Bank is subject to change by future federal and state legislation.
ITEM 2. PROPERTIES
The Company conducts its banking operations through six banking offices,
five of which are located in the Naples, Florida metropolitan area and one in
the Cape Coral, Florida metropolitan area. The Company owns five of these
offices, including the underlying land. The sixth office, which serves as the
main office of First National Bank of Naples, is leased from a partnership in
which two of the organizers of the Company, including one Director of the
Company, are partners. The term of the lease is ten years, expiring in 1998,
with renewal options for six additional five-year terms.
The Company also owns a 21,000 square foot commercial office building which
houses its operations center. The Company is currently utilizing approximately
18,000 square feet of the facility and leases the remaining 3,000 square feet
to third parties under lease agreements which expire in 1998.
In addition, the Company owns a future branch site in the Naples, Florida
metropolitan area, which is scheduled for development in 1996.
I-18
<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
either of the Banks is a party or of which any of their properties are subject;
nor are there material proceedings known to the Company to be contemplated by
any governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer or affiliate
or any principal security holder of the Company, or any associate of any of the
foregoing, is a party or has an interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31, 1995
to a vote of security holders of the Company.
I-19
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company's inception, there has been no established public trading
market for the Company's Common Stock. As of December 31, 1995, the
approximate number of holders of record of the Company's Common Stock was
1,140.
To date, the Company has not paid any cash dividends on its Common Stock.
However, in May of each of the last three years, the Company paid a 2% stock
dividend to shareholders. It is the present policy of the Board of Directors
of the Company to reinvest earnings for such period of time as is necessary to
ensure the success of the operations of the Company and of the Bank. There are
no current plans to initiate payment of cash dividends, and future dividend
policy will depend on the Company's earnings, capital requirements, financial
condition and other factors considered relevant by the Board of Directors of
the Company.
The Company's subsidiary Banks are restricted in their ability to pay
dividends under the national banking laws and by regulations of the
Comptroller. Pursuant to 12 U.S.C. Section 56, a national bank may not pay
dividends from its capital. All dividends must be paid out of undivided
profits, subject to other applicable provisions of law. Payments of dividends
out of undivided profits is further limited by 12 U.S.C. Section 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 1/10 of the Bank's net income of the preceding two
consecutive half-year periods (in the case of an annual dividend). Pursuant to
12 U.S.C. Section 60(b), the approval of the Comptroller is required if the
total of all dividends declared by the Bank in any calendar year exceeds the
total of its net income for that year combined with its retained net income for
the preceding two years, less any required transfers to surplus.
In December, 1990, the Comptroller promulgated regulations concerning the
level of allowable dividend payments by national banks. The intended effect of
the regulations is to make the calculation of national banks' dividend-paying
capacity consistent with generally accepted accounting principles (GAAP). In
this regard, the allowance for loan and lease losses will not be considered an
element of either "undivided profits then on hand" or "net profits." Further,
a national bank may be able to use a portion of its capital surplus account as
"undivided profits then on hand," depending on the composition of that account.
In addition, the regulations clarify that dividends on preferred stock are not
subject to the limitations of 12 U.S.C. Section 56, while explicitly making
such dividends subject to the constraints of 12 U.S.C. Section 60. The
regulations do not diminish or impair a well-capitalized bank's ability to make
cash payments to its shareholders in the form of a return of capital.
At December 31, 1995, First National Bank of Naples had retained earnings
of $3,928,132, thus making it eligible at the present time to pay dividends to
the Company. Cape Coral National Bank had a deficit of $220,453 at December
31, 1995 and, accordingly, may not pay dividends to the Company.
II-1
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of and for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991, have been derived
from consolidated financial statements of the Company. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto.
<TABLE>
<CAPTION>
AT AND FOR
THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total interest income............. $ 25,384,359 $ 15,415,116 $ 11,186,101 $ 9,031,978 $ 6,981,715
Total interest expense............ 11,756,051 6,306,447 4,659,109 4,192,737 3,946,822
------------ ------------ ------------ ------------ ------------
Net interest income............... 13,628,308 9,108,669 6,526,992 4,839,241 3,034,893
Provision for loan losses ........ 835,000 605,000 240,000 336,000 208,810
Non-interest income .............. 2,708,471 1,442,689 1,295,941 661,050 487,716
Non-interest expense ............. 12,939,804 9,053,823 5,978,051 4,433,724 2,986,928
------------ ------------ ------------ ------------ ------------
Net income (loss) before
extraordinary items............. 1,706,535 650,323 1,005,230 452,952 206,871
Net income (loss)................. 1,706,535 650,323 1,005,230 721,580 326,871
Net income (loss) per share
before extraordinary items(1)... .44 .19 .47 .27 .16
Extraordinary item - Tax
benefit of NOL carry-forward(1)... -- -- -- .16 .09
Net income (loss) per share(1).... .44 .19 .47 .43 .25
Weighted average number of
shares outstanding(1) .......... 3,884,789 3,401,704 2,148,049 1,657,000 1,326,510
CONSOLIDATED BALANCE
SHEET DATA:
Total assets...................... $386,461,791 $264,613,897 $178,454,328 $146,107,851 $ 87,382,222
Total deposits.................... 324,830,614 201,245,235 157,370,112 132,037,198 79,195,981
Stockholders' equity.............. 29,943,903 27,710,310 12,981,854 10,994,809 6,702,787
CAPITAL RATIOS:
Tier 1 capital.................... 11.31% 14.59% 10.34% 11.60% 11.50%
Total risk-based capital.......... 11.92% 15.20% 10.93% 12.26% 12.41%
Leverage ratio.................... 8.13% 10.60% 7.53% 8.01% 7.67%
ASSET QUALITY RATIOS:
Allowance for loan losses to
total loans..................... 0.67% 0.64% 0.59% 0.73% 0.83%
Allowance for loan losses to
non-performing assets........... 103.86% 241.10% 565.04% 132.63% 539.21%
Non-performing loans to
total loans .................... 0.43% 0.22% -- 0.55% 0.11%
Non-performing assets to
total assets.................... 0.39% 0.19% 0.07% 0.36% 0.08%
</TABLE>
- --------------------------------
(1) Retroactively restated to reflect the effect of a 2% stock dividend
effected in May, 1995.
II-2
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Details regarding the Company's financial performance are presented in the
following discussion, which should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
FINANCIAL CONDITION
For the year ended December 31, 1995, the Company experienced growth in
assets, loans and deposits. Total assets were $386,461,791, an increase of
$121,847,894 or 46%, compared to $264,613,897 at fiscal year end 1994. The
increase was recognized primarily in net loans which increased $52.2 million,
or 28%, while investments increased by $23.2 million, or 46%. Total earning
assets increased $108,169,636 for a total of $343,625,957 at December 31, 1995.
Funding the increase in earning assets was a comparable increase in
interest-bearing liabilities. Interest-bearing liabilities in the form of
interest-bearing deposits and short-term borrowings increased 50% or
$102,193,273 since December 31, 1994, while non-interest-bearing demand
accounts increased $15.6 million.
RESULTS OF OPERATIONS
Interest income increased $9,969,243 or 65%, in 1995 compared to 1994 while
average earning assets increased by 37%. Average yields on average earning
assets were 8.64% for 1995 as compared to 7.57% in 1994. The increase in yield
arises from the impact on market rates of Federal Reserve rate increases
imposed during 1994 and into 1995 on the maturity, reinvesting and repricing
characteristics of the Company's earning assets.
Interest expense increased $5,449,604 or 86%, in 1995 as compared to 1994
while average interest-bearing liabilities increased 50%. The average rate
paid on interest-bearing liabilities increased from 3.60% in 1994 to 4.49% in
1995, consistent with the change in yields on earning assets.
Net interest income increased $4,519,639 or 50%, in 1995 as compared to
1994. The net interest margin increased to 4.64% in 1995 from 4.47% in 1994,
due to the ability of the Company's interest sensitive assets to outpace the
repricing of its interest sensitive liabilities in a rising market rate
environment.
Non-interest income for 1995, exclusive of gains on the sale of securities,
increased $1,253,185 or 87%, as compared to 1994. The increase resulted
primarily from the growth in deposit activity and the expansion of fee
generating services.
Total non-interest expense increased $3,885,981 or 43%, for 1995 compared
to 1994, salaries and benefits expense representing the area of greatest
change. Full-time equivalent employees increased from 161 at December 31, 1994
to 185 at December 31, 1995 in response to the Company's growth in assets, and
the opening of a new branch office of First National Bank of Naples.
Meanwhile, average assets per full-time equivalent employees improved from
$1,644,000 at December 31, 1994 to $2,089,000 at December 31, 1995, due
primarily to the growth of Cape Coral National Bank to $59.5 million in assets
since its opening in December, 1994.
The provision for possible loan losses for 1995 increased by $230,000 or
38% over that provided for in 1994. While management believes that the credit
quality of the portfolio has not diminished, due to the increase in the
Company's lending limits and the resultant increasing size of individual
credits being extended, a proportionate increase in the allowance for loan
losses is warranted.
II-3
<PAGE> 25
LOAN PORTFOLIO
Management believes that general economic conditions in the Company's
operating area, including the real estate market, continue to be healthy due to
the growth in the area's population and demand for property and services.
Accordingly, the demand for consumer and commercial loans continued in 1995 as
net loans increased $52.2 million or 28% to $236,666,231 at December 31, 1995.
At December 31, 1995, commercial loans represented 42% of total loans as
compared to 37% in 1994, real estate loans decreased from 26% of total loans in
1994 to 24% of total loans in 1995, lines of credit decreased from 11% of total
loans in 1994 to 10% of total loans in 1995, and installment loans represented
24% of total loans in 1995 compared to 26% of total loans in 1994. Commercial
seasonal lending activity is focused on short-term working capital loans and
commercial real estate term loans. The Company generally does not seek to
purchase or participate in loans of other institutions due to the adequacy of
demand in its operating area.
Non-performing loans included non-accruing loans totalling $1,017,489 at
December 31, 1995. Interest income on non-accrual loans is recognized on a
cash basis. During 1995, the gross amount of interest income that would have
been recorded on non-accrual loans at December 31, 1995, if all such loans had
been accruing interest at the original contractual rate, was $74,538. Interest
payments recorded in 1995 as interest income for all such non-performing loans
was $49,591. There were no loans which would represent troubled debt
restructurings at December 31, 1995.
DEPOSITS
Total deposits increased $123,585,379 or 61%, to $324,830,614 at December
31, 1995. The change was realized primarily in interest bearing deposits,
which increased $108 million while non-interest bearing deposits increased
$15.6 million. At December 31, 1995, time deposits represented 36% of total
deposits as compared to 31% of total deposits in 1994. Other interest bearing
deposits represented 50% of total deposits at December 31, 1995, down from 54%
of total deposits in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
FINANCIAL CONDITION
For the year ended December 31, 1994, the Company experienced growth in
assets, loans and deposits. Total assets were $264,613,897, an increase of
$86,159,569, or 48%, compared to $178,454,328 at fiscal year end 1993. The
increase was recognized primarily in net loans which increased $58.8 million,
or 47%, while investments increased by $13.7 million, or 37%. Total earning
assets increased $70,069,405 for a total of $235,456,321 at December 31, 1994.
Funding the increase in earning assets was a comparable increase in
interest-bearing liabilities. Interest-bearing liabilities in the form of
interest-bearing deposits and short-term borrowings increased 42% or
$60,799,769 since December 31, 1993, while non-interest-bearing demand accounts
increased $10.2 million. The Company also raised $14.6 million in equity
capital during 1994 through an offering of its common stock.
RESULTS OF OPERATIONS
Interest income increased $4,229,015, or 38%, in 1994 compared to 1993
while average earning assets increased by 37%. Average yields on average
earning assets were 7.57% for 1994 as compared to 7.51% in 1993. While Federal
Reserve rate increases impacted market rates during the year, the maturity,
reinvesting and repricing characteristics of the Company's earning assets kept
yields only marginally higher than in 1993.
Interest expense increased $1,647,338, or 35%, in 1994 as compared to 1993
while average interest-bearing liabilities increased 33%. The average rate
paid on interest-bearing liabilities increased from 3.53% in 1993 to 3.60% in
1994, consistent with the change in yields on earning assets.
II-4
<PAGE> 26
Net interest income increased $2,581,677, or 39%, in 1994 as compared to
1993. The net interest margin increased to 4.47% in 1994 from 4.38% in 1993,
due to the ability of the Company's interest sensitive assets to outpace the
repricing of its interest sensitive liabilities in a rising market rate
environment.
Non-interest income for 1994 increased $445,522, or 45%, as compared to
1993, after excluding gains recognized in 1993 on the sale of investment
securities and loans of $300,774. The increase resulted primarily from the
growth in deposit and fee generating activity.
Total non-interest expense increased $3,075,772, or 51%, for 1994 compared
to 1993. Salaries and benefits expense represented the area of greatest
change. Full-time equivalent employees increased from 93 at December 31, 1993
to 161 at December 31, 1994 in response to the Company's growth in assets, and
the opening of two new branch offices of First National Bank of Naples. In
addition, non-interest expenses relating to the organization of Cape Coral
National Bank, which commenced business on December 7, 1994, aggregated
approximately $369,000 for the year.
The provision for possible loan losses for 1994 increased by $365,000 over
that provided for in 1993. While management believes that the credit quality
of the portfolio has not diminished, due to the increase in the Company's
lending limits and the resultant increasing size of individual credits being
extended, a proportionate increase in the allowance for loan losses was
warranted.
LOAN PORTFOLIO
The Company experienced significant demand for consumer and commercial
loans continued in 1994 as net loans increased $58,778,235, or 47%, to
$184,506,981 at December 31, 1994. At December 31, 1994, commercial loans
represented 37% of total loans as compared to 36% in 1993, real estate loans
increased from 24% of total loans in 1993 to 26% of total loans in 1994, lines
of credit decreased from 13% of total loans in 1993 to 11% of total loans in
1994, and installment loans represented 26% of total loans in 1994 compared to
27% of total loans in 1993.
Non-performing loans included two non-accruing loans totalling $414,571 at
December 31, 1994. Interest income on non-accrual loans is recognized on a
cash basis. During 1994, the gross amount of interest income that would have
been recorded on non-accrual loans at December 31, 1994, if all such loans had
been accruing interest at the original contractual rate, was $22,888. Interest
payments recorded in 1993 as interest income for all such non-performing loans
was $14,838. There were no loans which would represent troubled debt
restructurings at December 31, 1994.
DEPOSITS
Total deposits increased $43,875,123, or 28%, to $201,245,235 at December
31, 1994. The change was realized primarily in interest bearing deposits,
which increased $33.6 million while non-interest bearing deposits increased
$10.2 million. At December 31, 1994, time deposits represented 31% of total
deposits as compared to 42% of total deposits in 1993. The decrease in
percentage from 1993 is due to consumer desire for liquid accounts. Other
interest bearing deposits represented 54% of total deposits at December 31,
1994, up from 45% of total deposits in 1993.
CAPITAL RESOURCES AND LIQUIDITY
Management of the Company has developed a strategic initiative which
provides for the expansion of its banking operations into new markets, as well
as continued expansion in its existing markets through additional branch
openings. In this regard, certain initial outlays are required to fund the
opening of each facility, including the investment in premises and equipment,
staffing and promotional activities. While it is anticipated that interest
income will increase commensurate with interest expense upon the attraction of
deposits, non-interest expenses will generally be disproportionately higher
until such time as the volume of deposits and associated net interest income is
sufficient to cover these costs.
II-5
<PAGE> 27
Management's philosophy in each instance of expansion is to attract deposit
relationships through the offering of competitive rates, terms and service
convenience, including the promotion of higher than market rate long-term time
deposits. As it is the Company's philosophy to consider the investment
portfolio principally as a source of liquidity, deposit growth, except to the
extent necessary to maintain such liquidity, is generally utilized to fund the
higher yielding loan portfolio, particularly commercial and consumer lending.
In addition, it is management's practice to maintain the Company's "well
capitalized" status under regulatory guidelines and plans its expansion
activities in order to continue to maintain this status.
Consistent with the objective of operating a sound financial organization,
the Company maintains high capital ratios. Regulatory agencies including the
Office of the Comptroller of the Currency and the Federal Reserve Bank have
approved guidelines for a risk-based capital framework that makes capital
requirements more sensitive to the risks germane to each individual
institution. The guidelines require that total capital of 8% be held against
total risk-adjusted assets.
At December 31, 1995, the Company's Tier 1 capital ratio was 11.31%, total
risk-based capital ratio was 11.92% and the leverage ratio was 8.13%. These
compare to 14.59%, 15.20% and 10.60%, respectively, at December 31, 1994. The
decreases result from the impact of asset growth during the year.
The Company's ability to satisfy demands for credit, deposit withdrawals
and other corporate needs depends on its level of liquidity. The Company
utilizes several means to manage its liquidity. Traditionally, increases in
deposits are sufficient to provide adequate levels of liquidity; however, if
needed, the Company has approved extensions of credit available from
correspondent banks, sources for loan sales and primarily short-term
investments that could be liquidated if necessary. While the Company has not
had a need to utilize these sources of liquidity, it continues to maintain
their availability on a contingent basis. Management is not aware of any known
trends, demands, events, commitments or uncertainties that either will result
or are reasonably likely to result in a material effect on the Company's
liquidity, capital resources or operations and is not aware of any current
recommendations by any regulatory authority which, if implemented, would have
any such effect.
During fiscal 1995, cash flow from operating activities was $4,031,695,
compared to $918,774 in fiscal 1994, representing an increase of $3,112,921.
The increase was due in part to increased net income of $1,056,212. Charges
for depreciation and amortization increased $588,785, reflecting the impact of
adding two banking facilities and the Company's operations facility since the
third quarter of 1994. Cash flow was also provided from net increases in other
non-cash charges and credits of $261,631 and a net decrease in other assets,
liabilities and accruals of 1,206,293.
Cash provided from financing activities for fiscal 1995 was $118.0 million,
an increase of $32.4 million from 1994. Deposit growth in 1995 increased $79.7
million while other borrowings decreased $5.8 million, a reduction in volume of
$33.0 million from 1994. Net proceeds from the issuance of common stock,
principally to fund the Company's annual contribution to its KSOP, were $0.2
million in 1995. The Company raised $14.6 million in 1994 as a result of a
public offering of its shares.
Cash used in investing activities for fiscal 1995 was $80.1 million or a
decrease of $1.5 million from 1994. This decrease is principally due to the
increase in deposit growth in 1995 as discussed above, net of an increase in
cash and cash equivalents of $41.9 million for the year. The decrease in cash
used in investing activities consisted of a decrease in loan growth of $6.5
million, an increase in the net cash flows directed to investments of $8.6
million and a reduction in expenditures for premises and equipment of $3.6
million.
II-6
<PAGE> 28
INTEREST SENSITIVITY
The following is a combined maturity and repricing analysis of
rate-sensitive assets and liabilities as of December 31, 1995.
<TABLE>
<CAPTION>
0 - 90 91-180 181-365 1 - 2 3 - 5 5 +
DAYS DAYS DAYS YEARS YEARS YEARS TOTAL
---- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal Funds Sold . . . . . . . . $ 31,724 $ 0 $ 0 $ 0 $ 0 $ 0 $ 31,724
Investment Securities . . . . . . 6,338 2,009 5,271 17,388 11,443 31,787 74,236
Interest-Bearing Deposits . . . . 1,000 0 0 0 0 0 1,000
Loans . . . . . . . . . . . . . . 35,377 23,715 41,463 34,286 54,047 49,621 238,509
--------- --------- ---------- --------- --------- ------- --------
Total Interest-Earning
Assets . . . . . . . . . . . 74,439 25,724 46,734 51,674 65,490 81,408 345,469
--------- --------- ---------- --------- --------- ------- --------
INTEREST-BEARING LIABILITIES:
Gold T-Bill NOW Accounts . . . . . . 72,404 0 0 0 0 0 72,404
Money Market Accounts . . . . . . . . 4,040 0 0 0 0 16,160 20,200
Other NOW Accounts . . . . . . . . . 43,265 0 0 0 0 0 43,265
Savings Deposits . . . . . . . . . . 25,309 0 0 0 0 0 25,309
Time Deposits . . . . . . . . . . . . 37,509 35,914 26,812 16,749 490 0 117,474
Other Borrowings . . . . . . . . . . 23,277 0 5,000 0 0 0 28,277
--------- --------- ---------- --------- --------- ------- --------
Total Interest-Bearing
Liabilities . . . . . . . . . 205,804 35,914 31,812 16,749 490 16,160 306,929
--------- --------- ---------- --------- --------- ------- -------
Excess (Deficiency) of Rate
Sensitive Assets Less Rate
Sensitive Liabilities . . . . $(131,365) $ (10,190) $ 14,922 $ 34,925 $ 65,000 $65,248 $ 38,540
========= ========= ========== ========= ========= ======= ========
Excess (Deficiency) as a
Percentage of Earning
Assets . . . . . . . . . . . . -38.03% -2.95% 4.32% 10.11% 18.82% 18.89% 11.16%
========= ========= ========== ========= ========= ======= ========
Cumulative Excess
(Deficiency) . . . . . . . . . $(131,365) $(141,555) $ (126,633) $ (91,708) $ (26,708) $38,540
========= ========= ========== ========= ========= =======
Cumulative Excess (Deficiency)
as a Percentage of Earning
Assets . . . . . . . . . . . . -38.03% -40.97% -36.66% -26.55% -7.73% 11.16%
========= ========= ========== ========= ========= =======
</TABLE>
The objective of interest-sensitivity management is to minimize the risk
associated with the effect of interest rate changes on net interest margins
while maintaining net interest income at acceptable levels. Managing this risk
involves monthly monitoring of the interest-sensitive assets relative to
interest-sensitive liabilities over specific time intervals. All assets and
liabilities are evaluated as maturing at the earlier of repricing date or
contractual maturity date. While liabilities without specific terms such as
NOW and savings accounts are generally considered core deposits for liquidity
purposes, they are deemed to reprice immediately for purposes of interest rate
sensitivity analysis. Other deposit instruments are evaluated based upon
historical trend or rate index. Specifically, the rate paid on the Company's
"Gold T-Bill" account is indexed to the 13 week Treasury auction and deemed to
reprice immediately. Money Market rates are subjectively set by management.
Management considers 20% of total money market accounts to have a one day
maturity based upon historical volatility. At December 31, 1995, the Company
had $147 million in interest-sensitive assets compared to $276 million in
interest-sensitive liabilities (of which $141 million are considered core
deposits) that will mature or reprice within a year.
II-7
<PAGE> 29
A negative gap position is indicative of a bank which has a greater
amount of interest-sensitive liabilities repricing (or maturing) than it does
interest-sensitive assets, in a given time interval. In this instance, the
impact on net interest income would be positive in a declining rate environment
and negative if rates were rising. Conversely, a positive gap position
represents a greater amount of interest-sensitive assets repricing (or
maturing). Thus, an increase in rates would positively impact net interest
income as the yield on earning assets would increase prior to the increase in
the cost of interest-bearing liabilities. The impact on net interest income
described above is general, as other factors would additionally maximize or
minimize the effect. For example, a change in the prime interest rate could
effect an immediate change to rates on prime related assets, whereas a
liability which reprices according to changes in Treasury rates might (1) lag
in the timing of the change and (2) change rates in an amount less than the
change in the prime interest rate.
Management believes that the current and future balance sheet structure
of interest-sensitive assets and liabilities does not represent a material risk
to earnings or liquidity in the event of a change in market rates.
PENDING MERGER TRANSACTION
In February, 1996, the Company entered into an Agreement and Plan of
Merger with F.N.B. Corporation ("FNB"), Hermitage, Pennsylvania, which provides
for the merger of the Company into FNB. Upon effectiveness of the merger, the
Company's shareholders will become entitled to receive .78 shares of FNB common
stock in exchange for each share of common stock of the Company then held by
them. In connection with this agreement, the Company has granted FNB an option
to purchase 727,163 shares of the Company's common stock for $15 per share,
which becomes exercisable upon the occurrence of certain events, as defined.
The merger agreement and the transactions contemplated in that agreement
are subject to the approval of a majority of the outstanding shares of the
Company (excluding those shares held by FNB and its affiliates), entitled to
vote at a special meeting of shareholders, as well as the receipt of certain
regulatory consents.
The proposed merger is expected to be treated as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code and shall be
treated as a pooling-of-interests for accounting purposes. At December 31,
1995, FNB has total assets of approximately $1.7 billion.
PROPOSED EXPENDITURES
The Company holds 0.84 acres of land to serve as a branch site at
Pelican Bay in Collier County, Florida. Expenditures necessary to convert the
site to a branch bank are estimated to be approximately $1.5 million, which is
scheduled for completion in 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements set forth on Page F-1
included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
II-8
<PAGE> 30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Consolidated Balance Sheets, December 31, 1995, 1994, 1993 ....................................... F-3
Consolidated Statements of Operations, Years Ended December 31, 1995, 1994, 1993 ................. F-4
Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1995, 1994, 1993 ....... F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1994, 1993 ................. F-6-7
Notes to Consolidated Financial Statements, Years Ended December 31, 1995, 1994, 1993 ............ F-8-27
</TABLE>
F-1
<PAGE> 31
January 19, 1996, except for Note I,
as to which the date is February 2, 1996
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
Southwest Banks, Inc. and its subsidiaries, First National Bank of Naples and
Cape Coral National Bank (collectively, the Company), as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Southwest Banks, Inc. and its subsidiaries as of December 31, 1995 and 1994 and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
company changed its method of accounting for debt and equity securities
effective January 1, 1994.
HILL, BARTH & KING, INC.
Certified Public Accountants
Naples, Florida
F-2
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,135,628 $ 14,934,854
Federal funds sold 31,724,000 0
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS 56,859,628 14,934,854
------------- -------------
Securities available for sale - NOTE B 50,401,563 20,149,743
Securities held to maturity (fair value of
$23,946,120 and $29,315,823, respectively) - NOTE B 23,834,164 30,799,597
Loans - NOTE C 238,509,066 186,006,407
Less:
Allowance for loan losses - NOTE C (1,585,285) (1,182,157)
Unearned income and deferred loan fees (257,550) (317,269)
------------- -------------
NET LOANS 236,666,231 184,506,981
------------- -------------
Premises and equipment - NOTE D 14,413,940 10,951,413
Accrued interest receivable 2,594,888 1,664,948
Other assets 1,691,377 1,606,361
------------- -------------
$ 386,461,791 $ 264,613,897
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits - NOTE E $ 324,830,614 $ 201,245,235
Federal funds purchased and securities
sold under agreements to repurchase - NOTE F 18,276,769 17,572,942
Other borrowings - NOTE F 10,000,000 16,500,000
Accrued interest payable 1,714,022 563,056
Accrued expenses and other liabilities 1,307,593 881,702
------------- -------------
TOTAL LIABILITIES 356,128,998 236,762,935
------------- -------------
Commitments and contingencies - NOTE H
Employee Stock Ownership Plan obligation - NOTE J 388,890 140,652
Stockholders' Equity - NOTE L:
Preferred stock, par value $.10 per share - 100,000
shares authorized, -0- shares issued and outstanding 0 0
Common stock, par value $.10 per share - 25,000,000
shares authorized, 3,654,089 and 3,560,556 shares
issued and outstanding, respectively 365,409 356,056
Capital surplus 28,322,888 27,193,122
Retained earnings 1,462,295 651,465
Unrealized increase (decrease) in fair value on
securities available for sale (net of applicable
income taxes) 182,201 (349,681)
Employee Stock Ownership Plan obligation - NOTE J (388,890) (140,652)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 29,943,903 27,710,310
------------- -------------
$ 386,461,791 $ 264,613,897
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 33
CONSOLIDATED STATEMENTS OF OPERATIONS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $20,811,978 $12,704,458 $ 9,151,743
Interest on federal funds sold 834,820 94,456 88,920
Interest on securities and other 3,737,561 2,616,202 1,945,438
----------- ----------- -----------
TOTAL INTEREST INCOME 25,384,359 15,415,116 11,186,101
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 9,652,475 5,436,108 4,524,257
Interest on other borrowings 2,103,576 870,339 134,852
----------- ----------- -----------
TOTAL INTEREST EXPENSE 11,756,051 6,306,447 4,659,109
----------- ----------- -----------
NET INTEREST INCOME 13,628,308 9,108,669 6,526,992
Provision for loan losses 835,000 605,000 240,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,793,308 8,503,669 6,286,992
----------- ----------- -----------
OTHER INCOME
Service charges, commissions and fees 2,681,594 1,440,689 995,167
Net gain on sale of securities 14,597 2,000 234,085
Gain on sale of loans 0 0 66,689
Gain on sale of assets 12,280 0 0
----------- ----------- -----------
TOTAL OTHER INCOME 2,708,471 1,442,689 1,295,941
----------- ----------- -----------
15,501,779 9,946,358 7,582,933
----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits - NOTE J 6,716,083 4,813,925 3,006,030
Net occupancy expenses for premises 1,040,532 672,559 496,720
Equipment rental, depreciation and
maintenance 1,438,910 824,372 604,004
General operating - NOTE O 3,744,279 2,742,967 1,871,297
----------- ----------- -----------
TOTAL OTHER EXPENSES 12,939,804 9,053,823 5,978,051
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,561,975 892,535 1,604,882
INCOME TAXES - NOTE G 855,440 242,212 599,652
----------- ----------- -----------
NET INCOME $ 1,706,535 $ 650,323 $ 1,005,230
=========== =========== ===========
EARNINGS PER SHARE $ .44 $ .19 $ .47
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,884,789 3,401,704 2,148,049
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS
-------- ----------- -----------
<S> <C> <C> <C>
Balance December 31,
1992 $182,711 $10,806,396 $ 5,702
Common stock issued,
net of offering costs
of $873 12,289 969,926 0
Stock dividend 3,895 307,705 (312,000)
Net income 0 0 1,005,230
-------- ----------- -----------
Balance December 31,
1993 198,895 12,084,027 698,932
Common stock issued,
net of offering costs
of $442,992
150,000 14,407,008 0
Common stock issued,
pursuant to options
exercised 208 13,770 0
Stock dividend 6,953 688,317 (697,790)
Unrealized decrease in
fair value on
securities available 0 0 0
for sale
Obligation under ESOP
Plan 0 0 0
Net income 0 0 650,323
Balance December 31, -------- ----------- -----------
1994 356,056 27,193,122 651,465
Common stock issued,
pursuant to options
exercised 112 9,110 0
Common stock issued, to
ESOP, net of offering
costs of $6,233 2,115 236,958 0
Stock dividend 7,126 883,698 (895,705)
Unrealized increase in
fair value on
securities available
for sale 0 0 0
Obligation under ESOP
Plan 0 0 0
Net income 0 0 1,706,535
Balance December 31, -------- ----------- -----------
l995 $365,409 $28,322,888 $l, 462,295
======== =========== ===========
<CAPTION>
UNREALIZED
INCREASE
(DECREASE)
IN FAIR
VALUE ON
SECURITIES OBLIGATION TOTAL
AVAILABLE UNDER STOCKHOLDERS'
FOR SALE ESOP PLAN EQUITY
---------- ---------- ------------
<S> <C> <C> <C>
Balance December 31,
1992 $ 0 $ 0 $ 10,994,809
Common stock issued,
net of offering costs
of $873 0 0 982,215
Stock dividend 0 0 (400)
Net income 0 0 1,005,230
--------- ---------- ------------
Balance December 31,
1993 0 0 12,981,854
Common stock issued,
net of offering costs
of $442,992 0 0 14,557,008
Common stock issued,
pursuant to options
exercised 0 0 13,978
Stock dividend 0 0 (2,520)
Unrealized decrease in
fair value on
securities available
for sale (349,681) 0 (349,681)
Obligation under ESOP
Plan 0 (140,652) (140,652)
Net income 0 0 650,323
--------- ---------- ------------
Balance December 31,
1994 (349,681) (140,652) 27,710,310
Common stock issued,
pursuant to options
exercised 0 0 9,222
Common stock issued, to
ESOP, net of offering
costs of $6,233 0 0 239,073
Stock dividend 0 0 (4,881)
Unrealized increase in
fair value on
securities available
for sale 531,882 0 531,882
Obligation under ESOP
Plan 0 (248,238) (248,238)
Net income 0 0 1,706,535
--------- ---------- -----------
Balance December 31,
l995 $ 182,201 $ (388,890) $29,943,903
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,706,535 $ 650,323 $ 1,005,230
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,407,052 818,267 568,824
Deferred income taxes (76,557) (347,257) (16,382)
Accretion of deferred loan fees and discounts (444,370) (230,178) (332,698)
Provision for loan losses 835,000 605,000 240,000
Gain on sale of securities, net (14,597) (2,000) (234,085)
Gain on sale of loans, net 0 0 (66,689)
Gain on sale of assets (12,280) 0 0
(Increase) decrease in accrued interest
receivable (929,940) (684,508) 12,813
Increase in other assets (16,005) (136,872) (407,132)
Increase in accrued interest
payable 1,150,966 187,372 5,535
Increase in accrued expenses
and other liabilities 425,891 58,627 302,390
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,031,695 918,774 1,077,806
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan participations purchased (3,225,828) (2,528,290) 0
Proceeds from sales of loan participations 448,845 4,316,951 10,057,677
Net increase in loans (49,862,196) (60,941,718) (41,502,941)
Purchases of securities held to maturity (2,393,179) (13,691,626) (22,254,706)
Proceeds from maturing of securities held to
maturity and principal collections 9,447,911 8,094,545 25,869,164
Purchases of securities available for sale (55,765,656) (11,847,420) 0
Proceeds from maturing of securities available
for sale and principal collections 21,655,550 2,391,650 0
Proceeds from sale of securities available
for sale 4,404,766 1,002,000 0
Purchases of premises and equipment (4,849,754) (8,445,041) (885,970)
Proceeds from maturing interest-earning
deposits 0 0 1,000,000
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (80,139,541) (81,648,949) (27,716,776)
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net increase in deposits $ 123,585,379 $ 43,875,123 $ 25,332,914
Increase (decrease) in other borrowings (6,500,000) 19,795,000 3,000,000
Net increase in securities sold under
agreement to repurchase 703,827 7,374,339 1,718,593
Proceeds from sale of common stock 248,295 14,570,986 982,215
Payment of dividends (4,881) (2,520) (400)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 118,032,620 85,612,928 31,033,322
------------- ------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 41,924,774 4,882,753 4,394,352
CASH AND CASH EQUIVALENTS
Beginning of year 14,934,854 10,052,101 5,657,749
------------- ------------- -------------
End of year $ 56,859,628 $ 14,934,854 $ 10052,101
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 10,605,085 $ 6,129,951 $ 4,653,574
============= ============= =============
Income taxes 949,500 $ 569,500 $ 379,000
============= ============= =============
Noncash Transactions:
Property acquired in repossessions and
foreclosures $ 581,241 $ 75,884 $ 120,405
============= ============= =============
Unrealized increase (decrease) in fair
value on securities available for sale $ 852,786 $ (560,657) $ 0
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
The consolidated financial statements of Southwest Banks, Inc. (the
Company) include the accounts of the Company and its wholly-owned subsidiaries,
First National Bank of Naples and Cape Coral National Bank (the Banks). All
significant intercompany balances and transactions have been eliminated.
Nature of Operations:
The Banks operate under national bank charters and provide full banking
services. As national banks, they are subject to regulation of the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The area served by the Banks is the Southwest region of Florida and services
are provided at 6 branch offices.
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 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.
Reclassifications:
The consolidated financial statements for 1993 and 1994 have been
reclassified to conform with the presentation for 1995. Such reclassifications
had no effect on net results of operations.
Cash and Cash Equivalents:
Cash, demand balances due from banks and federal funds sold are
considered cash and cash equivalents for cash flow reporting purposes.
Generally, federal funds are sold for one-day periods.
Investment Securities:
Management determines the appropriate classification of securities at
the time of purchase. These investments in securities are classified in two
categories and accounted for as follows:
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires that securities available for sale
be carried at fair value, based upon market or broker quotations. Such
appreciation or decline in value, net of deferred taxes, is reported in a
separate component of stockholders' equity until realized. Deferred income
taxes are provided on any unrealized appreciation or decline in value. There
was no cumulative effect of this accounting change.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
- - Securities Held to Maturity:
Securities held to maturity are carried at amortized cost. Premiums and
discounts on debt securities held to maturity are amortized to expense and
accrued to income over the life of the securities using the interest method.
These securities are classified as held to maturity based on management's
intent and the banks' ability to hold such securities to maturity.
F-8
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest Income on Loans:
Interest on loans is credited to operations daily based upon the
principal amount outstanding. Unearned income on loans is credited to
operations based on the interest method. Wherever doubt exists as to the
collectibility of loans, the loans are placed on nonaccrual status and interest
income is recorded as payments are received.
Allowance for Loan Losses:
The allowance for loan losses is established through a provision for
loan losses charged to expense based on management's evaluation of the
potential losses in its loan portfolio. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably
assured, considers, among other matters, historical loss experience, net
realizable value of collateral, current economic conditions and trends, and
such other factors as in management's judgment deserve recognition. Many of
these factors involve a significant degree of estimation, are beyond
management's control or are subject to changes which may be unforeseen.
Although management believes the allowance is adequate to absorb losses on
existing loans that may become uncollectible, the ultimate losses may vary
significantly from the current estimates.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement generally requires all creditors to
account for impaired loans, except those loans that are accounted for at fair
value or at the lower of cost or fair value, at the present value of expected
future cash flows discounted at the loan's effective interest rate. In October
1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures." This statement amends SFAS No.
114 to allow a creditor to use existing methods for recognizing interest income
on an impaired loan. SFAS No. 118 does not change the provisions in SFAS No.
114 that requires a creditor to me&sure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
or at the market price of the loan, or the fair value of the collateral if the
loan is collateral dependent. The implementation of SFAS No. 114 and SFAS No.
118 during fiscal year 1995 did not have a material impact on the Company's
consolidated financial position or results of operations.
Other Real Estate:
Other real estate, acquired through partial or total satisfaction of
loans, is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses, and
subsequent write downs are charged to expense in the period they are incurred.
Loan Origination Fees and Costs:
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the depreciable assets.
F-9
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax bases
of assets and liabilities and their reported amounts in the consolidated
financial statements. Deferred tax assets and liabilities are included in the
consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled.
The Company and the Banks file a consolidated tax return.
Fair Value of Financial Instruments:
In December l99l, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments". SFAS No. 107 requires disclosure of
the fair value of financial instruments, both assets and liabilities recognized
and not recognized in the balance sheets, for which it is practical to estimate
fair value. Management has adopted SFAS No. 107 during fiscal 1995 (see Note
N).
Earnings Per Share of Common Stock:
Earnings per share are based on the weighted average number of shares
outstanding during the year plus, where applicable, common stock equivalents
attributable to stock options and warrants.
F-l0
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE B - SECURITIES
Investment securities shown in the consolidated balance sheets of the
Company at December 31 were as follows:
<TABLE>
<CAPTION> GROSS UNREALIZED
Available for sale securities: AMORTIZED ------------------------- FAIR
December 31, 1995: COST GAINS LOSSES VALUE
----------- ------------------------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities of
U.S. Government agencies $17,673,278 $169,533 $ 0 $17,842,811
U.S. Treasury securities 6,987,083 95,363 1,796 7,080,650
Other U.S. Government agencies 20,643,832 78,628 13,375 20,709,085
Other securities 4,133,091 6,600 42,824 4,096,867
Federal Reserve Bank Stock 672,150 0 0 672,150
----------- -------- ---------- -----------
Total $50,109,434 $350,124 $ 57,995 $50,401,563
=========== ======== ========== ===========
December 31, 1994:
Mortgage-backed securities of
U.S. Government agencies $ 216,111 $ 0 $ 13,701 $ 202,410
U.S. Treasury securities 7,991,889 0 109,239 7,882,650
Other U.S. Government agencies 7,971,024 0 344,646 7,626,378
Other securities 3,919,176 0 93,071 3,826,105
Federal Reserve Bank Stock 612,200 0 0 612,200
----------- -------- ---------- -----------
Total $20,710,400 $ 0 $ 560,657 $20,149,743
=========== ======== ========== ===========
Held to maturity securities:
December 31, 1995:
Mortgage-backed securities of
U.S. Government agencies $ 1,671,403 $ 23,439 $ 0 $ 1,694,842
U.S. Treasury securities 5,266,147 9,123 17,020 5,258,250
Other U.S. Government agencies 9,957,047 98,387 20,174 10,035,260
State and political
subdivisions 6,939,567 56,184 37,983 6,957,768
----------- -------- ---------- -----------
Total $23,834,164 $187,133 $ 75,177 $23,946,120
=========== ======== ========== ===========
December 31, 1994:
Mortgage-backed securities of
U.S. Government agencies $ 1,823,382 $ 2,662 $ 82,964 $ 1,743,080
U.S. Treasury securities 9,310,991 0 223,541 9,087,450
Other U.S. Government agencies 12,980,221 0 514,072 12,466,149
State and political
subdivisions 6,685,003 1,381 667,240 6,019,144
----------- -------- ---------- -----------
Total $30,799,597 $ 4,043 $1,487,817 $29,315,823
=========== ======== ========== ===========
</TABLE>
F-11
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE B - SECURITIES (CONTINUED)
Gross gains realized from the sale of investments during the year ended
December 31, 1995 were $14,597, $2,000 for 1994 and $234,085 for 1993. The
applicable equivalent income tax on these net gains was $5,493 for 1995, $753
for 1994 and $88,086 for 1993.
Actual maturities of securities held to maturity and available for sale
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. As of
December 31, 1995, the amortized cost and fair value of investment securities,
by contractual maturities, were as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 8,340,733 $ 8,355,474 $ 5,003,121 $ 5,009,860
Due from one to
five years 7,646,099 7,635,957 19,344,751 19,537,159
Due from five to
ten years 7,847,332 7,954,689 14,997,396 15,083,530
Due after ten years 0 0 5,958,925 6,001,997
----------- ----------- ----------- -----------
23,834,164 23,946,120 45,304,193 45,632,546
Other securities 0 0 4,133,091 4,096,867
Federal Reserve Bank 0 0 672,150 672,150
----------- ----------- ----------- -----------
Total $23,834,164 $23,946,120 $50,109,434 $50,401,563
=========== =========== =========== ===========
</TABLE>
Securities with an amortized cost and fair value of $10,105,566 and
$10,160,427, respectively, at December 31, 1995, were pledged to secure public
deposits. Securities with an amortized cost and fair value of $40,095,418 and
$40,830,120, respectively, at December 31, 1995, were pledged as collateral for
other borrowings (see Note F).
F-12
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE C - LOANS
The composition of loans at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial $100,529,085 $ 69,099,015
Real estate 57,340,573 47,484,132
Lines of credit 24,072,934 20,734,649
Installment 56,566,474 48,688,611
------------ ------------
Total $238,509,066 $186,006,407
============ ============
</TABLE>
The majority of the Company's lending activities are conducted
principally with customers located in the Southwest Florida region. Commercial
loans are primarily extended to small and mid-sized corporate borrowers in
service and manufacturing related industries.
At December 31, 1995, the Company's commercial and lines of credit loan
portfolios, aggregating approximately $124,602,000 were secured as follows:
$94,282,067 by real estate; $1,853,464 by deposit accounts; $12,590,361 by
furniture, equipment and other plant assets; $3,383,922 by assignments, letters
of credit and repurchase agreements; $2,804,975 by boats, mobile homes,
aircrafts and automobiles; $5,707,029 by marketable securities; and $3,980,182
was unsecured.
Nonperforming loans have not been separately classified because such
loans are not material compared to total loans and nonaccrued interest is not
material in relation to net income.
The activity in the allowance for loan losses for each of the three
years in the period ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning
of year $ 1,182,157 $ 742,489 $ 691,436
Provision charged to
operations 835,000 605,000 240,000
Charge-offs (528,185) (257,982) (204,126)
Recoveries 96,313 92,650 15,179
----------- ----------- -----------
Balance at end of year $ 1,585,285 $ 1,182,157 $ 742,489
=========== =========== ===========
</TABLE>
F-13
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and land improvements $ 4,087,745 $ 3,145,304
Building 6,101,053 4,100,505
Motor vehicles 40,193 68,012
Leasehold improvements 1,012,846 994,810
Furniture, fixtures and equipment 3,514,861 2,564,592
EDP equipment and software 2,484,350 1,958,960
Construction in progress 467,814 355,542
----------- -----------
17,708,862 13,187,725
Less accumulated depreciation 3,294,922 2,236,312
----------- -----------
Total $14,413,940 $10,951,413
=========== ===========
</TABLE>
Depreciation expense was $1,378,233, $803,292 and $540,132 for the years
ended December 31, 1995, 1994 and 1993, respectively.
NOTE E - DEPOSITS
Deposits at December 31, 1995 and 1994 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Interest-bearing:
Money market $ 20,199,150 $ 14,805,783
Negotiable order of withdrawal accounts 115,669,393 75,676,368
Savings 25,309,178 18,581,816
Certificates of deposit:
Less than $100,000 87,723,807 42,461,318
$100,000 or more 29,750,411 19,137,209
------------ ------------
278,651,939 170,662,494
Demand (non-interest-bearing) 46,178,675 30,582,741
------------ ------------
Total $324,830,614 $201,245,235
============ ============
</TABLE>
F-14
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE E - DEPOSITS (CONTINUED)
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Three months or less $ 6,874,462
Over three months to six months 7,754,577
Over six months to twelve months 13,343,280
Over twelve months 1,778,092
-----------
Total $29,750,411
===========
</TABLE>
Included in interest expense is $1,323,125, $913,358 and $734,465 for
1995, 1994 and 1993, respectively, which relates to interest on certificates of
deposit greater than $100,000.
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The securities sold under agreement to repurchase (the repurchase
agreement) represent investment securities with a book value of $37,259,101, at
December 31, 1995. The repurchase agreement has been accounted for as a
financing and the obligation to repurchase the securities sold is reflected as a
liability in the consolidated balance sheets. The repurchase agreements were
transacted with various Bank customers and the securities underlying the
agreement, with a market value of $37,347,128, were retained in the custodial
account of the Banks. Interest is payable monthly at varying rates (average rate
of 4.78% at December 31, 1995) tied to the daily Federal Funds or the 13-week
U.S. Treasury Bill rates. These agreements immediately terminate upon written
notice by either party. Securities sold under agreement to repurchase averaged
$25,336,826 and $10,771,829 during 1995 and 1994, respectively, and the weighted
average interest was 5.42% and 4.90% during 1995 and 1994, respectively. The
maximum amount outstanding at any month end under such agreement during 1995 and
1994 was $30,486,820 and $15,908,712, respectively.
The other borrowings consist of adjustable rate loans from the Federal
Home Loan Bank with interest rates ranging from 5.79% to 5.84% at December 31,
1995. The loans are collateralized by mortgage loans held in the Bank's
portfolio. Below is a schedule of maturities on other borrowings for years
following December 31, 1995:
1996 $10,000,000
===========
F-15
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE G - INCOME TAXES
The provision for income taxes (credit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31: 1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ 874,840 $ 553,817 $ 583,575
Deferred (79,111) (320,912) (14,828)
--------- --------- ---------
795,729 232,905 568,747
--------- --------- ---------
State:
Current 57,157 35,652 32,459
Deferred 2,554 (26,345) (1,554)
--------- --------- ---------
59,711 9,307 30,905
--------- --------- ---------
Total taxes $ 855,440 $ 242,212 $ 599,652
========= ========= =========
</TABLE>
Following is a reconciliation between tax expense using federal
statutory rates and actual taxes:
<TABLE>
<CAPTION>
1995 1994 1993
------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory tax $ 896,691 35.0% $ 312,387 35.0% $ 561,709 35.0%
Tax exempt income (83,978) (3.3) (73,647) (8.3)
State taxes net of federal
benefit 39,409 1.6 6,143 .7 20,397 1.3
Other 3,318 .1 (2,671) (.3) 17,546 1.1
--------- ---- --------- ---- --------- ----
Actual taxes $ 855,440 33.4% $ 242,212 2.1% $ 599,652 37.4%
========= ==== ========= ==== ========= ====
</TABLE>
The significant temporary differences that give rise to deferred tax
assets and deferred tax liabilities which are included in other assets are as
follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 445,096 $ 351,741
Deferred loan origination fees and costs 90,839 111,902
Other deductions deferred for income taxes 112,866 138,250
--------- ---------
Total gross deferred tax assets 648,801 601,893
Deferred tax liabilities:
Depreciation (33,211) (62,860)
--------- ---------
Net deferred tax assets $ 615,590 $ 539,033
========= =========
</TABLE>
F-16
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company and the Banks have entered into operating lease agreements
for a commercial building expiring in 1999 and land underlying its operations
center with two partnerships in which three of the directors of the Company are
partners. Rent expense was $304,609 for 1995, $225,391 for 1994 and $195,192
for 1993.
Future minimum rental commitments as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Year ending -
<S> <C>
December 31, 1996 $ 280,901
December 31, 1997 280,901
December 31, 1998 280,901
December 31, 1999 199,058
December 31, 2000 84,478
Thereafter 5,468,340
----------
Total minimum payments required $6,594,579
==========
</TABLE>
The Company and the Banks have entered into employment agreements
expiring in 1999 with seven senior officers providing for annual compensation
aggregating approximately $701,500.
The Federal Reserve Bank requires banks to maintain certain average
reserve balances in the form of vault cash or funds on deposit with the Federal
Reserve Bank. At December 31, 1995, the Bank had on deposit approximately
$5,643,255 at the Federal Reserve Bank to satisfy its required average reserve
balance.
NOTE I - SUBSEQUENT EVENT
On February 2, 1996, the company entered into an Agreement and Plan of
Merger (Agreement) with FNB Corporation (FNB). The Agreement calls for each
outstanding share of the Company's common stock to be converted into and
exchanged for 0.78 shares of FNB common stock, subject to possible adjustment in
certain circumstances as described in the Agreement. Each outstanding stock
option or stock purchase warrant granted by the Company will be converted into
an option or warrant to purchase shares of FNB common stock, adjusting the
number of shares subject to such option or warrant and the exercise price
thereof based on the exchange ratio. The consummation of this transaction is
subject to approval by the stockholders of the Company, securities law
clearances and regulatory approvals. The merger is anticipated to be accounted
for as a pooling of interests. The Company anticipates closing on the merger to
take place in early 1997.
F-17
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE J - RETIREMENT PLAN
The Company maintains a Salary Savings ESOP Plan (the Plan) to which
eligible employees may contribute from 1% to 13.5% of their pay. The Company
contributes to the Plan 50% of an eligible employee's deferral on the first 6%
that the eligible employee defers, and may make discretionary contributions in
excess of that amount based on the Company's profitability and approval of the
board of directors. Employees are generally eligible to participate who have
completed at least one year of service and have attained age 21. Employee
contributions are 100% vested as amounts are credited to the employee's
account. Company contributions become 20% vested when an employee has completed
two years of service, and vest at a rate of 20% per year thereafter, fully
vesting when an employee has completed six years of service. The Company made
contributions to the Plan of $298,335 in 1995, $188,777 in 1994 and $133,548 in
1993.
The company is required, under federal income tax regulations, to grant
a put option to each ESOP participant who may receive a distribution of common
stock from the ESOP if the stock is not readily tradeable by the distributee on
an established market. The put option is a right to demand that the sponsor
redeem shares of employer stock held by the participant for which there is no
market for an established cash price.
At December 31, 1995, the ESOP plan held 33,182 shares of Company
common stock.
NOTE K - RELATED PARTY TRANSACTIONS
The Banks have granted loans to executive officers and directors of the
Banks and the Company and to associates of such executive officers and
directors. Such loans were made in the ordinary course of business under normal
credit terms and do not represent more than the normal risk of collection. The
activity for these loans for 1995 is as follows:
<TABLE>
<S> <C>
Total loans at December 31, 1994 $ 5,642,982
New loans 279,905
Repayments (1,667.030)
-----------
Total loans at December 31, 1995 $ 4,255,857
===========
</TABLE>
The Banks also have accepted deposits from employees, officers and
directors of the Banks and the Company and from associates of such officers and
directors. The deposits were accepted on substantially the same terms as those
of other depositors. Such deposits amounted to approximately $3,294,000 and
$2,126,000 at December 31, 1995 and 1994, respectively.
F-18
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE K - RELATED PARTY TRANSACTIONS (CONTINUED)
The banks have entered into a correspondent relationship to purchase
loan participations from and sell loan participations to another bank located
in the state of Pennsylvania (the Pennsylvania Bank). The Chairman of the Board
of the Pennsylvania Bank is a stockholder and member of the board of directors
of the Company. In addition, the Pennsylvania Bank holds 172,621 shares of
common stock of the Company. The Banks purchased $2,000,000, $147,500 and $-0-
in loan participations from the Pennsylvania Bank during the years ended
December 31, 1995, 1994 and 1993, respectively, and the Banks sold $-0-,
$1,750,000 and $10,057,677 in loan participations to the Pennsylvania Bank
during the years ended December 31, 1995, 1994 and 1993, respectively. All
purchases and sales of loan participations were at the market value of the
loans at date of sale and were without recourse. At December 31, 1995, the
unpaid balances of the loan participations purchased and sold were
approximately $1,927,467 and $14,391,377, respectively.
NOTE L - STOCKHOLDERS' EQUITY
The Company granted a 2% stock dividend in May 1995.
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 527,340 shares of common stock
for issuance under this plan. Transactions related to this stock option plan
are as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Balance December 31, 1992 158,119 $5.65-$7.54
Granted 198,715 $7.54-$9.61
-------
Balance December 31, 1993 356,834 $5.65-$9.61
Granted 80,274 $9.61-$12.00
Exercised (2,121) $6.60
Forfeited (8,387) $7.54
-------
Balance December 31, 1994 426,600 $5.65-$12.01
Granted 30,920 $12.01-$14.00
Exercised (1,142) $7.54-$12.01
Forfeited (3,448) $12.01
-------
Balance December 31, 1995 452,930
=======
</TABLE>
At December 31, 1995, options for 168,423 shares were exercisable at an
average price per share of $7.96.
F-19
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE L - STOCXHOLDERS' EQUITY (CONTINUED)
In connection with its initial offering of common stock, the Company
granted to certain organizers of the Company warrants to purchase one share of
common stock (at an exercise price of $5.65 per share) for each four shares
purchased by such organizers in this offering. Such warrants became exercisable
two years after the Banks commenced operations with an exercise period of ten
years thereafter. The Company has reserved 123,854 shares of common stock for
issuance in connection with these warrants.
Under risk-based capital guidelines issued by the Federal Reserve Bank
and the OCC, total capital is defined as core (tier-one) capital and
supplementary (tier-two) capital. The Company's tier-one capital consists
primarily of stockholders' equity while tier-two capital consists of a portion
of the allowance for loan losses. The definition of assets includes items on
and off the balance sheet with each item being assigned a "risk-weight" for
determination of total assets.
The guidelines require that total capital of 8% be held against total
risk-adjusted assets, at least of which 4% must be tier-one capital. In
addition, a minimum leverage ratio of 4% tier-one capital to total assets is
required. The following schedule presents the Bank's regulatory capital ratios
as of December 31:
<TABLE>
<CAPTION>
1995
------------
<S> <C>
Tier I capital:
Stockholders' equity $ 29,762,000
Tier II capital:
Allowable allowance for loan losses 1,585,000
------------
Total Tier II capital $ 31,347,000
============
Risk weighted assets $263,040,000
============
Risk based capital ratios:
Tier I 11.31%
Total risk based (Tier II) 11.92%
Leverage 8.13%
</TABLE>
The earnings per share of common stock for 1994, 1993 and 1992 have
been retroactively adjusted to reflect the effect of a 2% stock dividend issued
in May 1995.
The approval of the Comptroller of the Currency is required for
national banks to pay dividends in excess of earnings retained in the current
year plus retained net profits for the preceding two years. As of December 31,
1995, approximately $3,700,146 of undistributed earnings was available for
distribution to the Company as dividends without prior regulatory approval.
F-20
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE M - OFF-BALANCE SHEET RISK
In the normal course of business, the Banks utilize various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. The credit risks associated with financial
instruments are generally managed in conjunction with the Banks' balance sheet
activities and are subject to normal credit policies, financial controls and
risk limiting and monitoring procedures.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Banks' exposure to off-balance
sheet credit risk is represented by the contractual amount of the commitments
to extend credit and standby letters of credit. At December 31, 1995 and 1994,
the Banks had commitments of approximately $43,040,000 and $24,202,000 for
undisbursed portions of loans in process and unused portions of lines of
credit. Commitments under standby letters of credit aggregated approximately
$2,150,000 and $1,504,000 at December 31, 1995 and 1994, respectively.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Banks upon extension of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include compensating balances, accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Most guarantees expire within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral supporting these commitments
for which collateral is deemed necessary is maintained by the Banks.
F-21
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the company disclose estimated fair values for its financial
instruments. The market value of securities, as presented in Note D, are based
primarily upon quoted market prices. For substantially all other financial
instruments, the fair values are management's estimates of the values at which
the instruments could be exchanged in a transaction between willing parties. In
accordance with SFAS No. 107, the fair values are based on estimates using
present value and other valuation techniques in instances where quoted prices
are not available. These techniques are significantly affected by the
assumptions used, including discount rates and estimates cannot be
substantiated by comparison to independent markets and, further, may not be
realizable in an immediate settlement of the instruments. SFAS No. 107 also
excludes certain items from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the company.
The following table presents the estimates of fair value of financial
instruments as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 56,859,628 $ 56,859,628
Securities available for sale 50,401,563 50,401,563
Securities held to maturity 23,834,164 23,946,120
Net loans 236,666,231 240,626,038
Financial liabilities:
Deposits 324,830,614 325,507,100
Short-term borrowings 28,276,769 28,276,769
Off-Balance Sheet Credit Risk:
Commitments to extend credit 43,040,000 43,040,000
Standby letters of credit 2,150,000 2,150,000
</TABLE>
F-22
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and short-term investments: For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities: For both securities available for sale and investment
securities, fair value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans: The fair value 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 and for the same remaining maturities.
Deposits: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity deposits is estimated by discounting
future cash flows using rates currently offered for deposits of similar
remaining maturities. The fair value estimates do not include the benefits that
result from low-cost funding provided by the deposit liabilities compared to
the cost of alternate sources of funds.
Short-term borrowings: The carrying amounts for short-term borrowings
approximate fair value for amounts that mature in 90 days or less. The fair
value of subordinated notes is estimated by discounting future cash flows using
rates currently offered.
Off-balance sheet credit risk: The fair value of commitments is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the customer. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting date.
F-23
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the bank's long-term
relationships with depositors and the benefit that results from low-cost
funding provided by deposit liabilities. In addition, significant assets which
are not considered financial instruments and are, therefore, not a part of the
fair value estimates include office properties and equipment.
NOTE O - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Stationery and supplies $ 518,420 $ 391,148 $ 225,204
Telephone 180,274 136,053 78,874
Professional fees 734,462 431,320 398,371
Media costs and public
relations 685,983 446,511 271,532
Professional dues 70,466 47,613 35,200
Insurance 358,159 427,868 333,238
Amortization of
organization costs 7,546 14,975 28,692
Automobile 48,663 51,629 39,974
Other 1,140,306 795,850 460,212
---------- ---------- ----------
Total $3.744,279 $2,742.967 $1,871,297
========== ========== ==========
</TABLE>
F-24
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Southwest Banks, Inc. (parent
company only) as of December 31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995, is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiaries, at equity $ 29,357,744 $ 26,922,383
Securities available for sale 205,000 0
Premises and equipment 553,049 793,895
Other assets 397.394 244,005
------------ ------------
$ 30,513,187 $ 27,960,283
============ ============
Liabilities:
Accrued expenses and other liabilities $ 180,394 $ 109,321
Employee Stock Ownership Plan obligation 388,890 140,652
Stockholders' equity:
Preferred stock 0 0
Common stock 365,409 356,056
Capital surplus 28,322,888 27,193,122
Retained earnings 1,462,295 651,465
Unrealized increase (decrease) in fair value
on securities available for sale (net of
applicable income taxes) 182,201 (349,681)
Employee Stock Ownership Plan obligation (388,890) (140,652)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 29,943,903 27,710.310
-------------- ------------
$ 30,513,187 $ 27,960,283
============= ============
</TABLE>
F-25
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Income:
Interest on indebtedness of First
National Bank of Naples $ 105,371 $ 237,188 $ 22,245
Management and other fees
from subsidiaries 2,038,689 939,938 440,000
Interest on investment securities
and other 3,959 372 0
----------- ----------- -----------
TOTAL INCOME 2,148,019 1,177,498 462,245
----------- ----------- -----------
Expenses:
Salaries and employee benefits 1,549,231 930,931 172,375
Equipment rental, depreciation and maintenance 239,824 206,269 192,070
General operating 358,964 156,773 169,886
----------- ----------- -----------
TOTAL EXPENSES 2,148,019 1.293,973 534,331
LOSS FROM OPERATIONS BEFORE EQUITY IN ----------- ----------- -----------
UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES 0 (116,475) (72,086)
Equity in undistributed earnings of
subsidiaries 1,706,535 722,968 1,050,190
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,706,535 606,493 978,104
Income tax credit 0 43,830 27,126
----------- ----------- -----------
NET INCOME 1,706,535 650,323 1,005,230
Retained earnings:
Beginning of year 651,465 698,932 5,702
----------- ----------- -----------
2,358,000 1,349,255 1,010,932
Stock dividend declared 895,705 697,790 312,000
----------- ----------- -----------
End of year $ 1,462,295 $ 651,465 $ 698.932
=========== =========== ===========
</TABLE>
F-26
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,706,535 $ 650,323 $ 1,005,230
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of premises and
equipment 139,331 98,991 125,972
(Increase) decrease in other assets (153,389) 239,420 (76,673)
Increase in accrued expenses
and other liabilities 319,311 7,595 231,544
Equity in undistributed earnings
of subsidiary banks (1,706.535) (722,968) (1,050,190)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 305,253 273.361 235,883
------------ ------------ ------------
Cash flows from investing activities:
Investment in subsidiary banks (55,182) (14,158,497) (1,108,520)
Purchases of premises and equipment (493,485) (683.330) (109,178)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (548.667) (14,841,827) (1,217,698)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 248,295 14,570,986 982,215
Payment of dividends (4.881) (2,520) (400)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 243,414 14.568,466 981,815
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 0 0 0
Cash and cash equivalents:
Beginning of year 0 0 0
------------ ------------ -----------
End of year $ 0 $ 0 $ 0
============ ============ ===========
</TABLE>
F-27
<PAGE> 57
PART III
The information required by Part III of Form 10-K is, pursuant to
General Instruction (G) (3) of Form 10-K, incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
relating to the Company's annual meeting of shareholders to be held in April
1996 (The "Proxy Statement"). The Company, will, within 120 days of the end of
its fiscal year, file with the Securities and Exchange Commission a definitive
proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the Proxy
Statement under the headings, "Election of Directors" and "Compliance with
Section 16 of the Securities Exchange Act of 1934," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Proxy
Statement under the headings, "Executive Compensation" and "Compensation
Committee Report on Executive Compensation," which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the Proxy
Statement under the headings, "Security Ownership of Certain Beneficial Owners
and Management" and "Ownership of Equity Securities as of March 15, 1996,"
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Proxy
Statement under the heading, "Certain Transactions," which information is
incorporated herein by reference.
III-1
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with or incorporated by reference into
this report. The exhibits which are denominated by an asterisk (*) were
previously filed as a part of, are hereby incorporated by reference from, (i) a
Registration Statement on Form S-18 under the Securities Act of 1933 for the
Registrant, Registration No. 33-26257-A ("S-18"), (ii) the Annual Reports on
Form 10-K for the years ended December 31, 1994, 1993, 1992, 1991, 1990 and
1989, (iii) a Registration Statement on Form S-1 under the Securities Act of
1933 for the Registrant, Registration No. 33- 45343 ("S-1"), (iv) a
Registration Statement on Form S-2 under the Securities Act of 1933 for the
Registrant, Registration No. 33-73912 ("S-2"), (v) the Quarterly Reports on
Form 10-Q for the quarters ended June 30, 1991, June 30, 1994 and September 30,
1994, or (vi) the Current Report on Form 8-K dated February 2, 1996 ("2/96
8-K").
Exhibit No. Description of Exhibit
- ----------- ----------------------
* 3.1 - Articles of Incorporation dated November 15, 1988 (S-18,
Exh. 3.1)
* 3.1.2 - Articles of Amendment dated December 14, 1988 (filed
December 19, 1988 (S-18, Exh. 3.2)
* 3.1.3 - Articles of Amendment filed April 30, 1991 (6/30/91 10-Q,
Exh. 3.1)
* 3.2 - By-Laws adopted November 28, 1988 (S-18, Exh. 3.3)
* 3.4 - Amendment to By-Laws dated December 21, 1992 (1992 10-K,
Exh. 3.4)
* 10.1 - Lease dated June 3, 1988 between Finaco (an organizational
partnership) and The Castle Partnership for the lease of a
building located at 900 Goodlette Road North, Naples, Florida
(S-18, Exh. 10-4)*
* 10.2 - Incentive Stock Option Plan of Registrant, adopted by
directors of Registrant on November 28, 1988 (S-18, Exh. 10.6)
* 10.3 - 401(k) Plan of the Registrant adopted May 7, 1990 (1990
10-K, Exh. 10.6)
* 10.4 - Real Estate Contract between Columbo Enterprises, Inc. and
James S. Lindsay, Trustee (S-1, Exh. 10.7)
* 10.5 - KSOP Salary Savings Plan of the Registrant adopted March 15,
1993 (1992 10-K, Exh. 10.7)
* 10.6 - Loan Purchase Agreement dated December 24, 1992 among First
National Bank of Naples and First National Bank of
Pennsylvania (1992 10-K, Exh. 10.9)
* 10.7 - Sale Agreement dated August 17, 1993 between Oleum
Corporation and First National Bank of Naples regarding
purchase of propertyat The Moorings, Naples, Florida (S-2,
Exh. 10.11)
* 10.8 - Sales Contract dated December 16, 1993 between SouthTrust
Bank of Southwest Florida, N.A. and the Registrant regarding
purchase of property on Golden Gate Parkway, Naples, Florida
(S-2, Exh. 10.12)
* 10.9 - Sales Contract dated December 16, 1993 between SouthTrust
Bank of Southwest Florida, N.A. and the Registrant regarding
purchase of property on Radio Road, Naples, Florida (S-2, Exh.
10.13)
IV-1
<PAGE> 59
* 10.10 - Employment Agreement dated June 17, 1994 among Registrant
and Gary L. Tice (6/30/94 10-Q, Exh. 3.1)
* 10.11 - Employment Agreement dated June 20, 1994 among Registrant,
First National Bank of Naples, and Garrett S. Richter (9/30/94
10-Q, Exh. 10.1)
* 10.12 - Employment Agreement dated June 20, 1994 among Registrant,
First National Bank of Naples, and C.C. Coghill (9/30/94
10-Q, Exh. 10.2)
* 10.13 - Employment Agreement dated June 20, 1994 among Registrant,
First National Bank of Naples, and David H. Schaeffer (9/30/94
10-Q, Exh. 10.3)
* 10.14 - Sales Contract dated August 31, 1994 between Commons III
Investment Partnership and First National Bank of Naples
regarding purchase of commercial office building
* 10.15 - Agreement and Plan of Merger, dated February 2, 1996, by and
among F.N.B. Corporation, Lambda Corporation and Southwest
Banks, Inc. (2/96 8-K, Exh. 2.1)
* 10.16 - Stock Option Agreement, dated February 2, 1996, between
Southwest Banks, Inc. and F.N.B. Corporation as grantee (2/96
8-K, Exh. 4.1)
21.1 - Subsidiaries of the Registrant
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
IV-2
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHWEST BANKS, INC.
Date: March 18, 1996 By: /s/ Gary L. Tice
-------------------- -------------------------------------
Gary L. Tice, Chairman of the Board,
President and Chief Executive Officer
Date: March 18, 1996 By: /s/ Lewis S. Albert
-------------------- -------------------------------------
Lewis S. Albert, Senior Vice
President and Chief Financial
Officer (principal financial and
accounting officer)
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary L. Tice Chairman of the Board, President March 18, 1996
- -------------------------------------------- and Chief Executive Officer -------------------
Gary L. Tice
/s/ David W. Gomer Director March 18, 1996
- -------------------------------------------- -------------------
David W. Gomer
/s/ James S. Lindsay Director March 18, 1996
- -------------------------------------------- -------------------
James S. Lindsay
/s/ Edward J. Mace Director March 18, 1996
- -------------------------------------------- -------------------
Edward J. Mace
/s/ Peter Mortensen Director March 18, 1996
- -------------------------------------------- -------------------
Peter Mortensen
/s/ Richard C. Myers Director March 18, 1996
- -------------------------------------------- -------------------
Richard C. Myers
/s/ Garrett S. Richter Director March 18, 1996
- -------------------------------------------- -------------------
Garrett S. Richter
/s/ Larry A. Wynn Director March 18, 1996
- -------------------------------------------- -------------------
Larry A. Wynn
</TABLE>
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
INDEX DESCRIPTION OF EXHIBIT PAGE NO.
- ------- ---------------------- ----------
<S> <C> <C>
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule (for SEC use only) ______
</TABLE>
<PAGE> 62
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. First National Bank of Naples, Naples, Florida
2. Cape Coral National Bank, Cape Coral, Florida
<PAGE> 63
[ARTICLE] 9
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTREACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHWEST BANKS, INC. FOR THE YEAR ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFEERENCE TO SUCH FINANCIAL
STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[CASH] 24,135,628
[INT-BEARING-DEPOSITS] 1,000,000
[FED-FUNDS-SOLD] 31,724,000
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 50,401,563
[INVESTMENTS-CARRYING] 23,834,164
[INVESTMENTS-MARKET] 23,946,120
[LOANS] 238,509,066
[ALLOWANCE] 1,585,285
[TOTAL-ASSETS] 386,461,791
[DEPOSITS] 324,830,614
[SHORT-TERM] 28,276,769
[LIABILITIES-OTHER] 3,410,505
[LONG-TERM] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 365,409
[OTHER-SE] 29,578,494
[TOTAL-LIABILITIES-AND-EQUITY] 386,461,791
[INTEREST-LOAN] 20,811,978
[INTEREST-INVEST] 3,737,561
[INTEREST-OTHER] 834,820
[INTEREST-TOTAL] 25,384,359
[INTEREST-DEPOSIT] 9,652,475
[INTEREST-EXPENSE] 11,756,051
[INTEREST-INCOME-NET] 13,628,308
[LOAN-LOSSES] 835,000
[SECURITIES-GAINS] 14,597
[EXPENSE-OTHER] 12,939,804
[INCOME-PRETAX] 2,561,975
[INCOME-PRE-EXTRAORDINARY] 1,706,535
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,706,535
[EPS-PRIMARY] .44
[EPS-DILUTED] .44
[YIELD-ACTUAL] 4.64
[LOANS-NON] 1,017,489
[LOANS-PAST] 63,006
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1,182,157
[CHARGE-OFFS] 528,185
[RECOVERIES] 96,313
[ALLOWANCE-CLOSE] 1,585,285
[ALLOWANCE-DOMESTIC] 1,585,285
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of F.N.B. Corporation
for the registration of 3,120,667 shares of its common stock and to the
incorporation by reference therein of our report dated February 5, 1996, with
respect to the consolidated financial statements of F.N.B. Corporation
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
March 21, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of F.N.B. Corporation
on Form S-4 of our report dated January 19, 1996, except for Note I, as to which
the date is February 2, 1996, relating to the financial statements of Southwest
Banks, Inc. appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Registration Statement.
HILL, BARTH & KING, INC.
Certified Public Accountants
HILL, BARTH & KING, INC.
Naples, Florida
March 25, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
of F.N.B. Corporation on Form S-4 of our reports dated January 14, 1994,
(relating to the consolidated financial statements of Dollar Savings Association
and Subsidiary, and the financial statements of Reeves Bank for the year ended
December 31, 1993, not presented separately herein), appearing in and
incorporated by reference to the Annual Report on Form 10-K of F.N.B.
Corporation for the year ended December 31, 1995.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this registration statement.
S.R. Snodgrass, A.C.
Wexford, PA
March 21, 1996
<PAGE> 1
EXHIBIT 23.6
[ROBINSON-HUMPHREY COMPANY LETTERHEAD]
CONSENT OF THE ROBINSON-HUMPHREY COMPANY, INC.
We consent to the inclusion in this Registration Statement on Form S-4 of
our opinion, dated February 2, 1996, as set forth as Appendix C to the Proxy
Statement/Prospectus and to the summarization thereof in the Proxy
Statement/Prospectus under the caption "the Merger." In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
Atlanta, Georgia
February 27, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of F.N.B. Corporation, and
the several undersigned Officers and Directors thereof whose signatures appear
below, hereby makes, constitutes and appoints John D. Waters, its, his and her
true and lawful attorney with power to act without any other and with full power
of substitution, to execute, deliver and file in its, his and her name and on
its, his and her behalf, and in each of the undersigned Officer's and Director's
capacity or capacities as shown below, (a) a Registration Statement of F.N.B.
Corporation on Form S-4 (or other appropriate form) with respect to the
registration under the Securities Act of 1933, as amended, of up to 3,120,667
shares of common stock, par value $2.00 per share, of F.N.B. Corporation, to be
issued in exchange for shares of common stock, par value $.10 per share, of
Southwest Banks, Inc., upon consummation of the proposed merger of Southwest
Affiliation Corporation, a wholly-owned subsidiary of F.N.B. Corporation, with
and into Southwest Banks, Inc., and any and all documents in support thereof or
supplemental thereto and any and all amendments, including any and all post-
effective amendments, to the foregoing (hereinafter called the "Registration
Statement"), and (b) such registration statements, petitions, applications,
consents to service of process or other instruments, any and all documents in
support thereof or supplemental thereto, and any and all amendments or
supplements to the foregoing, as may be necessary or advisable to qualify or
register the securities covered by said Registration Statement under such
securities laws, regulations or requirements as may be applicable; and each of
F.N.B. Corporation and said Officers and Directors hereby grants to said
attorney full power and authority to do and perform each and every act and thing
whatsoever as said attorney may deem necessary or advisable to carry out fully
the intent of this power of attorney to the same extent and with the same effect
as F.N.B. Corporation might or could do, and as each of said Officers and
Directors might or could do personally in his or her capacity or capacities as
aforesaid, and each of F.N.B. Corporation and said Officers and Directors hereby
ratifies and confirms all acts and things which said attorney might do or cause
to be done by virtue of this power of attorney and its, his or her signature as
the same may be signed by said attorney, or any of them, to any or all of the
following (and/or any and all amendments and supplements to any or all thereof):
such Registration Statement under the Securities Act of 1933, as amended, and
all such registration statements, petitions, applications, consents to service
of process and other instruments, and any and all documents in support thereof
or supplemental thereto, under such securities laws, regulations and
requirements as may be applicable.
<PAGE> 2
IN WITNESS WHEREOF, F.N.B. Corporation has caused this power of attorney to
be signed on its behalf, and each of the undersigned Officers and Directors in
the capacity or capacities noted has hereunto set his or her hand as of the date
indicated below.
F.N.B. CORPORATION
(Registrant)
By: /s/ PETER MORTENSEN
------------------------------------
Peter Mortensen
Chairman and President
Dated: March 19, 1996
<TABLE>
<C> <S> <C>
/s/ PETER MORTENSEN Chairman, President and Director March 19, 1996
- --------------------------------------------- (Principal Executive Officer)
Peter Mortensen
/s/ STEPHEN J. GURGOVITS Executive Vice President and March 19, 1996
- --------------------------------------------- Director
Stephen J. Gurgovits
/s/ SAMUEL K. SOLLENBERGER Vice President and Director March 21, 1996
- ---------------------------------------------
Samuel K. Sollenberger
/s/ WILLIAM J. RUNDORFF Executive Vice President March 19, 1996
- ---------------------------------------------
William J. Rundorff
/s/ JOHN W. ROSE Executive Vice President March 17, 1996
- ---------------------------------------------
John W. Rose
/s/ JOHN D. WATERS Vice President and Chief March 17, 1996
- --------------------------------------------- Financial Officer (Principal
John D. Waters Financial and
Accounting Officer)
/s/ W. RICHARD BLACKWOOD Director March 20, 1996
- ---------------------------------------------
W. Richard Blackwood
/s/ WILLIAM B. CAMPBELL Director March 20, 1996
- ---------------------------------------------
William B. Campbell
/s/ CHARLES T. CRICKS Director March 19, 1996
- ---------------------------------------------
Charles T. Cricks
/s/ HENRY M. EKKER, ESQ. Director March 19, 1996
- ---------------------------------------------
Henry M. Ekker, Esq.
Director March , 1996
- ---------------------------------------------
Thomas C. Elliott
/s/ THOMAS W. HODGE Director March 20, 1996
- ---------------------------------------------
Thomas W. Hodge
</TABLE>
<PAGE> 3
<TABLE>
<C> <S> <C>
/s/ GEORGE E. LOWE, D.D.S. Director March 20, 1996
- ---------------------------------------------
George E. Lowe, D.D.S.
/s/ PAUL P. LYNCH Director March 19, 1996
- ---------------------------------------------
Paul P. Lynch
/s/ JAMES B. MILLER Director March 20, 1996
- ---------------------------------------------
James B. Miller
/s/ ROBERT S. MOSS Director March 20, 1996
- ---------------------------------------------
Robert S. Moss
/s/ JOHN R. PERKINS Director March 19, 1996
- ---------------------------------------------
John R. Perkins
/s/ WILLIAM A. QUINN Director March 22, 1996
- ---------------------------------------------
William A. Quinn
/s/ GEORGE A. SEEDS Director March 20, 1996
- ---------------------------------------------
George A. Seeds
/s/ WILLIAM J. STRIMBU Director March 19, 1996
- ---------------------------------------------
William J. Strimbu
/s/ ARCHIE O. WALLACE Director March 25, 1996
- ---------------------------------------------
Archie O. Wallace
/s/ JOSEPH M. WALTON Director March 20, 1996
- ---------------------------------------------
Joseph M. Walton
/s/ JAMES T. WELLER Director March 20, 1996
- ---------------------------------------------
James T. Weller
/s/ ERIC J. WERNER, ESQ. Director March 20, 1996
- ---------------------------------------------
Eric J. Werner, Esq.
/s/ DONNA C. WINNER Director March 19, 1996
- ---------------------------------------------
Donna C. Winner
</TABLE>
<PAGE> 4
RESOLUTION 2-2-96-1
F.N.B. CORPORATION
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
AT A MEETING HELD ON FEBRUARY 2, 1996
APPROVING MERGER WITH SOUTHWEST BANKS, INC.
* * *
WHEREAS, it is proposed that F.N.B. Corporation, a Pennsylvania
corporation (the "Corporation") enter into an Agreement and Plan of Merger (as
it may be amended or supplemented from time to time, the "Merger Agreement"),
among the Corporation, Southwest Affiliation Corporation, a Florida corporation
and a wholly-owned subsidiary of the Corporation ("SWAC"), and Southwest Banks,
Inc., a Florida corporation ("Southwest"); and
WHEREAS, it is proposed that immediately after the execution of the
Merger Agreement the Corporation enter into a Stock Option Agreement between
Southwest, as issuer, and the Corporation, as grantee (the "Stock Option
Agreement"); and
WHEREAS, the Merger Agreement provides for, among other things, at the
Effective Time (as defined in the Merger Agreement), the merger of SWAC with and
into Southwest (the "Merger") and the conversion of each outstanding share of
common stock of Southwest, par value $0.10 per share ("Southwest Common Stock")
into the right to receive 0.78 shares of common stock of the Corporation, par
value $2 per share ("Corporation Common Stock"), as set forth in the Merger
Agreement; and
WHEREAS, at this meeting of the Board of Directors of the Corporation
(the "Board of Directors"), the Board of Directors reviewed with management and
the Corporation's legal and financial advisors the Merger, the terms of the
Merger Agreement and Stock Option Agreement, and the transactions contemplated
thereby; and
WHEREAS, the Board of Directors finds that the Merger and the other
transactions contemplated by the Merger Agreement are fair to and in the best
interests of the Corporation and its stockholders.
<PAGE> 5
NOW, THEREFORE, BE IT:
[Approval of the Merger Agreement and the
Transactions Contemplated Thereby]
RESOLVED, that based upon the presentations made to the Board of
Directors at this meeting and upon such other matters as are deemed relevant by
the Board of Directors, the Board of Directors finds that the Merger and the
other transactions contemplated by the Merger Agreement are fair to and in the
best interests of the Corporation and its stockholders, and hereby approves and
adopts the Merger, the Merger Agreement, and the Stock Option Agreement and the
transactions contemplated thereby; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed for and on behalf of the
Corporation, to execute and deliver the Merger Agreement in substantially the
form attached hereto as Exhibit A, with such changes therein as the proper
officers executing the same, with the advice of counsel, may approve, the
execution thereof by any such officer conclusively to evidence the due
authorization thereof by this Board of Directors; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed for and on behalf of the
Corporation to execute and deliver the Stock Option Agreement, in substantially
the form attached hereto as Exhibit B, with such changes therein as the proper
officers executing the same, with the advice of counsel, may approve, the
execution thereof by any such officer conclusively to evidence the due
authorization thereof by this Board of Directors; and
[Creation, Issuance, and Registering
of Shares of Corporation Common Stock]
FURTHER RESOLVED, that the Corporation hereby reserves, sets aside and
authorizes for issuance the amount of authorized but unissued shares of
Corporation Common Stock (the "Shares") necessary to be issued to consummate the
transactions contemplated by the Merger Agreement (including the Shares to be
reserved for issuance pursuant to the conversion of the Southwest Options (as
defined in the Merger Agreement)), and that the appropriate officers of the
Corporation be, and each of them hereby is, authorized and empowered to issue
the Shares, or such portion thereof, as may be necessary to consummate the
Merger in accordance with and pursuant to the Merger Agreement; and
-2-
<PAGE> 6
FURTHER RESOLVED, that the Corporation issue the Shares in accordance
with the Merger Agreement at the Effective Time of the Merger (as set forth in
the Merger Agreement); and
FURTHER RESOLVED, that the Shares, when issued and distributed in
accordance with and pursuant to the Merger Agreement, shall be fully paid and
non-assessable and the holders of such Shares shall be subject to no further
call or liability with respect thereto; and
FURTHER RESOLVED, that, in connection with the issuance of the Shares
pursuant to the Merger Agreement, the appropriate officers of the Corporation
be, and each of them hereby is, authorized, empowered and directed to execute
and file with the Securities and Exchange Commission (the "SEC") a Registration
Statement on Form S-4 (the "Registration Statement") with respect to the Shares
to be issued upon consummation of the Merger or such other form as such
officers, upon advice of counsel, may determine to be necessary or appropriate
to execute and file all such other instruments and documents, and to do all such
other acts and things in connection with the Registration Statement, including
the execution and filing of such amendment or amendments (including any
post-effective amendments) thereto, as they may deem necessary or advisable to
effect such filings and to procure the effectiveness of the Registration
Statement (and any such post-effective amendments thereto) and to make such
supplements to a prospectus for delivery to the stockholders of Southwest (the
"Prospectus") forming a part of said Registration Statement as may be required
or otherwise as they may deem advisable; and
FURTHER RESOLVED, that it is desirable and in the best interests of the
Corporation that the Shares to be issued in accordance with and pursuant to the
Merger Agreement be qualified or registered for distribution in various states
where appropriate, that the proper officers of the Corporation be, and each of
them hereby is, authorized, empowered and directed to determine the states in
which appropriate action shall be taken to qualify or register for distribution
the Shares as such officers may deem advisable; that such officers be, and each
of them hereby is, authorized, empowered and directed to perform on behalf of
the Corporation any and all such acts as they may deem necessary or advisable in
order to comply with the applicable laws of any such states, and in connection
therewith to execute and file all requisite papers and documents, including,
without limitation, resolutions, applications, reports, surety bonds,
irrevocable consents and appointments of attorneys for service of process;
-3-
<PAGE> 7
and the execution by such officers of any such paper or document or the doing by
them of any act in connection with the foregoing matters shall establish
conclusively their authority therefor from the Corporation and the approval and
ratification by the Corporation of the papers and documents so executed and the
actions so taken; and
FURTHER RESOLVED, that the foregoing officers be, and each of them
hereby is, authorized, empowered and directed to do any and all things which in
their judgment may be necessary or appropriate in order to obtain a permit,
exemption, registration or qualification for, and a dealer's license with
respect to, the distribution of the Shares in accordance with and under the
securities or insurance laws of any one or more of the states as such officers
may deem advisable, and in connection therewith to execute, acknowledge, verify,
deliver, file and publish all applications, reports, resolutions, consents,
consents to service of process, powers of attorneys, commitments and other
papers and instruments as may be required under such laws and to take any and
all further action which they may deem necessary or appropriate in order to
secure and to maintain such permits, exemptions, registrations and
qualifications in effect for so long as they shall deem in the best interests of
the Corporation; and
FURTHER RESOLVED, that Chemical Mellon Shareholder Services be, and it
hereby is, appointed Transfer Agent and Registrar for the Shares; that Chemical
Mellon Shareholder Services be, and it hereby is, vested with all the power and
authority as Transfer Agent and Registrar with respect to the Shares as it has
heretofore been vested with for the shares of Corporation Common Stock currently
issued and outstanding; and that, if determined to be necessary or advisable by
the appropriate officers of the Corporation, Chemical Mellon Shareholder
Services may be appointed Exchange Agent for the Merger; and
[Regulatory Matters]
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed, on behalf of and in the name of
this Corporation, to prepare, sign and file, or cause to be filed, with any
applicable federal, state or foreign country regulatory or supervisory body,
including, without limitation, the Board of Governors of the Federal Reserve
System and all appropriate state banking, financial institutions, or insurance
regulatory authorities, all applications, requests for approval, consents,
interpretations, or other determinations, notices and other information and
documents, and any modifications or
-4-
<PAGE> 8
supplements thereto, as may be necessary or convenient in connection with the
Merger and the Merger Agreement and the Stock Option Agreement and the
transactions contemplated thereby, together with all agreements and other
information and documents required or appropriate, and any publications
required, in connection therewith; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed for, on behalf of and in the
name of this Corporation, to prepare, sign and file, or cause to be filed, with
the Securities and Exchange Commission any and all statements, reports or other
information concerning the Merger or related or incidental thereto, which may be
deemed advisable or may be required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or the Securities Act of 1933, as amended (the
"Securities Act"), including without limitation the Prospectus and Registration
Statement, together with any other documents required or appropriate in
connection therewith; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized in the name and on behalf of the Corporation,
to take all such other actions and to execute all such documents as such officer
may deem necessary or appropriate for compliance with the Securities Act, the
Exchange Act, or any applicable state securities or similar laws, in connection
with the transactions contemplated by the Merger Agreement; and
FURTHER RESOLVED, that, without limiting the foregoing, the proper
officers of the Corporation be, and each of them hereby is, authorized and
directed, in the name and on behalf of the Corporation to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties, regulatory authorities and
other governmental authorities necessary to consummate the transactions
contemplated by the Merger Agreement, to execute personally or by
attorney-in-fact any such required filings or amendments or supplements to any
of the foregoing, and to cause any such required filings and any amendments
thereto to become effective or otherwise approved; and
[Miscellaneous]
FURTHER RESOLVED, that the Board of Directors hereby adopts, as if
expressly set forth herein, the form of any resolution required by any authority
to be filed in connection with any applications, consents to service, issuer's
-5-
<PAGE> 9
covenants or other documents, applications, reports or filings relating to the
foregoing resolutions if (i) in the opinion of the officers of the Corporation
executing same, the adoption of such resolutions is necessary or desirable and
(ii) the Secretary or an Assistant Secretary of the Corporation evidences such
adoption by inserting in the minutes of this meeting copies of such resolutions,
which will thereupon be deemed to be adopted by the Board of Directors with the
same force and effect as if presented at this meeting; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed, in the name of and on behalf of
the Corporation, to take or cause to be taken any and all action which they may
deem necessary or appropriate to communicate the position of the Board of
Directors, as set forth in these resolutions, to the Corporation's stockholders,
including, without limitation, the dissemination of such position by means of
press releases, the taking of any such action conclusively to evidence the due
authorization and approval thereof by the Board; and
FURTHER RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized, empowered and directed, in the name of and
on behalf of the Corporation, to execute and deliver or cause to be executed and
delivered any and all agreements, amendments, certificates, reports,
applications, notices, letters or other documents and to do or cause to be done
any and all such other acts and things as, in the opinion of any such officer,
may be necessary, appropriate or desirable in order to enable the Corporation
fully and promptly to carry out the purposes and intent of the foregoing
resolutions and any such action taken or any agreement, amendment, certificate,
report, application, notice, letter or other document executed and delivered by
them or any of them in connection with any such action shall be conclusive
evidence of their or his authority to take, execute and deliver the same; and
FURTHER RESOLVED, that all actions heretofore taken by any of the
directors, officers, representatives or agents of the Corporation or any of its
affiliates in connection with the Merger and any other transactions contemplated
in the Merger Agreement or otherwise referred to in the foregoing resolutions
be, and each of the same hereby is, ratified, confirmed and approved in all
respects as the act and deed of the Corporation.
-6-
<PAGE> 10
CERTIFICATE OF SECRETARY
I, David B. Mogle, Secretary of F.N.B. Corporation, a Pennsylvania
corporation (the "Corporation"), do hereby certify that the foregoing is a true
and correct copy of resolutions duly adopted by the Board of Directors of the
Corporation in accordance with the By-laws of the Corporation on February 2,
1996 and that said resolutions are in full force and effect and have not been
amended or rescinded.
IN WITNESS WHEREOF, I have hereupon set my hand and affixed the seal of the
Corporation this 20th day of March, 1996.
/s/ DAVID B. MOGLE
--------------------------------------
DAVID B. MOGLE, SECRETARY
<PAGE> 1
EXHIBIT 99.1
SOUTHWEST BANKS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on June 17, 1996
To the Shareholders of
Southwest Banks, Inc.:
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Southwest Banks, Inc. ("Southwest"), will be held at
, Naples, Florida on Monday, June 17, 1996, at 5:00 p.m.,
local time, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of February 2, 1996 (the "Merger Agreement"), among
Southwest, F.N.B. Corporation ("FNB") and Southwest Affiliation Corporation,
a wholly owned subsidiary of FNB ("SWAC"), pursuant to which SWAC will be
merged with and into Southwest, with Southwest thereby becoming a wholly-owned
subsidiary of FNB, and in which each issued and outstanding share of
Southwest Common Stock will be converted into the right to receive 0.78
shares of FNB Common Stock; and
(2) To transact such other business incidental to the conduct of the
Special Meeting as may properly come before the Special Meeting or any
adjournments or postponements thereof.
The Merger Agreement is more completely described in the accompanying
Proxy Statement/Prospectus, and a copy of the Merger Agreement is attached
as Appendix A to the accompanying Proxy Statement/Prospectus.
Only holders of record of Southwest Common Stock, at the close of
business on , 1996 will be entitled to notice of, and to vote at,
the Special Meeting or any adjournments or postponements thereof. The
affirmative vote of the holders of a majority of the outstanding shares of
Southwest Common Stock, exclusive of shares owned by FNB, is required for
adoption of this Merger Agreement.
Whether or not you plan to attend the Special Meeting in person,
please complete, sign and date the enclosed proxy and return it promptly in
the enclosed postage prepaid envelope. Your proxy may be revoked at any time
before it is voted by signing and returning a later dated proxy with respect
to the same shares, by filing with the Secretary of Southwest a written
revocation bearing a later date, or by attending and voting at the Special
Meeting.
By Order of the Board of Directors
Todd H. Katz
Secretary
Naples, Florida
, 1996
--------------------------------------
WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING,
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
--------------------------------------
<PAGE> 1
EXHIBIT 99.2
SPECIAL MEETING OF SHAREHOLDERS OF
SOUTHWEST BANKS, INC.
The undersigned shareholder(s) of the $.10 par value Common Stock of
Southwest Banks, Inc. ("Southwest"), hereby appoints and constitutes Gary L.
Tice and Garrett S. Richter, or either of them, to act as lawful attorney and
proxy of the undersigned, with the power of substitution for and in the name,
place and stead of the undersigned, to vote at the Special Meeting of
Shareholders of Southwest to be held on Monday, June 17, 1996, at
________________________________, Naples, Florida at __:00 a.m. (local time), or
any adjournment thereof, for the following purposes and upon any other matters
that may come before the meeting or any adjournment thereof, with all the powers
the undersigned would possess if personally present, hereby revoking all
previous proxies:
1. To approve and adopt the Agreement and Plan of Merger by and among
Southwest, F.N.B. Corporation and Southwest Affiliation Corporation, as set
forth in Appendix A attached to the proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Unless indicated to the contrary below, the Proxies are authorized
to vote, in their discretion, upon other business as may properly be brought
before the meeting or any adjournment thereof. (Instruction: To withhold
authority of the Proxies to vote for adjournment, including adjournment for the
purpose of resoliciting additional votes in order to approve the proposed
merger, check the following box.) / /
THIS PROXY, WHEN PROPERTY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
Dated _____________, 1996 _____________________________Signature
_____________________________Signature
(Please date and sign exactly as name(s) appears on mailing label.
When signing as an attorney, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person. For joint accounts, each joint owner
should sign.)
<PAGE> 1
EXHIBIT 99.3
[Southwest Banks Letterhead]
_____________, 1996
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend a
Special Meeting of Shareholders (the "Special Meeting") of Southwest Banks, Inc.
("Southwest") on Monday, June 17, 1996, at 5:00 p.m., local time
at ________________________, Naples, Florida. The formal notice of the Special
Meeting is set forth on the next page. At this important meeting you will be
asked to consider and vote upon a proposal to approve the Agreement and Plan of
Merger dated as of February 2, 1996 (the "Merger Agreement") among Southwest,
F.N.B. Corporation ("FNB") and Southwest Affiliation Corporation, a wholly owned
subsidiary of FNB ("SWAC"), providing for the merger (the "Merger") of SWAC with
and into Southwest, with Southwest being the corporation surviving the Merger.
After the Merger, Southwest would be a wholly owned subsidiary of FNB.
PLEASE REVIEW CAREFULLY THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
This document contains a detailed description of the Merger Agreement, its
terms and conditions and the transactions contemplated by the Merger Agreement.
THE SOUTHWEST BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST
INTERESTS OF SOUTHWEST'S SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT! The affirmative vote of the holders of a
majority of the outstanding shares of Southwest Common Stock (excluding those
shares held by FNB) is necessary to adopt the Merger Agreement and to approve
the Merger. Therefore, whether or not you plan to attend the Special Meeting,
please complete, sign and date the enclosed proxy and return it in the enclosed
postage prepaid envelope. If you attend the meeting, you may vote in person if
you wish, even though you previously have returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Very truly yours,
Gary L. Tice
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.4
PENNSYLVANIA BUSINESS CORPORATION LAW
SUBCHAPTER D. INDEMNIFICATION
1741 THIRD-PARTY ACTIONS. -- Unless otherwise restricted in its bylaws, a
business corporation shall have power to indemnify any person who was or is a
party or threatened to be made a party to any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a representative of the corporation, or is or was serving
at the request of the corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action or proceeding 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 proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action or proceeding by judgment, order, settlement or conviction or upon a plea
of nolo contendere or its equivalent shall not of itself create a presumption
that the person did not act in good faith and in a manner that he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had reasonable cause to believe that
his conduct was unlawful.
1742 DERIVATIVE AND CORPORATE ACTIONS. -- Unless otherwise restricted in
its bylaws, a business corporation shall have power to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action 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 representative
of the corporation or is or was serving at the request of the corporation as a
representative of another domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of the action 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. Indemnification shall not be made under this
section in respect of any claim, issue or matter as to which the person has been
adjudged to be liable to the corporation unless and only to the extent that the
court of common pleas of the judicial district embracing the county in which the
registered office of the corporation is located or the court in which the action
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for the expenses that the court of common
pleas or other court deems proper.
1743 MANDATORY INDEMNIFICATION. -- To the extent that a representative of a
business corporation has been successful on the merits or otherwise in defense
of any action or proceeding referred to in Section 1741 (relating to third-party
actions) or 1742 (relating to derivative and corporate actions) or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorney fees) actually and reasonably incurred by him in connection
therewith.
1744 PROCEDURE FOR EFFECTING INDEMNIFICATION. -- Unless ordered by a court,
any indemnification under Section 1741 (relating to third-party actions) or 1742
(relating to derivative and corporate actions) shall be made by the business
corporation only as authorized in the specific case upon a determination that
indemnification of the representative is proper in the circumstances because he
has met the applicable standard of conduct set for in those sections. The
determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding;
(2) if such a quorum is not obtainable or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by the shareholders.
1745 ADVANCING EXPENSES. -- Expenses (including attorneys' fees) incurred
in defending any action or proceeding referred to in this subchapter may be paid
by a business corporation in advance of the final disposition of the action or
proceeding upon receipt of an undertaking by or on behalf of the representative
to repay the amount if it is ultimately determined that he is not entitled to be
indemnified by the corporation as authorized in this subchapter or otherwise.
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1746 SUPPLEMENTARY COVERAGE. -- (a) General rule. -- The indemnification
and advancement of expenses provided by, or granted pursuant to, the other
sections of this subchapter shall not be deemed exclusive of any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled 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 that office. Section 1728 (relating to
interested directors or officers; quorum) and, in the case of a registered
corporation, section 2538 (relating to approval of transactions with interested
shareholders) shall be applicable to any bylaw, contract or transaction
authorized by the directors under this section. A corporation may create a fund
of any nature, which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification obligations,
whether arising under or pursuant to this section or otherwise.
(b) When indemnification is not to be made. -- Indemnification pursuant to
subsection (a) shall not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. The articles may not provide for
indemnification in the case of willful misconduct or recklessness.
(c) Grounds. -- Indemnification pursuant to subsection (a) under any bylaw,
agreement, vote of shareholders or directors or otherwise may be granted for any
action taken and may be made whether or not the corporation would have the power
to indemnify the person under any other provision of law except as provided in
this section and whether or not the indemnified liability arises or arose from
any threatened, pending or completed action by or in the right of the
corporation. Such indemnification is declared to be consistent with the public
policy of this Commonwealth.
1747 POWER TO PURCHASE INSURANCE. -- Unless otherwise restricted in its
bylaws, a business corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a representative of the
corporation or is or was serving at the request of the corporation as a
representative of another domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against that liability under the provisions of this
subchapter. Such insurance is declared to be consistent with the public policy
of this Commonwealth.
1748 APPLICATION TO SURVIVING OR NEW CORPORATIONS. -- For the purposes of
this subchapter, references to "the corporation" include all constituent
corporations absorbed in a consolidation, merger or division, as well as the
surviving or new corporations surviving or resulting therefrom, so that any
person who is or was a representative of the constituent, surviving or new
corporation, or is or was serving at the request of the constituent, surviving
or new corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
subchapter with respect to the surviving or new corporation as he would if he
had served the surviving or new corporation in the same capacity.
1749 APPLICATION TO EMPLOYEE BENEFIT PLANS. -- For purposes of this
subchapter:
(1) References to "other enterprises" shall include employee benefit
plans and references to "serving at the request of the corporation" shall
include any service as a representative of the business corporation that
imposes duties on, or involves services by, the representative with respect
to an employee benefit plan, its participants or beneficiaries.
(2) Excise taxes assessed on a person with respect to an employee
benefit plan pursuant to applicable law shall be deemed "fines."
(3) Action with respect to an employee benefit plan taken or omitted
in good faith by a representative of the corporation in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be action in a manner that is
not opposed to the best interests of the corporation.
1750 DURATION AND EXTENT OF COVERAGE. -- The indemnification and
advancement of expenses provided by, or granted pursuant to, this subchapter
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a representative of the corporation and shall inure
to the benefit of the heirs and personal representative of that person.
