<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
GULF WEST BANKS, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 6711 59-3276590
(State or other jurisdiction (Primary Standard (IRS Employer
of incorporation Industrial Classification Identification Number)
or organization) Code Number)
425 22ND AVENUE NORTH
ST. PETERSBURG, FLORIDA, 33704
(813) 894-5696
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
-----------
GORDON W. CAMPBELL
CHAIRMAN OF THE BOARD AND PRESIDENT
GULF WEST BANKS, INC.
425 22ND AVENUE NORTH
ST. PETERSBURG, FLORIDA 33704
(813) 894-5696
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
With copies to:
DAVID C. SHOBE, ESQ. RICHARD A. DENMON, ESQ.
FOWLER, WHITE, GILLEN, BOGGS, CARLTON, FIELDS, WARD, EMMANUEL,
VILLAREAL & BANKER, P.A. SMITH & CUTLER, P.A.
501 EAST KENNEDY BOULEVARD ONE HARBOUR PLACE
SUITE 1700 777 S. HARBOUR ISLAND BOULEVARD
TAMPA, FLORIDA 33602 TAMPA, FLORIDA 33602
(813) 228-7411 (813) 223-7000
(813) 228-9401 - FAX (813) 229-4133 - FAX
-------------------- --------------------
Approximate date of commencement of proposed sale to the public: Upon the
effective date of the merger of Citizens National Bank and Trust Company with
and into a wholly owned subsidiary of Registrant.
-----------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Aggregate Amount of
Securities to be Registered Registered Offering Price per Share Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 1,950,000 shares * $8,648,642 $2,620.80
$1.00 per share
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</TABLE>
* Not Applicable
** Estimated solely for purposes of determining the amount of the
registration fee in accordance with Rule 457(f)(2) under the Securities
Act of 1933 based on the book value of shares of Citizens National Bank
and Trust Company on October 3, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CITIZENS NATIONAL BANK AND TRUST COMPANY
9550-1 U.S. Highway 19
Port Richey, Florida 34668
______________, 1997
Dear Stockholder:
On behalf of the Board of Directors, we cordially invite you to attend
a Special Meeting of Stockholders (the "Special Meeting") of Citizens National
Bank and Trust Company ("Citizens National") to be held at Citizens National's
principal office located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668,
on [day] [date], 1997, at ____ p.m. local time.
As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting stockholders of Citizens National will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
dated as of October ___, 1997 (the "Merger Agreement"), by and among Gulf West
Banks, Inc. ("Gulf West"), Mercantile Bank, a wholly owned subsidiary of Gulf
West ("Mercantile"), and Citizens National, providing for the merger (the
"Merger") of Citizens National with and into Mercantile. Upon consummation of
the Merger, except as described in the Proxy Statement/Prospectus, each issued
and outstanding share of Citizens National common stock, par value $5.00 per
share ("Citizens National Common Stock") will be converted into the right to
receive 3.2337 shares of Gulf West common stock, par value $1.00 per share
("Gulf West Common Stock"), subject to certain adjustments as described in the
Proxy Statement/Prospectus, with cash to be paid in lieu of fractional shares.
The transaction is expected to result in the issuance of up to 1,950,000 shares,
or approximately 36.9% of the then outstanding Gulf West Common Stock.
Further information concerning the Merger is contained in the
accompanying Notice of Special Meeting and the Proxy Statement/Prospectus. The
Proxy Statement/Prospectus contains a detailed description of the Merger
Agreement, its terms and conditions, and the transactions contemplated thereby.
Please review these materials carefully and consider thoughtfully the
information set forth herein.
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL BELIEVES THE MERGER IS IN
THE BEST INTERESTS OF CITIZENS NATIONAL'S STOCKHOLDERS, HAS APPROVED UNANIMOUSLY
THE MERGER AGREEMENT, AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF
THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT! Citizens National's management team would
greatly appreciate your attendance at the Special Meeting. However, since the
affirmative vote of the holders of at least two-thirds of the outstanding
Citizens National Common Stock entitled to vote is necessary to adopt the Merger
Agreement and to approve the Merger, it is important that your shares be
represented at the meeting, whether or not you plan to attend the Special
Meeting. An abstention or the failure to vote has the same effect as a vote
against the Merger. Accordingly, we urge you to complete, sign, and date the
enclosed proxy card and return it in the enclosed prepaid envelope as soon as
possible, even if you currently plan to attend the Special Meeting. Submitting a
proxy will not prevent you from voting in person, but will assure that your vote
is counted if you should be unable to attend the Special Meeting. If you do
attend the Special Meeting and desire to vote in person, you may do so by
withdrawing your proxy at that time. Your prompt cooperation will be greatly
appreciated.
Very truly yours,
Dr. Henry W. Hanff Philip H. Chesnut
Chairman of the Board President
<PAGE> 3
CITIZENS NATIONAL BANK AND TRUST COMPANY
9550-1 U.S. HIGHWAY 19
PORT RICHEY, FLORIDA 34668
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
To the Stockholders of Citizens National Bank and Trust Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Citizens National Bank and Trust Company, a national banking association
("Citizens National"), will be held at Citizens National's principal office,
located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668, on [DAY] [DATE],
1997, at ____ p.m. Eastern Standard Time, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Amended
and Restated Agreement and Plan of Merger, dated October ___, 1997 (the
"Merger Agreement"), by and among Gulf West Banks, Inc. ("Gulf West"),
Mercantile Bank, a wholly owned subsidiary of Gulf West ("Mercantile"),
and Citizens National, pursuant to which Citizens National will be
merged with and into Mercantile (the "Merger"), and upon consummation
of the Merger, except as described in the Proxy Statement/Prospectus,
each issued and outstanding share of Citizens National common stock,
par value $5.00 per share ("Citizens National Common Stock"), will be
converted into the right to receive 3.2337 shares of Gulf West common
stock, par value $1.00 per share ("Gulf West Common Stock"), subject to
certain adjustments as described in the Proxy Statement/Prospectus; and
(2) To transact such other business as may properly come
before the Special Meeting or adjournments or postponements thereof.
NOTICE OF RIGHT TO DISSENT. If Proposal 1 above is approved and the
Merger is consummated, each holder of shares of Citizens National Common Stock
would have the right to dissent from the approval of Proposal 1 and would be
entitled to the rights and remedies of dissenting stockholders provided in Title
12, Chapter 2, Section 214a of the United States Code ("12 U.S.C. Section
214a"). The right of any such stockholder to any dissenters' rights and remedies
is contingent upon the consummation of the Merger. In addition, the right of any
such holder to such rights and remedies is contingent upon strict compliance
with the provisions of 12 U.S.C. Section 214a which require, among other things,
that the stockholder either give Citizens National notice of such stockholder's
intention to dissent at or prior to the Special Meeting or that the stockholder
vote his or her respective shares against the Merger and that such stockholder
thereafter perfect his or her dissenters' rights by written notice to Citizens
National within 30 days of the date of consummation of the Merger. FOR A SUMMARY
OF THE REQUIREMENTS OF 12 U.S.C. SECTION 214A, SEE "THE MERGER -- DISSENTERS'
RIGHTS" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
The Merger Agreement is more completely described in the accompanying
Proxy Statement/Prospectus, and a copy of the Merger Agreement is attached as
Annex A to the accompanying Proxy Statement/Prospectus.
Action may be taken on the foregoing proposal at the Special Meeting on
the date specified above or on any date or dates to which the Special Meeting
may be adjourned. The Board of Directors has fixed ______________, 1997 as the
record date ("Record Date"). Only holders of record of Citizens National Common
Stock at the close of business on the Record Date 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 two-thirds of the shares of
Citizens National Common Stock outstanding on the Record Date is required for
adoption of the Merger Agreement.
<PAGE> 4
Each stockholder, whether or not he or she plans to attend the Special
Meeting in person, is requested to complete, sign, and date the enclosed proxy
and return it promptly in the enclosed postage prepaid envelope. This will
assure your representation at the Special Meeting and may avoid the costs of
additional communications. This will not prevent a stockholder from voting in
person at the Special Meeting. 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 Cashier of Citizens National a written revocation
bearing a later date, or by attending and voting at the Special Meeting.
By Order of the Board of Directors
Carol L. Kinnard, Cashier
Port Richey, Florida
______________, 1997
WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING,
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
<PAGE> 5
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1997
GULF WEST BANKS, INC.
PROSPECTUS FOR
1,950,000 SHARES OF COMMON STOCK
CITIZENS NATIONAL BANK AND TRUST COMPANY
PROXY STATEMENT
This Proxy Statement/Prospectus is being furnished to the holders of
the Common Stock, $5.00 par value per share, of Citizens National Bank and Trust
Company ("Citizens National") in connection with the solicitation of proxies by
the Citizens National Board of Directors for use at a Special Meeting of
Stockholders of Citizens National to be held at 9550-1 U.S. Highway 19, Port
Richey, Florida on November ___, 1997 at 5:30 p.m. Eastern Daylight Time, and at
any postponements or adjournments thereof (the "Special Meeting"). The Special
Meeting is for the purpose of considering an Amended and Restated Agreement and
Plan of Merger (the "Merger Agreement") whereby Citizens National will merge
into a subsidiary of Gulf West Banks, Inc. ("Gulf West") (the "Merger"). A copy
of the Merger Agreement is attached as Annex A and incorporated herein by
reference.
Pursuant to the Merger Agreement, upon consummation of the Merger,
except as described herein, each outstanding share of Citizens National common
stock, $5.00 par value per share ("Citizens National Common Stock") will be
converted into 3.2337 shares of Gulf West common stock, par value $1.00 per
share ("Gulf West Common Stock") subject to certain adjustments as described in
this Proxy Statement/Prospectus ("Exchange Ratio"). See "THE AGREEMENT AND PLAN
OF MERGER -- Terms of the Merger". Each holder of Citizens National Common Stock
who would otherwise be entitled to receive a fractional share of Gulf West
Common Stock will receive cash in lieu thereof.
This Proxy Statement/Prospectus also constitutes part of a Registration
Statement on Form S-4 filed by Gulf West with the Securities and Exchange
Commission relating to the Gulf West Common Stock to be issued in the Merger
(the "Registration Statement").
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CITIZENS NATIONAL VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE
TO VOTE IS EQUIVALENT TO VOTING AGAINST THE MERGER AGREEMENT.
Approval of the Merger requires the affirmative vote of two-thirds of
the outstanding Citizens National Common Stock. Directors and executive officers
of Citizens National hold approximately 60.9% of the outstanding shares of
Citizens National Common Stock and have indicated that they intend to vote their
shares in favor of the Merger Agreement at the Special Meeting.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") has rendered
its opinion, dated ______________, 1997, confirming and updating its prior
opinion of July 30, 1997 to the Board of Directors of Citizens National that the
consideration as provided in the Merger Agreement is fair, from a financial
point of view, to the holders of Citizens National Common Stock. See "THE MERGER
- -- Opinion of Citizens National's Financial Advisor".
This Proxy Statement/Prospectus, Notice of Special Meeting, and the
accompanying Proxy are first being mailed to stockholders of Citizens National
on October ___, 1997.
SEE "RISK FACTORS" BEGINNING AT PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING THE MERGER AND THE RECEIPT OF THE GULF
WEST COMMON STOCK OFFERED HEREBY.
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 GULF WEST COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER FUND OR AGENCY.
The date of this Proxy Statement/Prospectus is October __, 1997
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
AVAILABLE INFORMATION.............................................................................5
SUMMARY ..........................................................................................6
The Companies.............................................................................6
The Merger................................................................................6
Gulf West Common Stock Outstanding........................................................7
Citizens National Special Meeting.........................................................7
Record Date; Vote Required................................................................7
Regulatory Approvals......................................................................7
Recommendation of Citizens National Board of Directors....................................7
Opinion of Financial Advisor..............................................................8
Dissenters' Rights........................................................................8
Modification, Waiver, and Termination.....................................................8
Certain Differences in the Rights of Stockholders.........................................8
Interests of Certain Persons in the Merger................................................8
Resales by Affiliates.....................................................................9
Certain Federal Income Tax Considerations.................................................9
Comparative Per Share Data................................................................9
RISK FACTORS.....................................................................................10
SUMMARY OF FINANCIAL INFORMATION.................................................................11
PRO FORMA FINANCIAL INFORMATION..................................................................15
SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS................................................25
General .................................................................................25
Record Date and Voting Rights............................................................25
Vote Required............................................................................25
Voting and Revocation of Proxies.........................................................25
Solicitation of Proxies..................................................................26
Recommendation...........................................................................26
THE MERGER.......................................................................................27
Background of and Reasons for the Merger.................................................27
Citizens National Reasons for the Merger.................................................28
Gulf West Reasons for the Merger.........................................................29
Opinion of Citizens National's Financial Advisor.........................................29
Interests of Certain Named Persons in the Merger.........................................33
Terms of the Merger......................................................................34
Business Pending the Effective Time......................................................34
Exchange of Share Certificates...........................................................34
Conditions to the Merger.................................................................35
Termination and Amendment................................................................35
Effectiveness of Merger..................................................................35
Regulatory Requirements..................................................................36
Accounting Treatment.....................................................................36
Certain Federal Income Tax Consequences..................................................36
Dissenters' Rights.......................................................................37
Shares Received..........................................................................37
MARKET PRICE AND DIVIDEND DATA...................................................................38
GULF WEST BANKS, INC.............................................................................39
Introduction.............................................................................39
Activities of Gulf West..................................................................39
Activities of Mercantile.................................................................39
Market Area..............................................................................40
Operating Strategy.......................................................................40
Competition..............................................................................41
Employees ...............................................................................41
Properties...............................................................................41
Legal Proceedings........................................................................43
SELECTED FINANCIAL DATA..........................................................................44
</TABLE>
2
<PAGE> 7
<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................................46
General .................................................................................46
Regulation and Legislation...............................................................46
Pending Acquisition......................................................................46
Credit Risk..............................................................................47
Results of Operations....................................................................48
Rate/Volume Analysis.....................................................................50
Liquidity and Capital Resources..........................................................50
Regulatory Capital Requirements..........................................................51
Asset and Liability Management...........................................................52
Comparison of Six Months Ended June 30, 1997 and 1996............................................57
General .................................................................................57
Interest Income and Expense..............................................................57
Provision for Loan Losses................................................................57
Noninterest Income.......................................................................57
Noninterest Expense......................................................................57
Comparison of Years Ended December 31, 1996 and 1995.............................................58
General .................................................................................58
Interest Income and Expense..............................................................58
Provision for Loan Losses................................................................58
Noninterest Income.......................................................................58
Noninterest Expense......................................................................58
Impact of Inflation and Changing Prices..........................................................58
Future Accounting Requirements...................................................................59
SUPERVISION AND REGULATION.......................................................................59
Supervision and Regulation of Gulf West..................................................59
Supervision and Regulation of Mercantile.................................................62
Payment of Dividends.....................................................................64
Risk Based Capital Regulations...........................................................64
Federal Reserve System...................................................................64
Liquidity................................................................................65
Monetary Policy and Economic Controls....................................................65
Regulation of Sale of Securities.........................................................66
MANAGEMENT OF GULF WEST..........................................................................67
Directors and Executive Officers.........................................................67
Compensation of Executive Officers and Directors.........................................68
Summary Compensation Table...............................................................69
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values........69
Option/SAR Grants in Last Fiscal Year and Long-Term Incentive Plans......................69
Salary Continuation Agreements...........................................................69
Key Man Life Insurance...................................................................70
Transactions with Management and Others..................................................71
Stock Purchase Plan......................................................................71
Stock Option Plan........................................................................71
Committees of the Board of Directors of Gulf West and Mercantile.........................73
Indebtedness of Management...............................................................73
Registration Rights Agreement............................................................74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................75
Security Ownership of Certain Beneficial Owners..........................................75
Security Ownership of Management.........................................................76
DESCRIPTION OF CAPITAL STOCK OF GULF WEST........................................................77
Common Stock.............................................................................77
Preferred Stock..........................................................................78
Reports to Stockholders..................................................................79
CITIZENS NATIONAL BANK AND TRUST COMPANY.........................................................79
Introduction.............................................................................79
Activities of Citizens National..........................................................79
Market for Services......................................................................80
Competition..............................................................................80
Employees................................................................................81
</TABLE>
3
<PAGE> 8
<TABLE>
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Property ................................................................................81
Legal Proceedings........................................................................81
Certain Regulatory Matters...............................................................81
Certain Relationships and Related Transactions...........................................81
Security Ownership of Certain Beneficial Owners and Management...........................82
Citizens National........................................................................83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CITIZENS NATIONAL...........................................86
General .................................................................................86
Regulation and Legislation...............................................................86
Pending Acquisition of Citizens National.................................................86
Credit Risk..............................................................................87
Non-Performing Loans.....................................................................87
Results of Operations....................................................................89
Rate/Volume Analysis.....................................................................91
Liquidity and Capital Resources..........................................................92
Investment Activities....................................................................92
Regulatory Capital Requirements..........................................................94
Asset and Liability Management...........................................................95
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS..................................................103
Comparison of Rights of Stockholders of Citizens National and Gulf West.................103
Charter and Bylaw Provisions Affecting Gulf West Common Stock...........................103
Stockholder Approval of Mergers.........................................................103
Dissenters' Rights......................................................................103
Stockholders' Meetings and Voting.......................................................104
Dividends...............................................................................105
Preemptive Rights.......................................................................106
Liquidation Rights......................................................................106
Limitation of Liability and Indemnification.............................................106
Antitakeover Provisions.................................................................106
LEGAL MATTERS...................................................................................108
EXPERTS.........................................................................................108
OTHER MATTERS...................................................................................108
Index to Financial Statements...........................................................F-1
</TABLE>
Annex A -- Amended and Restated Agreement and Plan of Merger between
Citizens National Bank and Trust Company and Gulf West Banks,
Inc. and Mercantile Bank
Annex B -- 12 U.S.C. Section 214a of the National Bank Act
Annex C -- Opinion of Alex Sheshunoff & Co. Investment Banking.
4
<PAGE> 9
AVAILABLE INFORMATION
Gulf West has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (together with
any amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933 with respect to the securities offered hereby. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information about Gulf
West and the Gulf West Common Stock, reference is made to the Registration
Statement and exhibits thereto. The Registration Statement, together with such
exhibits, may be inspected without charge at the public reference facilities of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained from the SEC at prescribed rates. The SEC maintains an Internet web
site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the SEC. The address
of that site is http://www.sec.gov. Upon consummation of the Merger, Gulf West
will be subject to the Exchange Act reporting responsibilities under rules and
regulations of the SEC. Statements contained in this Proxy Statement/Prospectus
or in any document incorporated by reference herein as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND THE OFFERING MADE HEREBY AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY GULF WEST OR CITIZENS NATIONAL.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF
A PROXY OR AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER IS NOT AUTHORIZED OR TO
OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR OFFER.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE GULF
WEST COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY STOCKHOLDERS OF CITIZENS
NATIONAL DEEMED TO BE AFFILIATES OF GULF WEST OR CITIZENS NATIONAL UPON THE
CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH ANY SUCH RESALES. SEE "THE MERGER -
SHARES RECEIVED."
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS AS
OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY INDICATED. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF GULF WEST OR CITIZENS NATIONAL SINCE THE DATE
HEREOF.
5
<PAGE> 10
SUMMARY
The following is a summary of certain information relating to the
Special Meeting, the proposed Merger, and the offering of shares of Gulf West
Common Stock to be issued upon consummation thereof. This summary does not
purport to be complete and is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Proxy
Statement/Prospectus. Citizens National Stockholders are urged to read carefully
the entire Proxy Statement/Prospectus, including the Appendices. As used in this
Proxy Statement/Prospectus, the terms "Gulf West" and "Citizens National" refer
to those entities, respectively, and, where the context requires, to those
entities and their respective subsidiaries. The term "Combined Company" refers
to Gulf West and Citizens National after consummation of the Merger.
Certain information and statements contained in this Proxy
Statement/Prospectus are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
financial results, plans for future business development activities, capital
spending or financing services, capital structure, and the effects of regulation
and competition and are thus prospective. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition, and other
uncertainties described herein and as detailed from time to time in Gulf West's
future filings with the Commission.
THE COMPANIES
Gulf West is a Florida corporation whose principal assets are all of
the outstanding shares of capital stock of Mercantile Bank, a Florida state
banking corporation ("Mercantile"). Mercantile's only activity is banking
services which are offered in Pinellas and Hillsborough Counties, Florida. At
June 30, 1997, Gulf West had total assets of $181.6 million, total deposits of
$160.3 million and total stockholders' equity of $13.6 million. Gulf West's
executive offices are located at 425 22nd Avenue North, St. Petersburg, Florida
33704, telephone (813) 894-5696.
Citizens National is a national banking association originally
chartered by the Office of the Comptroller of the Currency (the "OCC") on
February 29, 1988. The principal executive offices of Citizens National and its
sole banking facility are located at 9550 - 1 U.S. Highway 19, Port Richey,
Florida, and its telephone number is (813) 846-1444. Citizens National engages
in commercial banking and trust services from its one location in Pasco County,
Florida. As of June 30, 1997, Citizens National had total assets of
approximately $73.5 million, total deposits of approximately $64.7 million, and
stockholders' equity of approximately $8.6 million. For additional information
regarding the business of Citizens National, see "THE MERGER -- Background of
and Reasons for the Merger" and "CITIZENS NATIONAL BANK AND TRUST COMPANY".
THE MERGER
Terms of the Merger. The Merger Agreement provides for the merger of
Citizens National with and into Mercantile, a wholly owned subsidiary of Gulf
West, whereupon the separate existence of Citizens National shall cease.
Pursuant to the Merger, except as described in "THE MERGER - Dissenter's
Rights", at the "Effective Time" (as defined below) each outstanding share of
Citizens National Common Stock will be converted into and exchanged for 3.2237
shares of Gulf West Common Stock (the "Exchange Ratio"), with cash to be paid in
lieu of any resulting fractional shares. After consummation of the Merger, each
outstanding share of Gulf West Common Stock shall remain outstanding after the
Effective Time. The Merger Agreement also provides that the Exchange Ratio may
be adjusted to prevent dilution in the event Gulf West changes the number of
shares of Gulf West Common Stock issued and outstanding prior to the Effective
Time (except for the exercise of certain options outstanding on the date of the
Merger Agreement and issuances made pursuant to Gulf West's employee stock
purchase plan). See "THE MERGER - Terms of the Merger". Assuming no adjustment
is made to the Exchange Ratio, Gulf West will issue 1,950,000 shares of Gulf
West Common Stock, representing approximately 36.9% of the outstanding Gulf West
Common Stock as of the Effective Date.
Conditions of the Merger. Consummation of the Merger is subject to the
satisfaction or waiver of certain conditions, including approval of the Merger
Agreement by the holders of Citizens National Common Stock ("Stockholders"),
receipt of all necessary approvals and consents, regulatory or otherwise,
including the Federal Deposit Insurance Corporation ("FDIC") and the Florida
Department of Banking and Finance (the "Department"), effectiveness under the
Securities Act of a Registration Statement for shares of Gulf West Common Stock
to be issued in the Merger,
6
<PAGE> 11
receipt of an opinion of Alex Sheshunoff & Co. Investment Banking ("Sheshunoff")
as to the fairness of the transaction to the Stockholders of Citizens National,
that Citizens National has a minimum specified equity at closing, and certain
other conditions customary in a transaction of this nature. See "THE MERGER -
Conditions to the Merger; Regulatory Requirements."
Effective Time of the Merger. Unless otherwise agreed by Gulf West and
Citizens National, the Effective Time is expected to occur on the date and at
the time the Articles of Merger are accepted for filing by the Department
("Articles of Merger"). This filing is expected to be made at closing and the
parties have agreed to use their reasonable best efforts to cause the closing to
occur within five business days following the last to occur of: (i) the
effective date of the receipt of the last required consent of any state or
federal regulatory authority having authority over the Merger (including the
expiration of any applicable waiting periods following such consents or the
delivery of appropriate notices) or (ii) the date on which the Stockholders of
Citizens National approve the Merger Agreement. If approved by the Stockholders
and applicable regulatory authorities, the parties expect the Merger to become
effective on or about __________, 1997, although there can be no assurance as to
whether or when the Merger will occur. See "THE MERGER - Effectiveness of
Merger."
GULF WEST COMMON STOCK OUTSTANDING
As of September 26, 1997, there were 3,337,081 shares of Gulf West
Common Stock outstanding held by approximately 416 holders of record. The terms
of Gulf West's Common Stock are described under "DESCRIPTION OF CAPITAL STOCK OF
GULF WEST."
CITIZENS NATIONAL SPECIAL MEETING
Citizens National will hold a Special Meeting on ________________, 1997
at _____ p.m., at Citizens National's principal office, 9550-1 U.S. Highway 19,
Port Richey, Florida 34668 at which time Stockholders will be asked to approve
the Merger Agreement and the transactions contemplated thereby. Approval of the
Merger requires the affirmative vote of two-thirds of the outstanding shares of
Citizens National Common Stock entitled to vote at the Special Meeting. As of
the record date for the Special Meeting, officers and directors of Citizens
National beneficially owned approximately 367,300 shares, or 60.9% of the
Citizens National Common Stock entitled to vote at the Special Meeting. Pursuant
to the terms of the Merger Agreement, these officers and directors will vote
their Shares in favor of the Merger.
RECORD DATE; VOTE REQUIRED
Only holders of record of Citizens National Common Stock at the close
of business on _______________, 1997, will be entitled to vote at the Special
Meeting (the "Record Date"). As of the Record Date, there were approximately
_____ holders of record of Citizens National Common Stock and 603,030 shares of
Citizens National Common Stock outstanding and entitled to vote at the Special
Meeting. See "SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS".
REGULATORY APPROVALS
Consummation of the transactions contemplated by the Merger Agreement
is subject to approval by the FDIC and the Department. All required applications
for regulatory review and appeal or notice have been filed in connection with
the Merger. See "The Merger - Regulatory Requirements."
RECOMMENDATION OF CITIZENS NATIONAL BOARD OF DIRECTORS
The Board of Directors of Citizens National has unanimously approved
the Merger Agreement and the transactions contemplated thereby. The Board of
Directors of Citizens National believes that the Merger is in the best interests
of Citizens National and its Stockholders and recommends the Stockholders 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 Citizens National Board of
Directors consulted with its legal advisors regarding the legal terms of the
Merger Agreement and with its financial advisors, Sheshunoff, as to the
fairness, from a financial point of view, of the
7
<PAGE> 12
consideration to be received by Stockholders in the Merger. For a discussion of
the factors considered by the Citizens National Board in reaching its
conclusions, see "THE MERGER - Background of and Reasons for the Merger".
OPINION OF FINANCIAL ADVISOR
Sheshunoff, in its capacity as financial advisor to Citizens National,
has rendered an opinion to the Board of Directors of Citizens National that the
terms of the Merger are fair, from a financial point of view, to the
Stockholders. A copy of such opinion, dated ________________, 1997, confirming
and updating its prior opinion of July 30, 1997, is attached hereto as Annex C
and should be read in its entirety with respect to the assumptions made,
matters considered, and limitation of the review undertaken by Sheshunoff in
rendering such opinion. See "THE MERGER - Opinion of Citizens National's
Financial Advisor".
DISSENTERS' RIGHTS
Citizens National Stockholders may exercise their right to dissent from
the Merger by complying with the provisions of the National Bank Act relating to
rights of dissenting stockholders, 12 U.S.C. Section 214a, a copy of which is
attached as Annex B. SEE "THE MERGER - DISSENTERS' RIGHTS;" "MATERIAL
DIFFERENCES IN RIGHTS OF STOCKHOLDERS - DISSENTERS' RIGHTS;" AND ANNEX B.
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 the Merger Consideration to be
paid pursuant to the Merger or which materially and adversely affects the rights
of the Stockholders may be made after the Special Meeting without further
approval of such Stockholders. 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 Gulf West and Citizens National. The Merger Agreement also may
be terminated by either Gulf West or Citizens National (i) in the event of
material breach of the Merger Agreement by the other party that cannot or has
not been cured within thirty (30) days of notice of such breach, (ii) if the
required approval of the Citizens National Stockholders or any applicable
regulatory authority is not obtained, or (iii) if the Merger is not consummated
by April 30, 1998. In addition, the Merger Agreement may be terminated by Gulf
West if, among other things, dissenters' rights are perfected by 5% or more of
the outstanding Citizens National Common Stock. See "THE MERGER - Termination
and Amendment".
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of Gulf West stockholders and other corporate matters
relating to Gulf West Common Stock are controlled by the Articles of
Incorporation of Gulf West (the "Gulf West Articles"), the Gulf West Bylaws (the
"Gulf West Bylaws"), and the Florida Business Corporation Act (the "FBCA"). The
rights of Citizens National Stockholders and other corporate matters relating to
Citizens National Common Stock are controlled by the Citizens National Articles
of Association (the "Citizens National Articles"), the Citizens National Bylaws
(the "Citizens National Bylaws"), and the National Bank Act and the FBCA. Upon
consummation of the Merger, Stockholders of Citizens National will become
stockholders of Gulf West whose rights will be governed by the Gulf West
Articles, the Gulf West Bylaws, and the provisions of the FBCA only. See
"DESCRIPTION OF CAPITAL STOCK OF GULF WEST" and "MATERIAL DIFFERENCES IN RIGHTS
OF STOCKHOLDERS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Citizens National's management and its Board of
Directors may be deemed to have interests in the Merger in addition to their
interests, if any, as Stockholders of Citizens National generally. These
interests include, among others, (i) the election or appointment of two
individuals designated by Citizens National to the board of directors of Gulf
West and three individuals designated by Citizens National to the board of
directors of Mercantile; (ii) agreements by Gulf West to indemnify present and
former directors, officers, employees, and agents of Citizens National from and
after the Merger against certain liabilities arising prior to the Merger to the
fullest extent permitted under Florida law, the Citizens National Articles and
the Citizens National Bylaws; and (iii) provisions contained in the Merger
Agreement which permit Citizens National to extend its directors and officers
insurance policy for a period of three years following the Merger and to pay the
premiums therefor prior to the Merger. See "THE MERGER -- Interests of Certain
Named Persons in the Merger."
8
<PAGE> 13
RESALES BY AFFILIATES
Citizens National has agreed to use its best 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 Gulf West Common
Stock received by it as a result of the Merger, except in compliance with the
applicable provisions of the Securities Act. See "THE MERGER - Shares
Received."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to qualify as a reorganization under Section
368(a) of the Internal Revenue Code. As a result thereof the parties believe
that no gain or loss will be recognized by the Citizens National Stockholders as
a result of the Merger to the extent that they receive Gulf West Common Stock
solely in exchange for their Citizens National Common Stock. For a more complete
description of the federal income tax consequences. See "THE MERGER -- Certain
Federal Income Tax Consequences."
COMPARATIVE PER SHARE DATA
Although a local brokerage firm facilitates trades of Gulf West Common
Stock in the over-the-counter market, there is no established active trading
market for Gulf West Common Stock. According to information supplied by such
brokerage firm, on July 30, 1997, the last trading day prior to announcement of
the execution of the Merger Agreement, the last reported trading price of Gulf
West Common Stock was $5.50. On _______, 1997 [Effective Date of Registration
Statement], the last reported trading price was $______. There is no market for
the Citizens National Common Stock. Gulf West's earnings per share were $.10 for
the year ended December 31, 1996 and $.14 for the six months ended June 30,
1997. Citizens National's earnings per share for the same periods were $1.06 and
$.20, respectively. Gulf West paid $.04 per share in cash dividends in 1995, and
a five percent (5%) stock dividend in 1996. There are currently no plans to
declare a cash dividend in 1997. Citizens National paid no dividends during
these periods except for a $.10 per share dividend during the first quarter of
1997.
9
<PAGE> 14
RISK FACTORS
Citizens National Stockholders currently control Citizens National
through their ability to elect the Board of Directors and vote on various
matters affecting Citizens National. If consummated the Merger will transfer
control of Citizens National from the Citizens National Stockholders to Gulf
West, and the bank office of Citizens National will become a branch of
Mercantile. As of the Effective Time of the Merger, the Citizens National
Stockholders will become stockholders of Gulf West, a bank holding company. As a
result of the Merger, the Citizens National Stockholders will no longer have the
ability to control or influence the management policies of Citizens National's
operations and as stockholders of Gulf West their ability to influence the
management policies of Gulf West will be limited due to the fact that they will
hold less than a majority of the voting stock of Gulf West.
Gulf West competes with other banking institutions on the basis of
service, convenience and, to some extent, price. Due in part to both regulatory
changes and consumer demands, banks have experienced increased competition from
other financial entities offering similar products. Competition from both bank
and non-bank organizations is expected to continue.
In addition, general economic conditions impact the banking industry.
The credit quality of Gulf West's loan portfolio necessarily reflects, among
other things, the general economic conditions in the area in which it conducts
its business. The continued financial success of Gulf West and its subsidiaries
depends somewhat on factors which are beyond Gulf West's control, including
national and local economic conditions, the supply and demand for investable
funds, interest rates and federal, state and local laws affecting these matters.
Any substantial deterioration in any of the foregoing conditions could have a
material adverse effect on Gulf West's financial condition and results of
operations, which, in all likelihood, would adversely affect the market price of
Gulf West's Common Stock.
Gulf West's Articles of Incorporation, as amended, and Bylaws contain
several provisions which may make Gulf West a less attractive target for
acquisition by anyone who does not have the support of Gulf West's Board of
Directors. Such provisions include, among other things, the requirement of a
staggered Board, a fair price provision for business combinations with principal
stockholders or their affiliates (those holding 10% or more of the Gulf West
Common Stock), and the requirement that directors only be removed for cause and
after a vote of two-thirds of the Gulf West Common Stock in favor of such
removal. SEE "MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS -- Charter and
Bylaws Provisions Affecting Gulf West Common Stock."
Although area brokerages do identify willing buyers and sellers of Gulf
West Common Stock and facilitate trades in such stock in over-the-counter
transactions, Gulf West Common Stock is not publicly traded.
A description of the regulatory considerations relating to ownership of
the Gulf West Common Stock appears elsewhere in this Proxy Statement/Prospectus.
SEE "SUPERVISION AND REGULATION."
10
<PAGE> 15
GULF WEST BANKS, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
Summary of Financial
Condition:
Cash due from bank ...... $ 3,539 8,631 5,555 5,882 4,488 4,148
Securities (1) .......... 54,502 43,587 39,089 29,263 23,391 14,148
Loans, net .............. 112,891 112,979 73,948 63,472 53,374 49,206
All other assets ........ 10,662 9,617 7,344 5,832 5,485 3,552
---------- --------- --------- --------- --------- ---------
Total assets ......... $ 181,594 174,814 125,936 104,449 86,738 71,054
========== ========= ========= ========= ========= =========
Deposits .................... 160,293 149,335 109,192 96,372 78,532 61,146
Other borrowings ............ 7,149 12,047 3,799 -- -- 1,500
All other liabilities ....... 530 332 431 149 299 1,093
Stockholders' equity ........ 13,622 13,100 12,514 7,928 7,907 7,315
---------- --------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity .. $ 181,594 174,814 125,936 104,449 86,738 71,054
========== ========= ========= ========= ========= =========
Total number of banking
offices, all full service. 9 8 5 4 4 3
Total shares outstanding .... 3,337,081 3,326,030 3,277,755 2,461,801 2,461,078 2,474,000
Book value per share ........ $ 4.08 3.94 3.82 3.22 3.21 2.96
========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest
income ............... $6,849 4,868 $10,844 8,447 6,146 4,931 5,327
Total interest
expense .............. 3,021 2,017 4,659 3,736 2,521 2,046 2,694
------ ----- ------- ----- ----- ----- -----
Net interest income ..... 3,828 2,851 6,185 4,711 3,625 2,885 2,633
Provision for loan
losses ............... 240 91 401 240 176 40 145
------ ----- ------- ----- ----- ----- -----
Net interest income after
provision for
loan losses .......... 3,588 2,760 5,784 4,471 3,449 2,845 2,488
Noninterest income ...... 878 505 1,031 849 603 838 670
Noninterest
expenses ............. 3,776 2,789 6,324 4,181 3,228 3,056 2,539
------ ----- ------- ----- ----- ----- -----
Earnings before income
taxes ................ 690 476 491 1,139 824 627 619
Income taxes ............ 234 182 177 431 142 -- --
------ ----- ------- ----- ----- ----- -----
Net earnings ............ $ 456 294 314 708 682 627 619
====== ===== ======= ===== ===== ===== =====
Earnings per share ...... $ 0.14 0.09 0.10 0.25 0.28 0.26 0.25
====== ===== ======= ===== ===== ===== =====
Cash dividends
per share ............. -- -- -- 0.04 -- -- --
====== ===== ======= ===== ===== ===== =====
</TABLE>
11
<PAGE> 16
GULF WEST BANKS, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
AT OR FOR THE
------------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
1997(4) 1996(4) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Return on average
assets .................. 0.50% 0.45% 0.22% 0.63% 0.74% 0.80% 0.86%
Return on average
equity .................. 6.83% 4.69% 2.45% 6.93% 8.69% 8.26% 8.83%
Average equity to
average assets
ratio ................... 7.40% 9.60% 8.87% 9.11% 8.47% 9.70% 9.77%
Interest-rate spread
during the
periods (2) ............. 3.90% 4.13% 4.01% 3.99% 3.82% 3.42% 3.66%
Net yield on average
interest-earning
assets .................. 4.68% 4.92% 4.78% 4.71% 4.37% 4.09% 4.04%
Noninterest expenses
to average assets ....... 4.18% 4.27% 4.38% 3.73% 3.49% 3.91% 3.54%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities ..... 1.21 1.23 1.21 1.19 1.18 1.23 1.01
Nonperforming loans
and foreclosed real
estate as a percentage
of total assets at
end of period(3) ........ 0.66% 0.68% 0.46% 1.01% 0.81% 0.26% 0.54%
Allowance for loan
losses as a
percentage
of nonperforming
loans(3) ................ 265.48% 148.85% 388.20% 312.03% 933.93% 269.11% 278.80%
</TABLE>
- ------------------------------
(1) Includes Federal Funds sold, US Government and agency obligations, and
corporate and other obligations.
(2) The difference between the weighted-average yield on all
interest-earning assets and weighted-average rate on all
interest-bearing liabilities.
(3) Nonperforming loans are loans where the accrual of interest has been
discontinued.
(4) Have been annualized when applicable.
12
<PAGE> 17
CITIZENS NATIONAL BANK AND TRUST COMPANY
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
Summary of Financial
Condition:
Cash and cash
equivalents .......... $ 1,585 6,946 4,047 2,941 6,687 6,982
Securities .............. 40,846 41,576 43,286 44,512 40,980 39,849
Loans, net .............. 28,994 25,492 23,397 22,409 23,348 27,854
All other assets ........ 2,086 1,968 1,927 2,066 1,474 1,586
-------- ------- ------- ------- ------- -------
Total assets ......... $ 73,511 75,982 72,657 71,928 72,489 76,271
======== ======= ======= ======= ======= =======
Deposit accounts ........ 64,712 66,913 65,554 65,858 66,276 71,065
Borrowed funds .......... -- -- -- -- -- --
All other liabilities ... 249 597 464 502 598 450
Stockholders' equity .... 8,550 8,472 6,639 5,568 5,615 4,756
-------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity .. $ 73,511 75,982 72,657 71,928 72,489 76,271
======== ======= ======= ======= ======= =======
Number of banking offices,
all full service ...... 1 1 1 1 1 1
Total shares outstanding .... 603,030 603,030 472,530 472,530 456,530 456,530
Book value per share ........ $ 14.18 14.05 14.05 11.78 12.30 10.42
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest income ...... $ 2,626 2,460 4,990 4,844 4,454 4,914 5,283
Total interest expense ..... 1,479 1,453 2,940 2,923 2,260 2,556 2,953
------- ------ ------ ----- ----- ----- -----
Net interest income ........ 1,147 1,007 2,050 1,921 2,194 2,358 2,330
Provision (credit) for
loan losses ............. -- (100) (100) -- 497 171 30
------- ------ ------ ----- ----- ----- -----
Net interest income
after provision
(credit) for
loan losses ............. 1,147 1,107 2,150 1,921 1,697 2,187 2,300
Noninterest income ......... 169 171 337 342 360 828 470
Noninterest expense ........ 1,209 852 1,857 1,648 1,658 1,797 1,835
------- ------ ------ ----- ----- ----- -----
Earnings before income
tax provision (credit) .. 107 426 630 615 399 1,218 935
Income tax provision
(credit) ................ (12) 55 60 115 17 359 135
------- ------ ------ ----- ----- ----- -----
Net earnings ............... $ 119 371 570 500 382 859 800
======= ====== ====== ===== ===== ===== =====
Earnings per share ......... $ .20 .70 1.06 .98 .78 1.80 1.75
======= ====== ====== ===== ===== ===== =====
Cash dividends per share ... $ 0.10 -- -- -- -- -- --
======= ====== ====== ===== ===== ===== =====
</TABLE>
13
<PAGE> 18
CITIZENS NATIONAL BANK AND TRUST COMPANY
SUMMARY OF FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
AT OR FOR THE
-------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------------------------
1997(3) 1996(3) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Return on average assets .. .32% 1.03% .78% .70% .54% 1.15% 1.20%
Return on average equity .. 2.83% 10.94% 8.37% 8.47% 7.11% 16.29% 18.22%
Average equity to average
assets ................. 11.26% 9.40% 9.36% 8.26% 7.60% 7.08% 6.58%
Interest-rate spread
during the periods(1) .. 2.72% 2.50% 2.51% 2.44% 3.03% 3.11% 3.43%
Net yield on average
interest-earning assets 3.20% 2.92% 2.95% 2.80% 3.25% 3.33% 3.70%
Noninterest expenses to
average assets ......... 3.23% 2.36% 2.55% 2.31% 2.35% 2.41% 2.75%
Ratio of average interest-
earning assets
to average interest-
bearing liabilities .... 1.12 1.10 1.10 1.08 1.07 1.06 1.06
Nonperforming loans and
foreclosed real estate
as a percentage of
total assets at end
of period(2) ........... .09% .13% .08% .39% .52% .32% --%
Allowance for loan losses
as a percentage
of nonperforming
loans(2) ............... --% 444.89% --% 180.08% 153.21% 115.38% --%
</TABLE>
- ------------------------------
(1) The difference between the weighted-average yield on all
interest-earning assets and weighted-average rate on all
interest-bearing liabilities.
(2) Nonperforming loans are loans where the accrual of interest has been
discontinued.
(3) Have been annualized when applicable.
14
<PAGE> 19
PRO FORMA PER SHARE DATA
The following table summarizes the historical consolidated and pro forma net
earnings and net worth of Gulf West and Citizens National after giving effect to
the Proposed Acquisition at and for the six months period ended June 30, 1997
and at and for the year ended December 31, 1996. The pro forma data is based on
the aggregate purchase price of $10,725,000, represented by 1,950,000 Gulf West
common shares, for all of the outstanding shares of Citizens National at January
1, 1997 for the six months ended June 30, 1997 and January 1, 1996 for the year
ended December 31, 1996. Citizens National shares may be exchanged for Gulf West
common shares, using an exchange ratio of 3.2237 shares of Gulf West for each
Citizens National share tendered. The information presented below is provided
for informational purposes only and is not necessarily indicative of the
combined financial position or results of operation which actually would have
occurred if the transaction had been consummated at the date and for the periods
indicated or which may be obtained in the future. This information should be
read in conjunction with the separate consolidated financial statements and
notes thereto of both Gulf West and Citizens National, the respective
Management's Discussion and Analysis of Financial Condition and Results of
Operations of both Gulf West and Citizens National and the other unaudited pro
forma financial information, all included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTH AT OR FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shares outstanding at end of period:
Assumed number of shares of Gulf West
common stock issued ........................... 1,950,000 1,950,000
Shares of common stock of Gulf West
before acquisition ............................ 3,337,081 3,326,030
----------- -----------
Pro forma shares of Gulf West common stock
outstanding after acquisition ................. 5,287,081 5,276,030
=========== ===========
Consolidated net earnings:
Gulf West - historical ............................. $ 456 314
Citizens National - historical ..................... 119 570
Adjustments for the acquisition .................... (107)(a) (211)(a)
----------- -----------
Combined entity - pro forma after
acquisition ............................... $ 468 673
=========== ===========
Consolidated stockholders' equity:
Gulf West - historical ............................. $ 13,622 13,100
Citizens National - historical ..................... 8,550 8,472
Net issuance of Gulf West common stock ............. 10,725(b) 10,725(b)
Adjustments for the acquisition .................... (8,550)(c) (8,472)(c)
----------- -----------
Combined entity - pro forma after
acquisition ............................... $ 24,347 23,825
=========== ===========
Consolidated net earnings per share:
Gulf West - historical (d) ......................... $ .14 .10
=========== ===========
Citizens National - historical (e) ................. $ .20 1.06
=========== ===========
Gulf West - proforma after acquisition ............. $ .09 .13
=========== ===========
Citizens National - proforma after
acquisition (h) ............................... $ .29 .42
=========== ===========
</TABLE>
(continued)
15
<PAGE> 20
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTH AT OR FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Dividends per share:
Gulf West - historical ............................. $ -- --
======== =====
Citizens National - historical ..................... $ .10 --
======== =====
Citizens National - proforma after
acquisition ................................... $ -- --
======== =====
Consolidated book value per share:
Gulf West - historical (f) ......................... $ 4.08 3.94
======== =====
Citizens National - historical (g) ................. $ 14.18 14.05
======== =====
Gulf West - proforma after acquisition ............. $ 4.60 4.51
======== =====
Citizens National - proforma after
acquisition (h) ............................... $ 14.82 14.54
======== =====
</TABLE>
- ------------------------------
(a) Reflects pro forma adjustments as detailed on the pro forma combined
statement of operation.
(b) Represents gross proceeds from issuance of 1,950,000 Gulf West's shares
at $5.50 per share.
(c) Represents elimination of stockholders' equity of Citizens National.
(d) Computed using 3,334,281 for June 30, 1997 and 3,298,405 for December
31, 1996 weighted-average shares outstanding.
(e) Computed using 603,030 for June 30, 1997 and 537,723 for December 31,
1996 weighted-average shares outstanding.
(f) Computed using 3,337,081 at June 30, 1997 and 3,326,030 at December 31,
1996 common shares outstanding.
(g) Computed using 603,030 at June 30, 1997 and 603,030 at December 31,
1996 common shares outstanding.
(h) Computed using the related Gulf West's pro forma after acquisition
amount multiplied by the exchange ratio.
16
<PAGE> 21
PRO FORMA CONDENSED COMBINED CAPITALIZATION
The following table sets forth the capitalization of Gulf West at June 30, 1997
and the pro forma capitalization of Gulf West, after giving effect to the
proposed acquisition assuming 1,950,000 shares of Gulf West shares are issued in
the acquisition. The information presented below should be read in conjunction
with the separate consolidated financial statements and notes thereto of Gulf
West and Citizens National, the respective Management's Discussion and Analysis
of Financial Condition and Results of Operations of Gulf West and Citizens
National, and other unaudited pro forma financial information, all included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
---------------------------------------------------------
PROFORMA
ADJUSTMENTS
FOR ACQUISITION
CITIZENS ----------------- PRO
GULF WEST NATIONAL DEBIT CREDIT FORMA
--------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Deposits ................................ $160,293 64,712 42(1) -- 224,963
Other borrowings........................... 7,149 -- -- -- 7,149
-------- ------ ----- ------ -------
Total........................... $167,442 64,712 42 -- 232,112
======== ====== ===== ====== =======
Stockholders' equity:
Common stock.......................... 3,337 3,015 3,015(2) 1,950(3) 5,287
Additional paid-in capital............ 9,296 2,996 2,996(2) 8,775(3) 18,071
Retained earnings..................... 906 2,581 2,581(2) -- 906
Unrealized gain (loss) on
securities available for sale... 83 (42) -- 42(2) 83
-------- ------ ----- ------ -------
Total stockholders' equity...... $ 13,622 8,550 8,592 10,767 24,347
======== ====== ===== ====== =======
</TABLE>
- ------------------------------
(1) Represents the write-down of the deposits of Citizens National
to estimated fair value.
(2) Reflects the elimination of the stockholders' equity of
Citizens National.
(3) Reflects the issuance of 1,950,000 shares of Gulf West Common
Stock at an assumed price of $5.50 per share as the
consideration issued in the acquisition.
17
<PAGE> 22
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
The following Pro Forma Condensed Combined Balance Sheet reflects the
consolidated balance sheet of Gulf West as of June 30, 1997, after giving effect
to the proposed acquisition of Citizens National by Gulf West. The transaction
will be accounted for as a purchase and is based on assumptions explained herein
and in the Notes to Pro Forma Condensed Combined Balance Sheet and Statements of
Earnings. The information presented below should be read in conjunction with the
separate consolidated financial statements and notes thereto of Gulf West and
Citizens National, the respective Management's Discussion and Analysis of
Financial Condition and Results of Operations of Gulf West and Citizens National
and the other unaudited pro forma financial information, all included elsewhere
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR ACQUISITION
GULF CITIZENS ---------------------
WEST NATIONAL DEBIT CREDIT PROFORMA
---- -------- ----- ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................... $ 10,118 1,585 -- -- 11,703
Securities available for sale ............... 47,923 12,504 -- -- 60,427
Securities held to maturity ................. -- 28,342 207(2) -- 28,549
Restricted securities ....................... -- 408 -- -- 408
Loans receivable, net ....................... 112,808 28,994 517(3) -- 142,319
Loans held for sale ......................... 83 -- -- -- 83
Foreclosed real estate ...................... 179 63 -- -- 242
Premises and equipment, net ................. 6,820 595 -- -- 7,415
Accrued interest receivable ................. 1,106 780 -- -- 1,886
Deferred tax asset .......................... 246 171 -- -- 417
Goodwill .................................... -- -- 1,409(5) -- 1,409
Other assets ................................ 2,311 69 -- -- 2,380
---------- ---------- ---------- ---------- ----------
Total ............................... $ 181,594 73,511 2,133 -- 257,238
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits ......................... 36,470 1,940 -- -- 38,410
Savings, NOW and money market deposits .. 52,065 22,172 -- -- 74,237
Time deposits ........................... 71,758 40,600 42(4) -- 112,316
---------- ---------- ---------- ---------- ----------
Total deposits ...................... 160,293 64,712 42 -- 224,963
Other borrowings ............................ 7,149 -- -- -- 7,149
Other liabilities ........................... 530 249 -- -- 779
---------- ---------- ---------- ---------- ----------
Total liabilities ................... 167,972 64,961 42 -- 232,891
---------- ---------- ---------- ---------- ----------
Stockholders' equity:
Common stock ............................ 3,337 3,015 3,015(6) 1,950(1) 5,287
Additional paid-in capital .............. 9,296 2,996 2,996(6) 8,775(1) 18,071
Retained earnings ....................... 906 2,581 2,581(6) -- 906
Unrealized gain (loss) on securities
available for sale .................. 83 (42) -- 42(6) 83
---------- ---------- ---------- ---------- ----------
Total stockholders' equity .......... 13,622 8,550 8,592 10,767 24,347
---------- ---------- ---------- ---------- ----------
Total ............................... $ 181,594 73,511 8,634 10,767 257,238
========== ========== ========== ========== ==========
Book value per share ........................ $ 4.08 14.18 4.60
========== ========== ==========
Common shares outstanding ................... 3,337,081 603,030 5,287,081
========== ========== ==========
</TABLE>
18
<PAGE> 23
PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
The following Pro Forma Condensed Combined Statements of Earnings reflect the
consolidated results of operations of Gulf West for the year ended December 31,
1996 and the six-month period ended June 30, 1997, after giving effect to the
proposed acquisition of all of the outstanding stock of Citizens National by
Gulf West in a transaction which will be accounted for as a purchase. The
statements are based on the assumptions explained herein and in the Notes to
Unaudited Pro Forma Condensed Combined Balance Sheets and Statements of
Earnings. The Pro Forma Condensed Combined Statements of Earnings do not
necessarily reflect the results of operations as they would have been if Gulf
West and Citizens National had constituted a single entity during the year
ended December 31, 1996, or the six-month period ended June 30, 1997. The
information presented below should be read in conjunction with the separate
consolidated financial statements and notes thereto of Gulf West and Citizens
National, the respective Management's Discussion and Analysis of Financial
Condition and Results of Operations of Gulf West and Citizens National, and the
other unaudited pro forma financial information, all included elsewhere in this
Proxy Statement/Prospectus. The historical results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the entire fiscal year.
19
<PAGE> 24
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
PROFORMA
ADJUSTMENTS
FOR ACQUISITION
GULF CITIZENS ---------------------- PROFORMA
WEST NATIONAL DEBIT CREDIT COMBINED
---- -------- ----- ------ --------
($in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................................. $ 5,220 1,280 46(7) -- 6,454
Securities ........................................ 1,430 1,276 12(8) -- 2,694
Other interest-earning assets ..................... 199 70 -- -- 269
---------- ---------- ---------- ---- ----------
Total interest income ......................... 6,849 2,626 58 -- 9,417
---------- ---------- ---------- ---- ----------
Interest expense:
Deposits .......................................... 2,735 1,479 13(9) -- 4,227
Other borrowings .................................. 286 -- -- -- 286
---------- ---------- ---------- ---- ----------
Total interest expense ........................ 3,021 1,479 13 -- 4,513
---------- ---------- ---------- ---- ----------
Net interest income ................................... 3,828 1,147 71 -- 4,904
Provision for loan losses ..................... 240 -- -- -- 240
---------- ---------- ---------- ---- ----------
Net interest income after loan losses ................. 3,588 1,147 71 -- 4,664
---------- ---------- ---------- ---- ----------
Noninterest income:
Service fees on deposit accounts .................. 373 40 -- -- 413
Loan servicing fees, net .......................... 11 -- -- -- 11
Income from mortgage banking activity ............. 21 -- -- -- 21
Leasing fees and commission ....................... 254 -- -- -- 254
Other income ...................................... 219 129 -- -- 348
---------- ---------- ---------- ---- ----------
Total noninterest income ...................... 878 169 -- -- 1,047
---------- ---------- ---------- ---- ----------
Noninterest expense:
Salaries and employee benefits .................... 2,063 478 -- -- 2,541
Occupancy expense ................................. 799 141 -- -- 940
Data processing ................................... 176 51 -- -- 227
Other expense ..................................... 738 539 36(10) -- 1,313
---------- ---------- ---------- ---- ----------
Total noninterest expenses .................... 3,776 1,209 36 -- 5,021
---------- ---------- ---------- ---- ----------
Earnings before income taxes .......................... 690 107 107 -- 690
Income taxes (credit) ......................... 234 (12) -- -- 222
---------- ---------- ---------- ---- ----------
Net earnings .......................................... $ 456 119 107 -- 468
========== ========== ========== ==== ==========
Earnings per share .................................... $ .14 .20 .09
========== ========== ==========
Weighted-average shares outstanding ................... 3,334,281 603,030 5,284,281
========== ========== ==========
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
PROFORMA
ADJUSTMENTS
FOR ACQUISITION
GULF CITIZENS ---------------------- PROFORMA
WEST NATIONAL DEBIT CREDIT COMBINED
---- -------- ----- ------ --------
($IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................................. $ 8,272 2,288 92(7) -- 10,468
Securities ........................................ 2,086 2,546 23(8) -- 4,609
Other interest-earning assets ..................... 486 156 -- -- 642
----------- ----------- ----------- ---- -----------
Total interest income ......................... 10,844 4,990 115 -- 15,719
----------- ----------- ----------- ---- -----------
Interest expense:
Deposits .......................................... 4,389 2,940 25(9) -- 7,354
Other borrowings .................................. 270 -- -- -- 270
----------- ----------- ----------- ---- -----------
Total interest expense ........................ 4,659 2,940 25 -- 7,624
----------- ----------- ----------- ---- -----------
Net interest income ................................... 6,185 2,050 140 -- 8,095
Provision (credit) for loan losses ............ 401 (100) -- -- 301
----------- ----------- ----------- ---- -----------
Net interest income after loan losses ................. 5,784 2,150 140 -- 7,794
----------- ----------- ----------- ---- -----------
Noninterest income:
Service fees on deposit accounts .................. 566 47 -- -- 613
Loan servicing fees, net .......................... 44 -- -- -- 44
(Loss) gain from sale of securities
available for sale ............................ (10) -- -- -- (10)
Income from mortgage banking activity ............. 39 -- -- -- 39
Leasing fees and commission ....................... 131 -- -- -- 131
Other income ...................................... 261 290 -- -- 551
----------- ----------- ----------- ---- -----------
Total noninterest income ...................... 1,031 337 -- -- 1,368
----------- ----------- ----------- ---- -----------
Noninterest expense:
Salaries and employee benefits .................... 3,230 972 -- -- 4,202
Occupancy expense ................................. 968 290 -- -- 1,258
Data processing ................................... 224 103 -- -- 327
Federal insurance premium ......................... 181 1 182
SAIF special assessment ........................... 470 -- 470
Other expense ..................................... 1,251 491 71(10) -- 1,813
----------- ----------- ----------- ---- -----------
Total noninterest expenses .................... 6,324 1.857 71 -- 8,252
----------- ----------- ----------- ---- -----------
Earnings before income taxes .......................... 491 630 211 -- 910
Income taxes .................................. 177 60 -- -- 237
----------- ----------- ----------- ---- -----------
Net earnings .......................................... $ 314 570 211 -- 673
=========== =========== =========== ==== ===========
Earnings per share .................................... $ .10 1.06 .13
=========== =========== ===========
Weighted-average shares outstanding ................... 3,298,405 537,723 5,248,405
=========== =========== ===========
</TABLE>
21
<PAGE> 26
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AND STATEMENTS OF EARNINGS
The Pro Forma condensed Combined Balance Sheet as of June 30, 1997,
assumes the proposed acquisition of Citizens National by Gulf West occurred on
June 30, 1997. The proposed acquisition of Citizens National by Gulf West will
be accounted for as a purchase transaction, and, in accordance with generally
accepted accounting principles, the purchase price will be allocated to the
assets and liabilities of Citizens National based upon their relative fair
values, as determined by appraisals and studies to be undertaken as of the
Effective Date. The adjustments will include, among others, a valuation of
loans and investments, a valuation of premises and equipment and a
determination of the value in excess of book value, if any, of customer
checking, savings and other deposit accounts. Any excess of the fair value of
Citizens National's net assets over the purchase price over the net assets will
be allocated to goodwill.
The Pro Forma Condensed Combined Statements of Earnings (i) for the
year ended December 31, 1996, assumes that the proposed acquisition of Citizens
National by Gulf West occurred on January 1, 1996, and (ii) for the six-month
period ended June 30, 1997, assumes the proposed acquisition occurred on January
1, 1997.
The Pro Forma financial information included in the Pro Forma Condensed
Combined Balance Sheet and the Pro Forma Condensed Combined Statements of
Earnings assumes a purchase price of $10,725,000, represented by 1,950,000 Gulf
West common shares valued at $5.50 per share, the price of recent trades known
to management.
The adjustments shown in these pro forma statements reflect approximate
market values as of June 30, 1997, and do not reflect subsequent changes in
interest rates. The actual adjustments as of the Effective Date can not be
determined until that time and may have an impact on the pro forma financial
position and results of operations which is different from that reflected in the
accompanying Proforma Condensed Combined Balance Sheet and Statements of
Earnings.
(1) Reflects the issuance of 1,950,000 shares of Gulf West stock at an
assumed price of $5.50 per share in exchange for 100% of the
outstanding shares of Citizens National' common stock.
(2) Reflects the write-up of Citizens National' investment securities to
estimated fair value.
(3) Reflects the write-up of Citizens National' loans receivable to
estimated fair value.
(4) Reflects the write-down of Citizens National deposits to estimated fair
value.
(5) Reflects the excess of the purchase price over the estimated fair value
of the net assets acquired. Such excess has been allocated to goodwill.
(6) Reflects the elimination of stockholders' equity of Citizens National.
(7) Reflects the amortization or accretion of the premium or discount from
the write-up of the loan portfolio using the level yield method over
the remaining estimated lives of the related loans.
22
<PAGE> 27
(8) Reflects the amortization of the premiums from the write-up of the
investment portfolio using the level yield method over the remaining
estimated life of the related investments.
(9) Reflects the amortization of the discount from the write-down of the
deposits using the level-yield method over the remaining estimated life
of the related deposits.
(10) Reflects the amortization of goodwill resulting from the purchase of
Citizens National using the straight-line method over a period of
twenty years.
(11) Computed using the weighted average number of shares of Gulf West at
the dates indicated plus 1,950,000 shares of Gulf West issued as a
result of the acquisition.
(12) Costs incurred by Gulf West to complete this acquisition are not
expected to be material and accordingly have not been considered in
these pro forma statements.
23
<PAGE> 28
The following table sets forth the pro forma effect on future periods
results of operations, of the accretion and amortization of the valuation
adjustments to be recorded in the connection with the proposed acquisition of
Citizens National by Gulf West. The actual effect of the accretion and
amortization of these valuation adjustments may vary if the assumptions used are
not realized.
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET EARNINGS
------------------------------------------------------------------------------------------------
(IN THOUSANDS)
ACCRETION/ AMORTIZATION
(AMORTIZATION) OF PREMIUMS AMORTIZATION NET EFFECT
FOR THE YEAR OF PREMIUM ON INVESTMENT OF DISCOUNT ON RESULTS
ENDING DECEMBER 31, ON LOANS SECURITIES ON DEPOSITS GOODWILL OF OPERATIONS
------------------- -------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
1998.................. $(92) (23) (25) (71) (211)
1999.................. (94) (7) (10) (71) (182)
2000.................. (87) (8) (3) (71) (169)
2001.................. (77) (24) (3) (71) (175)
2002.................. (67) (24) (1) (71) (163)
2003.................. (52) (24) -- (71) (147)
2004.................. (33) (24) -- (71) (128)
2005.................. (15) (24) -- (71) (110)
2006.................. -- (12) -- (71) (83)
2007.................. -- (12) -- (71) (83)
2008.................. -- (12) -- (71) (83)
2009.................. -- (13) -- (71) (84)
2010.................. -- -- -- (71) (71)
2011.................. -- -- -- (71) (71)
2012.................. -- -- -- (71) (71)
2013.................. -- -- -- (71) (71)
2014.................. -- -- -- (71) (71)
2015.................. -- -- -- (71) (71)
2016.................. -- -- -- (71) (71)
2017.................. -- -- -- (60) (60)
----- ---- --- ------ ------
Total................. $(517) (207) (42) (1,409) (2,175)
===== ==== === ====== ======
</TABLE>
24
<PAGE> 29
SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of
Citizens National Common Stock in connection with the solicitation of proxies by
the Citizens National Board of Directors for use at the Special Meeting of
Stockholders of Citizens National to be held at 9550-1 U.S. Highway 19, Port
Richey, Florida on [day] [date], 1997 at _____ p.m., local time, and at any
adjournments or postponements thereof. At the Special Meeting, Stockholders will
be asked to consider and vote upon the approval of the Merger Agreement and the
transactions contemplated thereby.
This Proxy Statement/Prospectus, the Notice of Special Meeting, and the
enclosed form of proxy are first being furnished to Stockholders on or about
_________, 1997. STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of Citizens National has fixed ____ p.m., local
time, on ______, 1997 as the Record Date for determination of the Stockholders
entitled to receive notice of, and to vote at the Special Meeting and any
adjournments thereof. At the close of business on the Record Date, there were
603,030 shares of Citizens National Common Stock outstanding held by
approximately _____ holders of record. Each share of Citizens National Common
Stock outstanding on the Record Date is entitled to one vote as to each matter
as may properly come before the Special Meeting.
VOTE REQUIRED
Under the National Bank Act, the affirmative vote of two-thirds of the
issued and outstanding capital stock entitled to vote on the matter is required
in order to approve a proposed merger transaction of a national bank into a
state bank, unless the articles of association or the board of directors of the
national bank require a greater number of votes. Neither the Citizens National
Articles nor its Board of Directors require a greater number of votes. Since the
approval of the Merger requires the affirmative vote of two-thirds of the issued
and outstanding Citizens National Common Stock as of the Record Date, the
failure to vote the shares in favor of the Merger for any reason whatsoever --
whether by withholding the vote, by abstaining, or by causing a broker nonvote
- -- will have the same effect as a vote cast against the Merger. As of the Record
Date, the directors and executive officers of Citizens National and their
affiliates held an aggregate of approximately 367,300 shares, or 60.9%, of
Citizens National Common Stock outstanding, all of which such directors and
officers have agreed to vote in favor of the Merger Agreement.
A broker nonvote generally occurs when a broker holds shares in street
name for a customer but does not have authority to vote on certain non-routine
matters because such customer has not provided any voting instruction with
respect to the matter. Since the Citizens National Common Stock is not listed
for quotation on Nasdaq or any national stock exchange, brokers holding Citizens
National Common Stock in street name may not be subject to such voting
restrictions.
In order to take any other action on any other matter properly
submitted to Stockholders at a meeting where a quorum is present, the votes cast
in favor of the action must exceed the votes cast opposing the action, unless
the Articles of Association or applicable law requires a greater number of
votes. All abstentions and broker nonvotes, if any, will be counted as present
for determining the existence of a quorum; but since they are neither votes cast
in favor of, or votes cast opposing, a proposed action, abstentions and broker
non-votes, if any, typically will have no impact on the outcome of the matter
and will not be counted as a vote cast on such matters.
VOTING AND REVOCATION OF PROXIES
Shares of Citizens National Common Stock represented by properly
completed and executed proxies received at or prior to the Special Meeting,
unless subsequently revoked, will be voted in the manner specified therein. If a
proxy is signed and returned without indicating any voting instructions, the
proxy will be voted FOR the proposal to approve the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Citizens National
is not aware of any other business to be presented for action at the Special
Meeting. If, however, other matters are properly brought before the Special
Meeting for consideration, the persons appointed as proxies will have the
discretion to vote or act thereon according to their discretion and best
judgment.
Any Stockholder giving a proxy may revoke it at any time before it is
exercised by executing and submitting a subsequently dated duly executed proxy
relating to the same shares, or by delivering a subsequently dated written
notice of revocation to the Cashier of Citizens National prior to or at the
Special Meeting, or by attending the Special Meeting and voting in person.
Attendance of a Stockholder at the Special Meeting will not, in and of itself,
constitute a revocation of the proxy. All written notices of revocation and
25
<PAGE> 30
other communications with respect to the revocation of Citizens National proxies
should be addressed to Citizens National Bank and Trust Company, 9550-1 U.S.
Highway 19, Port Richey, Florida 34668 Attention: Cashier.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, or other form of communication by directors, officers, and employees
of Citizens National, who will not be specially compensated for such
solicitation activities. Nominees, fiduciaries, and other custodians will be
requested to forward solicitation materials to beneficial owners and to obtain
their voting instructions. Citizens National will reimburse such persons for
their reasonable expenses incurred in connection with forwarding such
solicitation materials to beneficial owners. Pursuant to the Merger Agreement,
all costs of soliciting proxies from Citizens National Stockholders will be
borne by Citizens National; provided, however, that Citizens National and Gulf
West have each agreed to pay one-half of the printing costs of this Proxy
Statement/Prospectus and related materials.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Citizens National, Gulf West, or any other person. The
delivery of this Proxy Statement/Prospectus shall not, under any circumstances,
create any implication that there has been no change in the business or affairs
of Citizens National or Gulf West since the date of the Proxy
Statement/Prospectus.
RECOMMENDATION
The Board of Directors of Citizens National has unanimously approved
the Merger Agreement and the transactions contemplated thereby, and believes
that the Merger is in the best interests of Citizens National and the
Stockholders, and recommends that the Stockholders vote "FOR" approval of the
Merger Agreement. In making its recommendation, the Board of Directors of
Citizens National considered, among other things, the opinion of Sheshunoff that
the consideration to be received by Stockholders in connection with the Merger
is fair to the Stockholders from a financial point of view. See "THE MERGER --
Background of and Reasons for the Merger" and "-- Opinion of Citizens National's
Financial Advisor." Stockholders should note that certain officers and directors
of Citizens National have certain interests in and may derive certain benefits
as a result of the Merger. See "THE MERGER --Interests of Certain Named Persons
in the Merger."
CITIZENS NATIONAL STOCKHOLDERS SHOULD NOT SEND
ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
26
<PAGE> 31
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER
In mid-1995, the Board of Directors of Citizens National began assessing
the strategic direction of the bank and its prospects for growth as an
independent institution, as well as the most advantageous means for providing
Stockholders with a return on their investment. In this regard, the Board of
Directors of Citizens National considered a number of different factors,
including, among other things, the lack of a trading market for its common
stock, and the costs of its ongoing litigation with a former president and CEO,
which costs had depressed current earnings and rendered difficult the payment of
any cash dividends. Accordingly, the Board of Directors concluded that it should
explore the alternatives available to Citizens National, including the possible
sale of the bank to a third party. In November 1995, Citizens National retained
the services of Sheshunoff to assist it in locating parties that might be
interested in acquiring the bank, and to assist in any ensuing negotiations.
Sheshunoff contacted a number of financial institutions to identify those that
might be interested in acquiring Citizens National. Only two institutions
expressed an interest. However the range of potential offers suggested by both
parties was deemed to be inadequate by the Board of Directors of Citizens
National and no further discussions were held with such parties. Citizens
National and Sheshunoff concluded that other institutions were not interested in
acquiring Citizens National because of the uncertainties surrounding certain
outstanding litigation with several of Citizens National's former officers.
Accordingly, Sheshunoff advised the Citizens National Board that it could either
accept the offers which Citizens National had deemed inadequate or it could stop
the auction process and build the franchise over the next 24 to 36 months, at
which time the bank's prospects could be re-evaluated. In April 1996, Citizens
National determined that it was no longer interested in selling the bank and the
engagement of Sheshunoff expired without renewal.
On or about June 4, 1996, Gulf West, an institution which had not been
contacted by Sheshunoff, contacted Citizens National to indicate that it might
be interested in exploring a potential business combination, but no formal
indication of interest or proposal was offered at that time. After holding
informal discussions regarding a potential affiliation, both parties concluded
that they did not have any interest in pursuing any further discussions. The
pending litigation against Citizens National by its prior president and CEO
materially and adversely impacted Gulf West's interest in a business
combination, and the lack of a public trading market for Gulf West Common Stock
did not offer Citizens National with the liquidity that it sought for its
Stockholders. Discussions regarding a proposed business combination were
terminated.
As a result of its failure to identify a suitable affiliation partner
for Citizens National, in late 1996 the Board of Directors of Citizens National
decided that the sale of the bank was not in the best interest of its
Stockholders at that time and in early 1997 it began formulating alternative
business strategies for Citizens National, including the development of a three-
to five-year strategic plan for the future growth of Citizens National through
the formation of a one-branch holding company and/or a branching strategy.
During this time, in February 1997, the OCC commenced a CRA review of Citizens
National under the then-newly promulgated rules and review procedures. On
February 20, 1997, Citizens National entered into a settlement of the litigation
with its former president and CEO. In late February 1997, the Board of Directors
of Citizens National concluded that given the positive earnings growth of the
bank, it would be in the best interests of Citizens National to pursue an
aggressive growth strategy through branching. Further, since there was no
trading market for the Citizens National Common Stock and none was likely to
develop in the near future, and since the Board of Directors had determined not
to pursue a sale of the bank, but rather to pursue a long term growth strategy,
the Board of Directors also concluded that in order for the Stockholders to
realize a return on their investment, Citizens National should commence the
payment of regular dividends. Further, now that the lengthy litigation
proceedings with its prior president and CEO had been settled, the Board of
Directors was in a position to determine the availability of adequate regulatory
capital for such a payment. Accordingly, on February 27, 1997, Citizens National
declared a $.10 per share cash dividend payable on March 10, 1997.
However, on March 12, 1997, the OCC concluded its CRA review of
Citizens National and advised management that Citizens National's CRA compliance
was given a rating of "needs to improve" and, unexpectedly, the OCC then placed
significant specific restrictions on Citizens National's plans to implement its
proposed branching strategy and/or the formation of a bank holding company.
These developments had been completely unanticipated. Citizens National
unsuccessfully requested that the OCC reconsider its determination as it related
to the imposition of the restrictions placed on its growth strategy.
Accordingly, after being informed of the OCC's final decision that its
restrictions would stand, the Board of Directors was forced to re-evaluate its
new business strategy and to reconsider the alternatives available to the bank.
As a result, Citizens National's Board of Directors concluded that it would be
very difficult to grow the Citizens National franchise under the OCC
restrictions and that it also would be difficult for it to improve its CRA
rating sufficiently to lift such restrictions without making substantial
additional loans or the sale of the bank. As a result of the foregoing, the
Board of Directors of Citizens National decided to contact Gulf West to
ascertain whether it might be interested in a possible affiliation now that the
litigation had been resolved and whether Gulf West may consider the possible
listing of its shares on Nasdaq.
On March 18, 1997, Gordon W. Campbell, President and Chairman of the
Board of Gulf West, met informally with Philip H. Chesnut and Dr. Henry W.
Hanff, President and Chairman of the Board of Citizens National, respectively,
to express its interest in
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a possible affiliation with Citizens National. At this meeting, the parties
discussed and analyzed the advantages and possible synergies that might be
achieved from a proposed business combination. The Board of Directors of
Citizens National was advised of these preliminary discussions at the next
regularly scheduled meeting of the Board of Directors on March 20, 1997. Between
late March 1997 and early May 1997 the Board of Directors of the two companies
had several formal discussions with one another.
On May 7, 1997, at a special meeting of the Board of Directors, Gulf
West made a formal proposal to acquire Citizens National in a merger
transaction. The Gulf West proposal was accepted in principle, and Citizens
National and Gulf West entered into a non-binding letter of intent ("Letter of
Intent") pursuant to which Gulf West set forth a proposal to merge Citizens
National into Mercantile in a transaction pursuant to which Gulf West would
issue 1,950,000 shares of Gulf West Common Stock to Stockholders of Citizens
National in exchange for their Citizens National Common Stock. The proposed
merger transaction was subject to the completion of due diligence examinations
by both Gulf West and Citizens National and the execution of a definitive Merger
Agreement. The Letter of Intent prohibited Citizens National from negotiating
with any other party for a period of sixty days after the signing of the Letter
of Intent. On May 13, 1997 counsel was formally engaged to assist in the
negotiation of the proposed Merger Agreement.
From May 13, 1997 through July 30, 1997, representatives of the parties
and their respective counsel negotiated the terms and conditions of the proposed
Merger. During the early stages of negotiations, it was determined that Citizens
National should engage the services of an investment banker or other financial
professional to assist it in its due diligence review of Gulf West and to
analyze the fairness, from a financial point of view, of the consideration being
offered by Gulf West. After consideration and review of proposals from Advest,
Inc. and Sheshunoff, on June 3, 1997, Citizens National retained Sheshunoff, a
firm specializing in financial institutions, to assist in analyzing the
fairness, from a financial point of view, of the terms of the Merger to Citizens
National Stockholders. Sheshunoff was selected based on its knowledge of
financial institutions, its expertise as a financial advisor in mergers and
acquisitions of financial institutions, and its familiarity with Citizens
National from its prior engagement. Consistent with the terms of the engagement,
Sheshunoff did not participate in negotiating the terms of the Merger.
Upon conclusion of the negotiation of the terms of the proposed Merger,
the Board of Directors of Citizens National held a special meeting on July 30,
1997 to review and consider Gulf West's offer, including the material terms of
the proposed definitive Merger Agreement. At this meeting, Sheshunoff provided a
comparison of recent comparable Florida bank merger acquisitions. In addition,
Sheshunoff reviewed with the Board of Directors the limited historical stock
price of Gulf West Common Stock and compared the recent operating results of
Citizens National and Gulf West with certain banks operating in the Southeastern
United States. Sheshunoff also compared the financial terms of the Gulf West
offer to those comparable transactions of similar institutions and orally
expressed its opinion to the Board of Directors of Citizens National that the
terms of the Merger were fair, from a financial point of view, to the
Stockholders. As a result of the foregoing, the Board of Directors unanimously
agreed to approve the Merger, and authorized the President of Citizens National
to finalize and execute a definitive Merger Agreement. On July 31, 1997,
Citizens National and Gulf West executed and entered into a definitive Merger
Agreement.
On ______________, Citizens National and Gulf West entered into an
Amended and Restated Agreement and Plan of Merger which eliminated as a
condition to closing the requirement that the transaction be treated as a
pooling of interests for accounting purposes. This action was taken after
consultation with the accounting staff of the SEC because Citizens National had
paid a dividend on March 10, 1997, which the SEC staff indicated would be a
problem in treating the merger as a pooling.
CITIZENS NATIONAL REASONS FOR THE MERGER
In evaluating and determining to approve the Merger Agreement, the
Board of Directors of Citizens National, with the assistance of Sheshunoff and
outside counsel, considered a variety of factors and based its opinion that the
Merger transaction is in the best interests of the Stockholders and Citizens
National on the following:
(i) The financial terms of the Merger, including the value of
consideration offered, the premium to book value paid, prices paid in comparable
transactions, relative earnings per share, and stockholders' equity of Gulf West
and Citizens National. In this regard, the Board of Directors considered the
lack of liquidity for Citizens National Common Stock and the prospects for the
future liquidity of Gulf West Common Stock, as well as the future prospects for
appreciation of such stock.
(ii) The future prospects of Citizens National and possible
alternatives to the proposed Merger, including the prospects of continuing as an
independent institution. In this regard, specific consideration was given to the
current and prospective growth prospects of Citizens National in view of the
economic environment and competitive constraints placed on it, as well as the
significant OCC restrictions placed on Citizens National's ability to undertake
a branching strategy because of its "need to improve" CRA rating.
(iii) The financial presentation by and opinion of Sheshunoff that the
consideration to be received by Citizens National Stockholders pursuant to the
Merger Agreement is fair from a financial point of view. The opinion of
Sheshunoff is set forth in Annex C to this Proxy Statement/Prospectus.
(iv) Information with respect to the financial condition, results of
operations, and the prospects of Citizens National and the current industry,
economic, and market conditions, as well as the risks associated with achieving
those prospects.
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(v) The non-financial terms and structure of the transaction; in
particular, the fact that the Merger is intended to qualify as a tax-free
reorganization to Citizens National Stockholders for federal income tax
purposes.
(vi) The financial report of Sheshunoff reviewing a comparison of
Citizens National to certain peer banking organizations and the consideration
paid in comparable merger transactions.
(vii) The business and financial prospects of Gulf West, the potential
for growth in Gulf West Common Stock, and the competence, integrity, and
experience of Gulf West and its management. In this regard, Citizens National
also considered the compatibility of Gulf West's community bank manner of
operations to Citizens National's commitment to such banking practices.
(viii) The social and economic effects of the Merger on Citizens
National and its employees, depositors, loan and other customers, creditors and
other constituencies of the community in which Citizens National operates and is
located. Citizens National's Board considered the terms of employee benefits to
be received, the proposed structure and operation of the resultant financial
institutions as community banks following the Merger, and the commitment to
customer quality and service that Gulf West would provide to Citizens National's
customers and depositors.
(ix) The likelihood of the proposed Merger being approved by
appropriate regulatory authorities.
Each of the above factors support, directly or indirectly, the
determination of Citizens National's Board of Directors as to the fairness of
the Merger. The Citizens National Board of Directors did not quantify or attempt
to assign relative weights to the specific factors considered in reaching its
determination; however, the Citizens National Board of Directors placed special
emphasis on the consideration payable in the proposed Merger and the receipt of
a favorable fairness opinion from its financial advisor. See "THE MERGER --
Opinion of Citizens National's Financial Advisor."
GULF WEST REASONS FOR THE MERGER
As part of its strategic plan to increase its market share in the Tampa
Bay region of West Central Florida, Gulf West has had informal discussions with
many of the community banks in its market area, including Citizens National,
during the past several years to explore acquisition/merger opportunities. In
evaluating these opportunities Gulf West has looked for institutions that will
expand its market area or increase its market share while bringing other
advantages to Gulf West. Gulf West believes that the acquisition of Citizens
National will expand its market area and will also benefit Gulf West by
improving the capital to assets ratio of the combined companies due to the
excess capital position of Citizens National. This increased capital level will
allow Gulf West to expand its market share without having to access the capital
markets for additional capital in the immediate future. Another benefit to Gulf
West is the ability to use the excess liquidity of Citizens National to fund its
significant loan demand. The funds currently being invested by Citizens National
in lower yielding investment securities will be redeployed in higher yielding
loans, thereby generating an overall higher return on the assets of the Combined
Company. The issuance of 1.95 million shares of Gulf West stock to Citizens
National's stockholders will bring the total number of shares of outstanding
Gulf West stock to approximately 5.3 million shares with over six hundred
stockholders. Gulf West hopes that this increased float will promote trading in
the stock and improve the overall liquidity for the stockholders of the combined
company. The merger transaction will further increase the market share of Gulf
West in the Tampa Bay area of west central Florida. The Board of Directors of
Gulf West has determined that one of the primary strategies for increasing the
value of the company for its stockholders is to emphasize growth in market share
at the expense of short term earnings provided that capital levels remain
adequate and asset quality is maintained. The proposed merger with Citizens
National is compatible with that strategy.
OPINION OF CITIZENS NATIONAL'S FINANCIAL ADVISOR
Citizens National engaged Sheshunoff during October 1995 to develop and
implement a sales strategy and assist Citizens in its negotiation of a possible
sale of Citizens; such engagement expired April, 1996. This solicitation of
possible interest in a sale of Citizens was made to 50 companies of which only
two made acquisition proposals. Citizens National Board of Directors determined
that both offers were inadequate and decided to reject the offers and abandon
the attempt to sell Citizens National at that time. Subsequently, Sheshunoff was
engaged again on June 3, 1997, to provide the Board of Directors of Citizens
National with its opinion as to the fairness, from a financial point of view, of
the Exchange Ratio to be received by Citizens' Stockholders in connection with
the proposed Merger transaction with Gulf West. Gulf West was not one of the
companies contacted in the prior solicitation efforts discussed above. The
negotiations between Citizens National and Gulf West took place directly
between the parties without any involvement by Sheshunoff. At the July 30, 1997
meeting of Citizens' Board of Directors, Sheshunoff rendered its oral opinion
to the Board that, as of such date, the Exchange Ratio to be received in the
Merger was fair from a financial point of view to the holders of Citizens'
Common Stock.
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The full text of Sheshunoff's opinion which sets forth, among other
things, assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is attached as Annex C to this Proxy
Statement/Prospectus. Citizens National's Stockholders are urged to read the
Sheshunoff opinion carefully and in its entirety. Sheshunoff's opinion is
addressed to the Citizens' National Board of Directors and does not constitute a
recommendation to any Stockholder as to how such Stockholder should vote at the
Special Meeting.
In connection with its written opinion dated as of the date of this Proxy
Statement/Prospectus, Sheshunoff, among other things:
1. Evaluated the Exchange Ratio based on the relative contributions of each of
the companies to the Combined Company including: (i) 1996 reported earnings
adjusted in the case of Gulf West for its SAIF special assessment; (ii) 1997
estimated earnings for both companies; (iii) 1997 estimated earnings adjusted in
the case of Citizens National for their settlement of certain litigation; and
(iv) common equity. The agreed upon Exchange Ratio was negotiated between the
management of Citizens National and Gulf West without the assistance of
Sheshunoff;
2. Analyzed the potential market valuation, profitability, earnings, asset
growth and franchise benefits to Citizens National from the Merger, as an
alternative to continued operations as an independent community banking company;
3. Reviewed Citizens National's and Gulf West's most recent Annual Report as of
December 1996 and quarterly report as of March 31, 1997, as well as unaudited
financial statements;
4. Reviewed certain internal financial reports and estimates for Citizens
National and Gulf West individually and on a combined basis, and held
discussions with the management of both companies concerning their recent
operating performance and expected 1997 operating performance;
5. Compared Citizens National's and Gulf West's recent operating results with
those of certain other companies operating in the southeastern United States
that Sheshunoff deemed appropriate;
6. Reviewed the limited historical stock price and trading volumes of Gulf West;
7. Reviewed a draft of the Merger Agreement between Citizens National and Gulf
West regarding the Merger;
8. Reviewed the terms, including exchange ratios, of: (i) recent
mergers-of-equals; (ii) acquisitions of small and modestly profitable banking
companies located in the Southeast completed during the last year; and (iii)
merger and acquisition transactions in Florida during 1997;
9. Reviewed this Proxy Statement/Prospectus;
10. Discussed the results of regulatory examinations of Gulf West with executive
management;
11. Analyzed the pro forma impact of the Merger on the Combined Company's
earnings, book value and tangible book value per share, and consolidated
capitalization and financial ratios;
12. Discussed the past and current operations, financial condition, and future
prospects of both Citizens National and Gulf West with executive management;
and,
13. Performed such other analyses and examinations as Sheshunoff has deemed
appropriate.
In connection with its review, Sheshunoff assumed and relied upon
without independent verification the accuracy and completeness of the
information supplied or otherwise made available to it by Citizens National and
Gulf West for the purposes of its opinion. Sheshunoff did not make an
independent evaluation of the assets or liabilities of Citizens National or Gulf
West, nor was Sheshunoff furnished with any such appraisals. With respect to
budgets and financial forecasts, Sheshunoff assumed that they were reasonably
prepared and reflect the best currently available estimates and judgments of
management of Citizens National and Gulf West, as to the future financial
performance of Citizens National and Gulf West, and Sheshunoff has assumed such
forecasts and projections will be realized in the amounts and at the times
contemplated thereby. Sheshunoff has assumed that obtaining any necessary
regulatory approvals and third party consents for the Merger or otherwise will
not have an adverse effect on Citizens National, Gulf West or the combined
company pursuant to the Merger. Sheshunoff is not an expert in the evaluation of
loan portfolios for the purpose of assessing the adequacy of the allowance for
losses with respect thereto and has assumed that such allowances for each of the
companies are in the aggregate, adequate to provide for such losses. In
addition, Sheshunoff has not reviewed any individual credit files nor made an
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independent evaluation, appraisal or physical inspection of the assets or
individual properties of Citizens National or Gulf West, nor has Sheshunoff been
furnished with any such evaluations or appraisals.
Sheshunoff's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to them as of the
date thereof. Events occurring after the date thereof could materially affect
the assumptions used in preparing this opinion. Sheshunoff has also assumed that
there are no material changes in Citizens National's or Gulf West's assets,
financial condition, results of operations, litigation, business or prospects
since the respective dates of their last financial statements reviewed by them,
and that litigation and off-balance sheet activities of Citizens National and
Gulf West will not materially and adversely impact the future financial position
or results of operation of Citizens National and Gulf West. Sheshunoff has also
assumed the Merger will be completed as set forth in the Merger Agreement and
that no material changes will be made or restrictions imposed by regulatory or
other parties on the terms of the Merger Agreement.
In connection with rendering its opinion, Sheshunoff performed a
variety of financial analyses. 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
partial analysis of summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the consideration to be received by
the Stockholders of Citizens National is to some extent a subjective one based
on the experience and judgment of Sheshunoff and not merely the result of
mathematical analysis of financial data. Accordingly, notwithstanding the
separate factors summarized below, Sheshunoff believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, create
an incomplete view of the evaluation process underlying its opinion. The ranges
of valuations resulting from any particular analysis described below should not
be taken to be Sheshunoff's view of the actual value of Citizens National.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Citizens National. The analyses
performed by Sheshunoff are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold. In addition, Sheshunoff's
analyses should not be viewed as determinative of the Citizens National Board of
Directors or management's opinion with respect to the value of Citizens
National.
The following is a summary of the analyses performed by Sheshunoff in
connection with its oral and written opinions:
ANALYSIS OF SELECTED TRANSACTIONS. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in the nation with comparable characteristics to the Citizens
National and Gulf West transaction. Sheshunoff analyzed three sets of comparable
transactions to ensure a thorough comparison. The three guideline groups
included: (i) all Florida transactions; (ii) all Southeast transactions with
banks having a return on equity below 10%; and (iii) all Southeast transactions
with banks having sold below 200% of stated book value and with assets of at
least $30 million but less than or equal to $150 million.
The first set of guideline transactions consisted of 26 Florida banks
which entered into a merger or acquisition of the banking organization during
the indicated period. The analysis yielded multiples of the transaction purchase
price relative to: (i) book value ranging from 1.01 times to 3.45 times with an
average of 2.09 times and a median of 1.91 times, compared with Citizens
National's reported 1.25 times book value at June 30, 1997; (ii) tangible book
value ranging from 1.30 times to 3.45 times with an average of 2.14 times and a
median of 1.92 times, compared with Citizens National's reported 1.25 times
tangible book value June 30, 1997; (iii) last 12 months earnings ranging from
10.17 times to 26.69 times with an average of 19.70 times and a median of 20.72
times, compared with Citizens National's reported 30.6 times last twelve month
earnings and 17.7 times last twelve month adjusted earnings (adjusted for a one
time expense associated with litigation settlement expenses) for the period
ended June 30, 1997; (iv) total deposits ranging between 7.4% and 34.3% with an
average of 20.2% and a median of 19.7%, compared with Citizens National's
reported 16.6% of total deposits as of June 30, 1997, and (v) total assets
ranging between 5.6% and 28.1% with an average of 17.5% and a median of 17.3%,
compared with Citizens National's reported 14.6% of total assets as of June 30,
1997.
The second set of guideline transactions consisted of 30 Southeast
banks having a return on equity below 10%, which entered into a merger or
acquisition of a banking organization during the indicated period. The analysis
yielded multiples of the transaction purchase price relative to: (i) book value
ranging from 0.99 times to 3.46 times with an average of 1.72 times and a median
of 1.67 times, compared with Citizens National's reported 1.25 times book value
at June 30, 1997; (ii) tangible book value ranging from 0.99 times to 3.63 times
with an average of 1.77 times and a median of 1.74 times, compared with Citizens
National's reported 1.25 times tangible book value June 30, 1997; (iii) last 12
months earnings ranging from 13.5 times to 34.1 times with an average of 23.5
times and a median of 22.5 times, compared with Citizens National's reported
30.6 times last twelve month earnings and 17.7 times last twelve
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month adjusted earnings for the period ended June 30, 1997; (iv) total deposits
ranging between 7.4% and 35.3% with an average of 20.2% and a median of 21.4%,
compared with Citizens National's reported 16.6% of total deposits as of June
30, 1997, and (v) total assets ranging between 5.6% and 28.0% with an average of
17.4% and a median of 18.2%, compared with Citizens' reported 14.6% of total
assets as of June 30, 1997.
The third set of guideline transactions consisted of 26 Southeast banks
having sold below 200% of stated book value and assets of at least $30 million,
but less than or equal to $150 million, which entered into a merger or
acquisition of the banking organization during the indicated period. The
analysis yielded multiples of the transaction purchase price relative to: (i)
book value ranging from 1.01 times to 1.99 times with an average of 1.59 times
and a median of 1.61 times, compared with Citizens National's reported 1.25
times book value at June 30, 1997; (ii) tangible book value ranging from 1.02
times to 2.07 times with an average of 1.61 times and a median of 1.61 times,
compared with Citizens National's reported 1.25 times tangible book value June
30, 1997; (iii) last 12 months earnings ranging from 9.9 times to 34.1 times
with an average of 18.9 times and a median of 18.5 times, compared with Citizens
National's reported 30.6 times last twelve month earnings and 17.7 times last
twelve month adjusted earnings for the period ended June 30, 1997; (iv) total
deposits ranging between 7.4% and 35.3% with an average of 20.9% and a median of
22.1%, compared with Citizens National's reported 16.6% of total deposits as of
June 30, 1997, and (v) total assets ranging between 5.6% and 27.6% with an
average of 17.7 and a median of 18.4%, compared with Citizens National's
reported 14.6% of total assets as of June 30, 1997.
CONTRIBUTION ANALYSIS. Sheshunoff performed a contribution analysis
comparing the Merger, on a pro-forma basis, with all mergers of equals
transactions during the indicated period. This set of guideline transactions
consisted of five mergers of equals. The buyer's pro-forma ownership
contribution based on outstanding shares ranged from a high of 59% to a low of
45% with an average of 53% and a median of 54%, compared with Gulf West's
reported 63% pro-forma ownership contribution. The seller's pro-forma ownership
contribution ranged from a high of 55% to a low of 41% with an average of 47%
and a median of 46%, compared with Citizens National's reported 37% pro-forma
ownership contribution. The buyer's pro-forma equity contribution ranged from a
high of 60% to a low of 50% with an average of 54% and a median of 51%, compared
with Gulf West's reported 61% pro-forma equity contribution. The seller's
pro-forma equity contribution ranged from a high of 50% to a low of 40% with an
average of 46% and a median of 49%, compared with Citizens National's reported
39% pro-forma equity contribution. The buyer's pro-forma income contribution
ranged from a high of 97% to a low of 36% with an average of 59% and a median of
53%, compared with Gulf West's reported 59% pro-forma income contribution, based
on Citizens National's normalized 1997 net income, normalized for certain
litigation settlement expenses. The seller's pro-forma income contribution
ranged from a high of 64% to a low of 3% with an average of 41% and a median of
47%, compared with Citizens National's reported 41% pro-forma income
contribution, based on Citizens National's normalized 1997 net income,
normalized for certain litigation settlement expenses. Earnings of the combined
company do not include any revenue enhancements or expense savings associated
with the Merger. Based upon March 31, 1997 total stockholders' equity and
estimated earnings, Citizens National contributes approximately 39%, and 31% and
41% of the combined company's equity, 1997 estimated earnings and 1997
normalized earnings, respectively.
EARNINGS DILUTION ANALYSIS. Sheshunoff performed an earnings pro-forma
dilution analysis on the Merger. Prior to the Merger, Citizens National provided
projected earnings of $724,000 (normalized) for 1997, or $0.37 EPS based on
1,950,000 shares (the total number of shares issued in the Merger). Based on
these EPS projections, the combined pro-forma earnings equals $1,782,000, and
utilizing a pro-forma 5,283,721 shares outstanding, the pro-forma EPS equals
$0.34, or approximately 8.11% earnings dilution to Citizens National.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax cash
flows that Citizens National could produce through the year March, 2002, under
various circumstances, assuming that Citizens National performed in accordance
with the earnings/return projections of management. Citizens National's
projected earnings reflect a "recovery" of approximately $725,000 and are
projected to grow at approximately 7% thereafter, while assets are assumed to
grow at 3% annually, resulting in a projected return on assets and equity of
approximately 1.05% and 8.25%, respectively, by March, 2002.
Sheshunoff estimated the terminal value for Citizens National at the
end of the period by applying multiples of earnings ranging from 12.5 times to
14.5 times terminal earnings and then discounting the cash flow streams,
dividends paid to the stockholders (assuming all earnings in excess of that
required to maintain a tangible equity to tangible asset percentage of 6.0% are
paid out in dividends) and terminal value using discount rates ranging from
14.0% to 18.0% chosen to reflect different assumptions regarding the required
rates of return for Citizens National, and the inherent risk surrounding the
underlying projections. This discounted cash flow analysis indicated a range of
$10 million to $11.9 million, in the aggregate.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for Citizens National at the end of the period by applying
multiples of book value ranging from 150% to 175% and then discounting the cash
flow streams, dividends paid to the stockholders (assuming all earnings in
excess of that required to maintain a tangible equity to tangible asset
percentage of 6.0% are paid
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out in dividends) and terminal value using discount rates ranging from 14.0% to
18.0% chosen to reflect different assumptions regarding the required rates of
return of Citizens National and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a range of $9 million
to $10.6 million, in the aggregate.
No company or transaction used in the comparable transaction analyses
is identical to Citizens National or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Citizens National and other factors that could affect the public trading value
of the companies to which they are being compared. Mathematical analysis (such
as determining the average or median) is not in itself a meaningful method of
using comparable transaction data or comparable company data.
As part of its investment banking business, Sheshunoff is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes. The Citizens National Board of Directors retained Sheshunoff based on
its prior engagement with the bank, experience as a financial advisor in mergers
and acquisitions of financial institutions, and its knowledge of financial
institutions to provide its opinion of the fairness, from a financial point of
view, of the Exchange Ratio to be received by holders of Citizens National
Common Stock in the Merger. For these services, Sheshunoff was paid a
professional fee of $35,000 upon delivery of its opinion to the Citizens
National Board of Directors.
INTERESTS OF CERTAIN NAMED PERSONS IN THE MERGER
Certain officers and directors of Citizens National have interests in
the Merger that are in addition to any interests they may have as Stockholders
of Citizens National generally. These interests include, among others,
provisions in the Merger Agreement relating to indemnification of Citizens
National directors and officers, directors' and officers' liability insurance,
and certain severance and other employee benefits.
The Merger Agreement provides that the officers and directors of
Mercantile following the Merger shall consist of those persons who are serving
in such capacity immediately prior to the effective time of the Merger. However,
the Merger Agreement also provides that immediately following or at the
Effective Time, Gulf West shall cause two (2) vacancies to be created (by
increasing the number of directors) on its board of directors which shall be
filled by persons designated by Citizens National. Additionally, Mercantile
shall cause three (3) vacancies to be created on its board of directors (by
increasing the number of directors) which also shall be filled by persons
designated by Citizens National.
The Merger Agreement further provides that Citizens National may obtain
an extended reporting period (otherwise known as "Tail Coverage") for three
years under Citizens National's existing directors and officers liability
policy. These rights will survive the closing of the Merger Agreement and
continue in full force and effect.
The parties have agreed in the Merger Agreement that Gulf West will
cover the officers and employees of Citizens National who are employed by Gulf
West under employee benefit plans of Gulf West which in the aggregate will be no
less favorable to such employees than those benefits generally afforded to other
employees of Gulf West holding similar positions as follows:
(a) Each employee of Citizens National will be entitled to credit for
his or her prior service with Citizens National for all purposes under the
employee welfare benefit plans and other employee benefit plans and programs
sponsored by Gulf West to the extent Citizens National sponsored a similar type
of plan in which the Citizens National employee participated prior to the
Effective Time. Any preexisting condition exclusion applicable to such plans and
programs shall be waived with respect to any Citizens National employee. For
purposes of determining each Citizens National employee's benefit for the year
in which the Merger occurs under the Gulf West vacation program, any vacation
taken by a Citizens National employee immediately preceding the Effective Time
for the year in which the Merger occurs will be deducted from the total Gulf
West vacation benefit available to such Citizens National employee during such
year. The number of vacation days available for Citizens National's employees
during the year in which the Merger occurs shall be determined under the
Citizens National vacation policy in effect as of January 1, 1997. Unused sick
leave and vacation leave accrued by employees of Citizens National as of the
Effective Time will be recognized by Gulf West to the extent it is used in the
fiscal year of Gulf West in which the Effective Time occurs. Gulf West has
further agreed to credit each Citizens National employee for the year during
which such coverage under the Gulf West welfare benefit plan begins, with any
deductibles already incurred during such year under Citizens National's group
health plan.
(b) On or before, but effective as of, the Effective Time of the
Merger, Citizens National may take such actions as may be necessary to cause
each individual employed by Citizens National immediately prior to the effective
time to have a fully vested and nonforfeitable interest in such employee's
account balance under the 401(k) plan sponsored by Citizens National as of the
Effective Time.
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TERMS OF THE MERGER
The terms of the Merger are set forth in the Merger Agreement. The
description of the Merger which follows summarizes the principal provisions of
the Merger Agreement, is not complete and is qualified in all respects by
reference to the Merger Agreement, a copy of which is attached hereto as Annex A
and incorporated herein. Stockholders are urged to read the appendices in their
entirety.
At the Effective Time of the Merger, Citizens National will be merged
with and into Mercantile, with Mercantile as the surviving entity and a
wholly-owned subsidiary of Gulf West. The Articles of Incorporation and Bylaws
of Gulf West and Mercantile in effect at the Effective Time of the Merger will
govern the surviving corporation and the bank holding corporation until amended
or repealed in accordance with applicable law. Pursuant to the Merger, except
for those exercising dissenters' rights, Stockholders of Citizens National will
be converted into the right to receive 3.2337 shares of Gulf West Common Stock
in exchange for each share of Citizens National Common Stock held by them (the
"Exchange Ratio"), subject to the termination provisions of the Merger
Agreement.
The Merger Agreement provides that, in the event Gulf West changes the
number of shares of Gulf West Common Stock issued and outstanding between the
date of the Merger Agreement and the Effective Time of the Merger (except for
issuances pursuant to the exercise of options outstanding as of the date of the
Merger Agreement or purchases under the Gulf West employee stock purchase plan),
then the Exchange Ratio will be adjusted proportionately.
Certificates for shares of Gulf West Common Stock, together with any
dividends declared and paid prior to the Effective Date of the Merger, without
interest thereon, will be issued in exchange for Citizens National Common Stock
certificates. Instructions for submitting Citizens National Common Stock
certificates will be issued upon consummation of the Merger. No fractional
shares of Gulf West Common Stock will be issued in the Merger. In lieu of
fractional shares, holders of Citizens National Common Stock will receive an
amount in cash equal to such fractional part of a share of Gulf West Common
Stock multiplied by $5.87, without interest thereon, at the time of the exchange
of share certificates. Shares of Gulf West Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger will remain issued and
outstanding after the Merger.
If the Merger is consummated pursuant to the Merger Agreement,
dissenting stockholders will be entitled to payment in cash of the value of
their shares upon compliance with the provisions of the National Bank Act, 12
U.S.C., Section 214a, a copy of which is attached as Annex B. SEE "THE MERGER -
Dissenters' Rights."
BUSINESS PENDING THE EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Citizens National's business pending consummation of the Merger. Among other
things, Citizens National must conduct its business only in the ordinary course,
consistent with prudent banking practices.
EXCHANGE OF SHARE CERTIFICATES
As soon as practicable after the Effective Time, SunTrust, N.A. which
will serve as the exchange agent in connection with the Merger, will furnish
each holder of record of Citizens National Common Stock as of the Effective Time
with transmittal materials for use in exchanging certificates representing
Citizens National Common Stock for certificates representing Gulf West Common
Stock. The transmittal materials will contain information and instructions with
respect to the procedure for exchanging such certificates. The certificates for
Gulf West Common Stock will be delivered to the persons entitled thereto, within
a reasonable time after delivery of Citizens National Common Stock certificates
for exchange accompanied by the appropriate transmittal materials.
Under the terms of the Merger Agreement, Gulf West will not issue
certificates representing fractional shares of Gulf West Common Stock, and in
lieu thereof, shall pay cash to any holder of Citizens National Common Stock
otherwise entitled to receive such fractional share. SEE "SUMMARY -- Certain
Federal Income Tax Considerations"; "THE MERGER -- Certain Federal Income Tax
Consequences."
Persons who are entitled to receive Gulf West Common Stock pursuant to
the Merger will not be entitled to vote such Gulf West Common Stock or to
receive any dividends thereon until they have properly surrendered their
certificates representing Citizens National Common Stock in exchange for
certificates representing Gulf West Common Stock.
Upon the Effective Time of the Merger, former Citizens National Common
Stockholders will cease to have any rights as shareholders of Citizens National,
and the Citizens National Stockholders shall only have the right to receive the
Merger Consideration specified in the Merger Agreement or, in the case of
dissenting shareholders, to exercise their rights under the NBA. SEE "THE MERGER
- -- Dissenters' Rights."
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CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction prior to the
Effective Time of the Merger of the conditions set forth in the Merger
Agreement. These conditions include approval of the Merger Agreement by the
respective Boards of Directors of Gulf West and Citizens National, and approval
of the Merger Agreement by two thirds of the outstanding shares of Citizens
National Common Stock entitled to vote at the Special Meeting. Also, the parties
must have received all regulatory approvals required, and all notice or waiting
periods required with respect to such approvals must have passed and any
conditions contained in any such regulatory approval must have been met. Gulf
West and Citizens National have submitted applications regarding the Merger to
the Department and the FDIC and have received a waiver of the Federal Reserve
Board's application requirement.
In addition, no stop order suspending the effectiveness of the
Registration Statement, of which this Proxy Statement/Prospectus is a part,
shall have been received and Gulf West shall have complied with all applicable
state securities laws with respect to the Merger. None of the parties shall be
subject to any order, decree or injunction of a court or agency joining or
prohibiting consummation of the transactions contemplated by the Merger
Agreement. Both Gulf West and Citizens National shall have received an opinion
of the law firm of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., to
the effect that the Merger will constitute a reorganization under the Internal
Revenue Code and that no gain or loss will be recognized by Citizens National
Stockholders who exchange all of their Citizens National Common Stock solely for
Gulf West Common Stock except with respect to cash received in lieu of
fractional share interests in Gulf West Common Stock.
Consummation of the Merger also is subject to the satisfaction or
waiver of various other conditions specified in the Merger Agreement, including,
among others: (i) the delivery by Gulf West and Mercantile of opinions of their
respective counsel and certificates executed by their respective duly authorized
officers as to compliance with the Merger Agreement and, (ii) the holders of no
more than 5% of the shares of Citizens National Common Stock shall have
exercised dissenters' rights, (iii) the sum of Citizens National Common Stock,
Additional Cash for Capital, Surplus, Retained Earnings, and Undivided Profits
shall be equal to or greater than $8,500,000, (iv) the loan loss reserve of
Citizens National shall be equal to or greater than 1.50% of its gross loans,
and (v) as of the Closing Date, the accuracy of certain representations and
warranties, and the compliance in all material respects with the agreements and
covenants of each party.
TERMINATION AND AMENDMENT
Either before or after approval by Stockholders of Citizens National,
the Merger Agreement may be terminated and the merger abandoned by either Gulf
West or Citizens National (i) if there is a material breach by the other party
of any covenant, agreement, or obligation of the Merger Agreement which breach
cannot be or has not been cured within 30 days after the giving of written
notice to the party committing such breach, (ii) if the required applications
for approval have been denied or Stockholders do not approve the transaction at
the meeting called for that purpose, or (iii) if the closing has not occurred by
the close of business on April 30, 1998. Citizens National may also terminate
the Merger Agreement if it is advised by its counsel that under corporate
principles of fiduciary law it must consider, and Citizens National decides to
accept, a competing transaction, but only if Citizens National agrees to pay
Gulf West a break-up fee of $500,000.
The parties may amend the Merger Agreement at any time, but any
amendment affecting the consideration to be paid to Citizens National
Stockholders must be approved by two thirds of the outstanding shares of
Citizens National Common Stock entitled to vote on the Merger.
EFFECTIVENESS OF MERGER
The Merger of Citizens National into Mercantile will become effective
at such time as the Articles of Merger are accepted for filing by the Department
or such later date and time as is agreed to by the parties as specified in the
Articles of Merger. Unless otherwise agreed by the parties, the parties have
agreed to use their best efforts to cause the Effective Time to occur on the
date of the closing of the Merger and to use their reasonable best efforts to
cause the closing to take place within five business days 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 any applicable waiting periods following such consents or the
delivery of appropriate notices), and (ii) the date on which the Stockholders of
Citizens National approve the Merger and adopt the Merger Agreement. There can
be no assurance, however, as to whether or when the Merger will occur.
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REGULATORY REQUIREMENTS
The Merger is subject to certain regulatory approvals, as set forth
below. To the extent that the following information describes statutes and
regulations, it is qualified in its entirely by reference to the particular
statutes and the rules and regulations promulgated under such statutes.
The Federal Reserve Board waived its required approval under the Bank
Holding Company Act of 1956, as amended. Consummation of the Merger also is
subject to the approval of the FDIC and the Florida Department of Banking and
Finance. [The FDIC and the Florida Department have issued their respective
approvals of the Merger. The FDIC approval of the Merger dated
__________________, 1997, was also subject to a 15 day waiting period during
which the United States Department of Justice pursuant to the Bank Merger Act,
could have opposed the Merger under antitrust laws. This waiting period has also
expired with no objection or adverse action by the Justice Department.]
ACCOUNTING TREATMENT
The Merger will be accounted for by Gulf West as a "purchase" under
generally accepted accounting principles ("GAAP"). Under the purchase method of
accounting, the assets and liabilities of Citizens National will be, as of the
Effective Time, recorded at their respective fair values and added to those of
Gulf West. The expected excess of the consideration paid by Gulf West over the
fair value of Citizens National's assets and liabilities will be recorded as
goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The parties to the Merger have not and do not intend to seek a ruling
from the IRS as to the federal income tax consequences of the Merger. Instead,
the Merger Agreement provides that, as a condition to closing, Gulf West and
Citizens National shall have received an opinion of Fowler, White, Gillen,
Boggs, Villareal and Banker, P.A. (the "Opinion"), counsel to Gulf West, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and that no gain or loss will be
recognized by a Citizens National stockholder who exchanges all of the
stockholder's Citizens National Common Stock for Gulf West Common Stock in the
Merger, except with respect to cash received in lieu of fractional shares. The
Opinion is based upon representations from Gulf West and Citizens National
and is subject to various assumptions. Legal opinions as to the tax
consequences of a reorganization are not binding on the IRS.
The following discussion summarizes the principal Federal income tax
consequences of the Merger to holders of Citizens National Common Stock and does
not purport to be a complete analysis or listing of all potential tax effects
relevant to the Merger. The discussion does not reflect the individual tax
position of any holder of Citizens National Common Stock and does not address
the tax consequences that may be relevant to holders of Citizens National Common
Stock with special tax status, including but not limited to financial
institutions, dealers in securities, holders that are not citizens or residents
of the United States, tax-exempt entities and holders that acquired Citizens
National Common Stock upon the exercise of employee stock options or otherwise
as compensation. Moreover, the discussion does not address any consequences
arising under the laws of any state, locality or foreign jurisdiction. The
discussion is based on the Internal Revenue Code, Treasury Regulations
thereunder and administrative rulings and court decisions as of the date hereof.
All of the foregoing are subject to change and any such change could affect the
continuing validity of this discussion. Holders of Citizens National Common
Stock are urged to consult with their own tax advisors regarding the tax
consequences of the Merger to them, including the effects of federal, state,
local, foreign and other tax laws.
Gulf West and Citizens National believe that, if consummated as
described herein, the Merger will constitute a tax-free reorganization within
the meaning of Section 368 (a) of the Internal Revenue Code. Accordingly, the
following will be the material Federal income tax consequences of the Merger:
(i) no gain or loss will be recognized by the Citizens National
stockholders upon receipt of Gulf West Common Stock in exchange for their
Citizens National Common Stock, except that a holder of Citizens National Common
Stock who receives cash in lieu of a fractional share of Gulf West Common Stock
will recognize gain or loss equal to the difference between the amount of such
cash and the tax basis allocated to such stockholder's fractional share of Gulf
West Common Stock. If, at the effective time of the Merger, such stockholder's
Citizens National Common Stock is held as a capital asset, such gain or loss
will, depending on the holding period, constitute short-term (12 months or
less), mid-term (12-18 months) or long-term (more than 18 months) capital gain
or loss.
(ii) the tax basis of the Gulf West Common Stock received by
Citizens National stockholders will be the same as the tax basis of such
stockholders' Citizens National Common Stock exchanged therefor;
(iii) the holding period of the Gulf West Common Stock in the hands
of the Citizens National stockholders will include the holding period of such
stockholders' Citizens National Common Stock exchanged therefor, provided that
such Citizens National Common Stock is held as a capital asset at the effective
time of the Merger; and
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(iv) Citizens National stockholders who exercise dissenters' rights
and receive cash will recognize a taxable gain for federal income tax purposes
which will be long or short-term, depending upon the holding period for their
Citizens National Common Stock. The exchange of shares for cash upon the
exercise of dissenters' rights could also cause Citizens National Common Stock
deemed to be constructively owned by the stockholder and exchanged for Gulf West
Common Stock to be treated as substantially equivalent to a dividend and,
therefore, taxed as ordinary income. Shares owned by spouses, children,
grandchildren, parents and other relatives and by entities that are 50% owned by
a stockholder are generally treated as constructively owned by that stockholder.
DISSENTERS' RIGHTS
Pursuant to federal law, each Stockholder of Citizens National entitled
to vote on the approval of the Merger Agreement who objects to the Merger shall
be entitled to the rights and remedies of dissenting stockholders under 12
U.S.C. Section 214a and any Stockholder who follows the procedures specified
therein will be entitled to receive the value of his or her shares of Citizens
National Common Stock in cash. THE PROVISIONS OF 12 U.S.C. SECTION 214A CONTAIN
DETAILED INFORMATION AS TO DISSENTING STOCKHOLDERS' RIGHT TO PAYMENT AND THE
PROCEDURAL STEPS TO BE FOLLOWED. A STOCKHOLDER MUST COMPLY STRICTLY WITH THE
PROCEDURES SET FORTH IN 12 U.S.C. SECTION 214A. THE FAILURE TO FOLLOW ANY OF
THESE PROCEDURES MAY RESULT IN THE TERMINATION OR WAIVER OF HIS OR HER
DISSENTERS' RIGHTS. The following description is only a summary of such
provisions and is qualified in its entirety by reference to 12 U.S.C. Section
214a, a copy of which is attached hereto as Annex B.
In order to perfect dissenters' rights, a Stockholder must (a) vote
against the Merger, or (b) otherwise give notice in writing to Citizens National
at or prior to the Special Meeting at which the Merger is approved, that he
dissents from the plan. The dissenting stockholder must make a request for
payment in writing to Mercantile within thirty days after the date of
consummation of such merger, accompanied by the surrender of his or her stock
certificates. The value of such shares shall be determined as of the date on
which the Special Meeting was held authorizing the Merger, by a committee of
three persons, one to be selected by majority vote of the dissenting
stockholders entitled to receive the value of their shares, one by the directors
of Mercantile, and the third by the two so chosen. The valuation agreed upon by
any two of three appraisers shall govern. If that valuation is not satisfactory,
the dissenting stockholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller of the Currency. The
Comptroller's reappraisal will be final and binding as to the value of the
shares of the appellant. If, within ninety days from the date of consummation of
the merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties.
Gulf West has the right to terminate the Merger if the number of shares
of Citizens National Common Stock asserting dissenters' rights exceed 5% of the
total outstanding shares of Citizens National Common Stock on the Record Date.
SHARES RECEIVED
Gulf West shares received in the Merger will not immediately be listed
for quotation on Nasdaq or any stock exchange. However, Gulf West Common Stock
is currently traded on a limited basis by Raymond James & Associates, Inc.,
Tampa, Florida. Pursuant to Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), commencing with the effectiveness of the
Registration Statement containing this Proxy Statement/Prospectus, Gulf West
became subject to certain of the periodic reporting requirements under the
Exchange Act. Gulf West, however, is not subject to, among other things, the
proxy rules, Section 16 beneficial ownership requirements under the Exchange
Act, or the tender offer rules. Gulf West intends to apply for listing on the
Nasdaq National Market System. However, the ability of Gulf West to achieve
listing on Nasdaq National Market System will depend in part on whether it can
attract sufficient market makers to meet Nasdaq's qualification requirements.
Shares received may be traded without restriction under the Securities Act of
1933 by Citizens National Stockholders who are not affiliates of Citizens
National at the time of the Merger. Those persons who are affiliates will be
able to sell their shares through the provisions of Rules 145 and 144
promulgated under the Securities Act of 1933 without the necessity of observing
any holding period for their stock prior to the sale. This Proxy
Statement/Prospectus does not cover any resales of Gulf West Common Stock by
affiliates of Citizens National. However, the affiliates have also agreed not to
sell any of their shares until Gulf West has published results of operations
covering a period of thirty days which include the operations of Citizens
National.
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MARKET PRICE AND DIVIDEND DATA
There is no established public trading market for Gulf West Common
Stock. As of October ___, 1997, there were 3,337,081 shares of Gulf West Common
Stock outstanding held by approximately 416 holders of record. According to
records kept by a local brokerage firm, since January 1, 1996, there have been a
limited number of trades in the Gulf West Common Stock involving an aggregate of
146,790 shares. To the best of Gulf West's knowledge, which is based on limited
and incomplete information, Gulf West believes the negotiated sales of shares of
Gulf West Common Stock ranged between $4.62 and $5.50 during this period. The
most recent trade of which the local brokerage firm has knowledge occurred in
March 1997 at a reported price of $5.50 per share. In view of the extremely
limited volume of transactions and lack of reliable pricing information (because
such information is not required to be furnished to Gulf West), there is no
assurance that the stated prices paid for the Gulf West Common Stock provide a
reliable or relevant indication of the value of Gulf West Common Stock.
The only dividends ever paid on Gulf West's Common Stock were a $0.04
per share cash dividend paid in the fourth quarter of 1995 and a 5% stock
dividend paid in the fourth quarter of 1996. There are currently no plans to
declare a cash dividend in 1997. Due to Mercantile's anticipated continued
growth and management's intent to maintain certain regulatory capital levels,
dividend payments on the Gulf West Common Stock are not expected in the
foreseeable future.
There is no established public trading market for Citizens National
Common Stock. As of ______, 1997, there were _____ shares of Citizens National
Common Stock outstanding held by approximately _____ holders of record.
According to records kept by management, since January 1, 1996, there have
been 34 trades in the Citizens National Common Stock involving an aggregate of
131,717 shares. Citizens National has no information regarding the prices at
which the Citizens National Common Stock was traded during this period.
Prior to 1997, Citizens National never paid any dividends on its common
stock. In the first quarter of 1997, the Board of Directors of Citizens National
declared and paid a dividend of $0.10 per share of Citizens National Common
Stock.
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GULF WEST BANKS, INC.
INTRODUCTION
Gulf West is a one-bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and was incorporated under the laws of
the State of Florida effective October 24, 1994. Gulf West's principal assets
are all of the issued and outstanding shares of capital stock of Mercantile ,
St. Petersburg, Florida, a Florida state banking corporation, and the issued and
outstanding shares of Liberty Leasing Corporation ("Liberty"), Tampa, Florida, a
Florida corporation engaged in equipment leasing. On January 19, 1995, Gulf West
acquired all the outstanding common stock of Mercantile in a share exchange
transaction whereby two shares of the $1.00 par value common stock of Gulf West
were exchanged for each outstanding share of common stock of Mercantile. This
transaction was accounted for as a pooling of interests and as if it had
occurred on December 31, 1994. Accordingly, all financial information presented
herein is restated to the beginning of the earliest period presented. Mercantile
converted to a Florida state commercial banking charter in May 1990. Effective
September 1, 1996, Gulf West acquired all the outstanding common shares of
Liberty in exchange for 30,000 shares of Gulf West Common Stock. Liberty is an
equipment leasing company that arranges financing for a variety of equipment for
all types of businesses. The acquisition was accounted for using the purchase
method of accounting. Liberty has nominal assets and liabilities and goodwill of
$157,000 resulted from the acquisition. The goodwill is being amortized over ten
years.
The principal executive offices of Gulf West and Mercantile are located
at 425 22nd Avenue North, St. Petersburg, Florida 33704 and their telephone
number is (813) 894-5696. Liberty is located at 5440 Mariner Street, Suite 204,
Tampa, Florida 33609 and its telephone number is (813) 287-2982.
ACTIVITIES OF GULF WEST
Currently the only business activity of Gulf West is to own and operate
Mercantile and Liberty. Liberty currently comprises a de minimis portion of Gulf
West's total assets and earnings and is therefore omitted from the discussion
below. As a part of the Merger, Mercantile will amend its charter to include
trust powers so that it can continue the trust business of Citizens. Although
other activities are permitted under the Bank Holding Company Act of 1956,
management of Gulf West has no current plans to engage in any other activities
but may choose to do so at a later date.
ACTIVITIES OF MERCANTILE
The principal services offered by Mercantile include commercial and
individual checking and savings accounts, money market accounts, certificates of
deposit, most types of loans, including commercial and working capital loans and
real estate, home equity and installment loans, as well as financing through
letters of credit. Mercantile also provides credit card services through a
national credit card issuer and acts as issuing agent for U.S. Savings Bonds,
travelers checks and cashiers checks. It offers collection teller services, wire
transfer facilities, safe deposit and night depository facilities. The
transaction accounts and time certificates are tailored to Mercantile's
principal market area at rates competitive with those offered in Mercantile's
primary service area. In addition, Mercantile offers certain retirement account
services, including individual retirement accounts. All deposit accounts are
insured by the FDIC up to the maximum amount allowed by law.
Mercantile offers a wide range of short to medium-term commercial and
personal loans. Commercial loans include both secured and unsecured loans for
working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), purchase of equipment
and machinery, and Small Business Administration ("SBA") loans. Consumer loans
include secured and unsecured loans for financing automobiles, home
improvements, and personal investments. Mercantile also originates and holds
construction and acquisition loans on residential real estate. At December 31,
1996, commercial and consumer loans accounted for approximately 71.34% and
9.29%, respectively, of Mercantile's loan portfolio. Loans on residential real
estate accounted for the remaining 19.37% of the loan portfolio. All loans are
made in compliance with applicable federal and state regulations.
Mercantile's lobby business hours are generally from 9:00 a.m. to 4:00
p.m., Monday through Thursday, 9:00 a.m. to 6:00 p.m. on Fridays, and 9:00 a.m.
to 12:00 p.m. on Saturdays. The drive-up teller hours are generally 8:00 a.m. to
5:00 p.m. on Monday through Thursday, 8:00 a.m. to 6:00 p.m. on Fridays, and
8:00 a.m. to 12:00 p.m. on Saturdays. However, drive-in hours do vary slightly
from office to office depending on customer requirements. Mercantile also has
24-hour automatic teller machines (ATM's) at each of its offices. Mercantile
issues debit cards to its customers that can be used in any bank ATM as well as
any ATM's which are members of the HONOR and CIRRUS networks.
Mercantile's data processing is handled by an outside service bureau --
FiServ, Inc. of Atlanta, Georgia. Item processing is handled by Barnett
Technologies, Inc., Tampa, Florida. The amount paid for these services is
dependent on the volume of transactions and the
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number of accounts being processed. In the year ended December 31, 1996,
Mercantile paid $224,000 for data processing services. Mercantile makes
extensive use of personal computers in all areas of its operations that permit
efficient handling of deposit and loan accounts and other paper intensive
applications such as word processing.
MARKET AREA
Seven of Mercantile's banking offices are located in Pinellas County,
Florida and two are located in Hillsborough County, Florida. Both counties are
in the west central Gulf Coast of Florida. The residential population of
Pinellas County as of the 1990 census was 852,000 and the estimated population
in 1997 is 887,000. Hillsborough County had a residential population of 834,000
as of the 1990 census and the estimated 1997 population is 911,000. The area has
many more seasonal residents. The majority of Mercantile's business is generated
from customers whose businesses or residences are located in an area within a
radius of three miles of each of its banking offices. Four of the Pinellas
County offices are located within the city limits of St. Petersburg, one is
located in the unincorporated community of Tierra Verde, one is located in the
city limits of Dunedin and another one in the city limits of Pinellas Park. The
Hillsborough County offices are located within the city limits of Tampa and
Temple Terrace.
OPERATING STRATEGY
Management believes that the emerging dominance of large regional
holding companies in the banking industry has created a need for more
locally-owned institutions with personalized banking services. Mercantile was
organized as a locally-owned, locally-managed community financial institution,
owned and managed by people who are actively involved in Mercantile's market
area and committed to its economic growth and development. With local ownership,
management and directors, Gulf West's management believes that Mercantile can be
more responsive to the communities it serves and tailor services to its
customers' needs rather than provide the standardized services that large
holding companies tend to offer. Local ownership and operation will allow
faster, more responsive and flexible decision-making which is not available at
the majority of financial institutions in or near Mercantile's market area which
are branch offices of large regional holding company banks with headquarters
located elsewhere in Florida or in the United States.
The principal business of Mercantile is to attract deposits from the
general public and to invest those funds in various types of loans and other
interest-earning assets. Funds are provided for the operations of Mercantile
through proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, investments, net deposit inflow, and from
borrowings. Earnings of Mercantile depend primarily upon the difference between
(1) the interest and fees received by Mercantile from loans, the securities held
in its investment portfolio, and other investments and (2) expenses incurred by
Mercantile in connection with obtaining funds for lending (including interest
paid on deposits and other borrowings) and expenses relating to day-to-day
operations.
To the extent market conditions permit, Mercantile follows a strategy
intended to insulate Mercantile's interest rate gap from adverse changes in
interest rates by maintaining spreads through the adjustability of its
interest-earning assets and interest-bearing liabilities. It is Mercantile's
intention that its interest-earning assets have a high degree of sensitivity to
interest rate changes. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." Mercantile's ability to reduce
interest-rate risk in its loan and investment portfolios will depend upon a
number of factors, many of which are beyond Mercantile's control, including
among others, competition for loans and deposits in its market area and
conditions prevailing in the secondary market. See "Competition" below.
The primary sources of Mercantile's funds for lending and for other
general business purposes are Mercantile's capital, deposits, loan repayments
and borrowings. Mercantile expects that loan repayments will be relatively
stable sources of funds, while deposit inflows and outflows will be
significantly influenced by prevailing interest rates, money market and general
economic conditions. Generally, short-term borrowings may be used to compensate
for reductions in normal sources of funds while longer-term borrowings may be
used to support expanded lending activities.
Mercantile's customers are primarily individuals, professionals, small
and medium size businesses, and seasonal retirees located predominantly in
Pinellas and Hillsborough Counties, Florida. Mercantile's locations are situated
in areas that are convenient to these types of customers.
Mercantile continually seeks to develop new business though an ongoing
program of personal calls on both present and potential customers. As a local
independent bank, Mercantile utilizes traditional local advertising media as
well as direct mailings, telephone contacts, and brochures to promote the bank
and develop loans and deposits. In addition, Mercantile's directors all have
worked and/or lived in or near Mercantile's market area for a number of years.
Management believes that this factor coupled with the past and continued
involvement of the directors and officers in various local community activities
will further promote Mercantile's image as a locally-oriented independent
institution, which management believes is an important factor to its targeted
customer base.
40
<PAGE> 45
COMPETITION
The banking industry in general, and Mercantile's market in particular,
is characterized by significant competition for both deposits and lending
opportunities. In its market area, Mercantile competes with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking firms and various
other nonbank competitors. Competition for deposits may have the effect of
increasing the rates of interest Mercantile will pay on deposits, which would
increase Mercantile's cost of money and possibly reduce its net earnings.
Competition for loans may have the effect of lowering the rate of interest
Mercantile will receive on its loans, which would lower Mercantile's return on
invested assets and possibly reduce its net earnings. Many of Mercantile's
competitors have been in existence for a significantly longer period of time
than Mercantile, and are larger and have greater financial and other resources
and lending limits than Mercantile and may offer certain services, such as trust
services, that Mercantile does not provide at this time. However, management
feels that the market is rich with opportunity to provide tailor-made custom
banking products and services which cannot be provided by the large institutions
which offer many banking products and services on an impersonal basis. With the
recent acquisitions by larger institutions, the opportunity has been enhanced as
customers are looking for more personalized service. This concept known as
"niche" or "boutique" banking will enable Mercantile to capture its share of the
professional market, entrepreneurs and small to medium size commercial
businesses while continuing to provide exceptional banking services to all
customers. The profitability of Mercantile depends upon its ability to compete
in this market area. At the present time, Mercantile is unable to predict the
extent to which competition may adversely affect its financial condition and
operating results.
There are 31 commercial banks and savings and loan associations in
Pinellas County. In Hillsborough County there are approximately 30 such
institutions. Mercantile expects to receive competition from all of these
financial institutions, a significant number of which have offices located in
the St. Petersburg and Tampa areas. In order to compete with major financial
institutions and others in Mercantile's market area, Mercantile emphasizes
specialized and personal service by its directors, officers, and employees.
Mercantile believes that its local ownership and community oriented operating
philosophy and personalized banking service are competitive factors which
strengthen Mercantile.
EMPLOYEES
As of June 30, 1997, Gulf West employed 108 employees of which 99 were
full-time and 9 part-time, including six executive officers. There are no
material increases in the work force scheduled for the remainder of 1997. Gulf
West's employees are not represented by a collective bargaining group and Gulf
West considers its relations with its employees to be excellent. Gulf West
provides employees with benefits customary in the banking industry, which
include major medical insurance, group term life insurance, dental insurance,
long term disability insurance, a 401(k) savings plan and vacation and sick
leave.
PROPERTIES
Gulf West corporate offices are located within the main office of
Mercantile. Liberty Leasing occupies approximately 1,800 square feet of leased
space in the Tampa Koger Center located at 5440 Mariner Street. The lease is for
a three-year term expiring July 31, 1999, automatically renewable for successive
three-year terms unless a ninety-day notice is provided by either party to the
lease. The rental payments are subject to annual CPI escalators with a minimum
of 5%. The current base monthly rent is $2,105 plus taxes.
In addition to its main office in St. Petersburg, Mercantile also has
four additional locations throughout St. Petersburg, at the Koger Executive
Center, in the "Maximo" area of South St. Petersburg, in the downtown business
district and an operations center on Scherer Drive. Mercantile also has branches
in Tierra Verde, in the Westshore area in Tampa, in the Countryside area in
Clearwater, in Temple Terrace, and in Largo.
Mercantile's main office is located at 425 22nd Avenue North, St.
Petersburg, Florida 33704. This office also serves as Mercantile's main office
banking facility. It has approximately 9,000 square feet and houses a branch
office on the first floor, the commercial lending department and Mercantile's
and Gulf West's executives offices. The building was constructed in 1987 and is
a two-story structure located on a 71,000 square foot parcel of land which
Mercantile owns. Two other buildings are also located on this site, both one
story structures containing 3,100 and 6,500 square feet of space which
Mercantile currently leases to small retailers and professional offices. The
property is located less than two miles north of the downtown business district
of St. Petersburg. Mercantile's branch office at this location was opened in
1987. It contains approximately 2,700 square feet and has two drive-in lanes, an
ATM, a night depository, safety deposit boxes and four lobby teller stations. At
December 31, 1996, this office had $41,315,494 in deposits.
The Tierra Verde office is located at 1110 Pinellas Bayway, Tierra
Verde, Florida 33715. Tierra Verde is an unincorporated island community
southwest of downtown St. Petersburg, Florida. The residents of Tierra Verde are
generally affluent, with one of the highest per capita income levels on
Florida's west coast. Mercantile opened for business at this office in May 1986
and this was Mercantile's
41
<PAGE> 46
main office until November 1988 when the main office was relocated to its
current location. Mercantile's branch office in Tierra Verde is located on the
first floor of a two story commercial condominium complex which fronts on the
island's main thoroughfare. The branch contains 2,000 square feet with three
lobby teller stations, an ATM, night depository, safety deposit boxes and one
drive-in teller lane. Mercantile also owns 2,000 square feet of office space
directly above the branch which houses a conference room, meeting room and
office space. At December 31, 1996, this office had $31,597,191 in deposits.
The Koger office is located at 9400 4th Street North, St. Petersburg,
Florida 33702. Mercantile rents approximately 2,500 square feet on the first
floor of a building that is part of a multi-building professional office complex
known as the Koger Executive Center. The complex is located approximately five
miles north of Mercantile's main office and the building in which the branch is
located fronts on 4th Street North, which is a major north-south traffic artery
in St. Petersburg. The office was opened in 1991 and at December 31, 1996, had
$18,795,109 in deposits. The office has four lobby teller stations, an ATM, a
night depository, safe deposit boxes and three drive-in teller lanes.
The Westshore branch office is located at 4202 West Kennedy Boulevard,
Tampa, Florida 33609, on the corner of Lois Avenue and Kennedy Boulevard. The
office is in a 4,000 square foot, free-standing, one story building which is
leased by Mercantile. The office is within one mile of the center of the
Westshore business district which is a major business center of Tampa. The
office was opened in late 1993 and at December 31, 1996, had $15,795,012 in
deposits. The office has four lobby teller stations, four drive-in teller lanes,
an ATM, a night depository and safe deposit boxes.
Mercantile's Countryside office at 28100 U.S. Highway 19 North,
Clearwater, Florida 33761 is located within the city limits of Dunedin but has a
Clearwater mailing address. Mercantile leases approximately 3,325 square feet on
the first floor of a five story, 80,000 square foot professional office
building. Chase Manhattan Bank of Florida occupied this facility until late
1994, when the office was closed due to a consolidation program by that
institution. The facility has four lobby teller stations, three drive-in teller
lanes, an ATM, a night depository and safe deposit boxes. This office opened in
March, 1995, and at December 31, 1996, had $15,329,755 in deposits.
The Temple Terrace office is located at 9400 North 56th Street, Temple
Terrace, Florida 33617. This facility is a 4,000 square foot, free-standing,
one-story building located on two acres of land that was purchased by Mercantile
in November, 1995. The office has six lobby teller stations, three drive-in
teller lanes, an ATM, a night depository and safe deposit boxes and was opened
in January, 1996. Total deposits of this office at December 31, 1996, were
$12,190,989.
Mercantile's Bryan Dairy office is located at 8040 Bryan Dairy Road,
Largo, Florida 33777, within the corporate city limits of Pinellas Park.
Mercantile rents 5,000 square feet in a commercial complex that was constructed
in mid-1996. The office opened in September 1996, and has four lobby teller
stations, three drive-in teller lanes, an ATM, a night depository and safe
deposit boxes. At December, 31, 1996, total deposits of this office were
$2,354,087.
The Maximo office is located at 3655 50th Avenue South, St. Petersburg,
Florida 33711. Mercantile built this 3,000 square-foot facility in late 1996 and
opened the office in December, 1996. The building is situated on one acre of
land and contains four lobby teller stations, three drive-in teller lanes, an
ATM, a night depository and safe deposit boxes. On December 31, 1996, deposits
were $1,294,898.
Mercantile's Downtown St. Petersburg office is located at 240 1st
Avenue South, St. Petersburg, Florida 33701 in the heart of the downtown
business district. The Bank rents approximately 3,436 square feet on the first
floor of a four story office building. The facility has four lobby teller
stations, a walk-up teller station, two drive-in teller lanes, an ATM, a night
depository and safe deposit boxes. The office was opened in February 1997. At
June 30, 1997, total deposits of this office were $2,367,464.
Mercantile also rents approximately 6,636 square feet in a professional
office complex located at 2860 Scherer Drive, St. Petersburg, Florida 33716.
This facility houses Mercantile's consumer and residential lending departments,
the data processing operations department, the deposit and loan operations
department and the accounting department.
42
<PAGE> 47
The following table presents information regarding the terms of the
leases which Mercantile is currently a party to:
<TABLE>
<CAPTION>
CURRENT
SQUARE START/ MONTHLY
LOCATION FEET END OPTIONS BASE RENT OTHER TERMS
- -------- ---- --- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Koger Office 2,500 4/1/96 - Automatic 2,931 Annual CPI increases
9400 4th Street N. 3/31/01 5 Year Plus use tax
St. Petersburg Renewals CAM
Countryside Office 3,325 3/1/95 - Two option 4,741 Annual CPI not less than 4%
28100 US 19 North 2/28/05 Periods of Plus use tax
Clearwater 5 years each CAM
Westshore Office 4,000 9/1/93 - Two option 4,499 Annual CPI not less than 4%
4202 W. Kennedy Blvd. 8/31/98 Periods of Plus use tax
Tampa 5 years each CAM
Bryan Dairy Office 5,000 7/1/96 - Four option 6,250 Fixed for 1st 5 years -
8040 Bryan Dairy Road 6/30/11 periods of Plus use tax 3% annual increases thereafter
Largo 5 years each CAM
Downtown St.
Petersburg Office 3,436 1/1/97 - Sublease 4,583
240 1st Avenue South 7/31/98 Plus use tax
St. Petersburg
8/1/98 - One option Year 1 - 4,054
7/31/03 period for Year 2 - 4,369
5 years Year 3 - 4,518
Year 4 - 4,673
Year 5 - 4,833
Plus use tax
CAM
Operations Center 6,636 6/1/96 - One option Year 1 - 4,015
2860 Scherer Drive 5/31/01 period of Year 2 - 4,153
Suite 630 5 years Year 3 - 4,291
St. Petersburg Year 4 - 4,429
Year 5 - 4,567
Plus use tax
CAM
</TABLE>
LEGAL PROCEEDINGS
Gulf West and Mercantile are parties to various legal proceedings in
the ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against Gulf West or Mercantile which, if
determined adversely, would have a material adverse effect on the business,
results of operations, or financial position of Gulf West or Mercantile.
43
<PAGE> 48
GULF WEST BANKS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The following is a summary of selected financial data for Gulf West and
subsidiaries for the six month periods ended June 30, 1997 and 1996 and the five
years ended December 31, 1996. This Summary should be read in conjunction with
the financial statements and notes thereto which are incorporated by reference
herein.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks .......... $ 3,539 8,631 5,555 5,882 4,488 4,148
Federal funds sold ............... 6,579 3,356 5,600 5,300 6,300 3,600
Investment securities ............ 47,923 40,231 33,489 23,963 17,091 10,548
Loans ............................ 112,891 112,979 73,948 63,472 53,374 49,206
All other assets ................. 10,662 9,617 7,344 5,832 5,485 3,552
-------- ------- ------- ------- ------ ------
Total assets ............ $181,594 174,814 125,936 104,449 86,738 71,054
======== ======= ======= ======= ====== ======
Deposits ......................... 160,293 149,335 109,192 96,372 78,532 61,146
Other borrowings ................. 7,149 12,047 3,799 -- -- 1,500
All other liabilities ............ 530 332 431 149 299 1,093
Stockholders' equity ............. 13,622 13,100 12,514 7,928 7,907 7,315
-------- ------- ------- ------- ------ ------
Total liabilities and
stockholders' equity .. $181,594 174,814 125,936 104,449 86,738 71,054
======== ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest
income .................. $ 6,849 4,868 10,844 8,447 6,146 4,931 5,327
Total interest
expense ................. 3,021 2,017 4,659 3,736 2,521 2,046 2,694
---------- --------- --------- --------- --------- --------- ---------
Net interest income .............. 3,828 2,851 6,185 4,711 3,625 2,885 2,633
Provision for
loan losses ............. 240 91 401 240 176 40 145
---------- --------- --------- --------- --------- --------- ---------
Net interest income
after provision
for loan losses ......... 3,588 2,760 5,784 4,471 3,449 2,845 2,488
Other income ..................... 878 505 1,031 849 603 838 670
Other expense .................... 3,776 2,789 6,324 4,181 3,228 3,056 2,539
---------- --------- --------- --------- --------- --------- ---------
Earnings before
income taxes ............ 690 476 491 1,139 824 627 619
Income taxes ..................... 234 182 177 431 142 -- --
---------- --------- --------- --------- --------- --------- ---------
Net earnings ..................... $ 456 294 314 708 682 627 619
========== ========= ========= ========= ========= ========= =========
Earnings per
share(1) ................ $ 0.14 0.09 0.10 0.25 0.28 0.26 0.25
========== ========= ========= ========= ========= ========= =========
Cash dividends per share ......... -- -- -- 0.04 -- -- --
========== ========= ========= ========= ========= ========= =========
Weighted-average number
of shares
outstanding(1) .......... 3,334,281 3,285,388 3,298,405 2,830,265 2,461,439 2,454,415 2,474,000
========== ========= ========= ========= ========= ========= =========
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
AT OR FOR THE
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD:
Return on average
assets ............... 0.50% 0.45% 0.22% 0.63% 0.74% 0.80% 0.86%
Return on average
equity ............... 6.83% 4.69% 2.45% 6.93% 8.69% 8.26% 8.83%
Average equity to
average assets ....... 7.40% 9.60% 8.87% 9.11% 8.47% 9.70% 9.77%
Interest rate spread
during the
period(2) ............ 3.90% 4.13% 4.01% 3.99% 3.82% 3.42% 3.66%
Net yield on average
interest-earning
assets ............... 4.68% 4.92% 4.78% 4.71% 4.37% 4.09% 4.04%
Other expense to
average assets ....... 4.18% 4.27% 4.39% 3.73% 3.49% 3.91% 3.54%
AT THE END OF THE PERIOD:
Ratio of average interest-
earning assets to
average interest-
bearing liabilities .. 1.21 1.23 1.21 1.19 1.18 1.23 1.01
Nonperforming loans,
and foreclosed real
estate as a percentage
of total assets ...... 0.66% 0.68% 0.46% 1.01% 0.81% 0.26% 0.54%
Allowance for loan losses
as a percentage
of total loans ....... 1.24% 1.01% 1.04% 1.11% 1.04% 1.14% 1.29%
Allowance for loan
losses as
a percentage of
nonperforming
loans ................ 265.48% 148.85% 388.20% 312.03% 933.93% 269.11% 278.80%
Total number of
offices .............. 9 6 8 5 4 4 3
Full service banking
offices .............. 9 6 8 5 4 4 3
Total shares
outstanding at
end of period ........ 3,337,081 3,285,388 3,326,030 3,277,755 2,461,801 2,461,078 2,474,000
Book value per
share(1) ............. $ 4.08 3.81 3.94 3.82 3.22 3.21 2.96
</TABLE>
- ------------------------------
(1) All per share information is presented to reflect all stock dividends
and stock splits.
(2) Difference between weighted-average yield on all interest-earning
assets and weighted-average rate on all interest-bearing liabilities.
45
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Gulf West is a one-bank holding company and owns 100% of the
outstanding stock of Mercantile. Mercantile is a Florida state chartered
commercial bank. Mercantile, through nine banking offices, provides a wide range
of banking services to individuals and businesses located primarily in Pinellas
and Hillsborough Counties, Florida. During 1996, Gulf West acquired all the
outstanding common shares of Liberty Leasing Corporation ("Liberty"), a Florida
corporation, in exchange of 30,000 shares of Gulf West's Common Stock. Liberty
is an equipment leasing company that arranges financing for a variety of
equipment for all types of businesses and is headquartered in Tampa. The
acquisition has been accounted for using the purchase method of accounting.
Liberty had nominal assets and liabilities and $157,000 was recorded as
goodwill. The goodwill is being amortized over ten years and is included in
other assets. Gulf West's only business activities are the operations of
Mercantile and Liberty. An inactive subsidiary of the Bank, Portfolio Recoveries
Inc., was dissolved in 1995. Collectively the entities are referred to herein as
"Gulf West."
Gulf West's consolidated assets amounted to $181.6 million at June 30,
1997, an increase of 3.9% over total assets of $174.8 million as of December 31,
1996. During the six months ended June 30, 1997, loans receivable decreased
slightly from $113.0 million to $112.9 million. Gulf West's portfolio of
investment securities increased to $47.9 million as of June 30, 1997 from $40.2
million as of December 31, 1996. Mercantile's deposits increased to $160.3
million as of June 30, 1997 from $149.3 million as of December 31, 1996, a 7.4%
increase. The Company had consolidated net earnings of $456,000 or $.14 per
share for the six months ended June 30, 1997 compared to consolidated net
earnings of $294,000 or $.09 per share for the 1996 period.
At December 31, 1996, Gulf West had total consolidated assets of $174.8
million, an increase of 38.8% over total assets of $125.9 million at December
31, 1995. During the year ended December 31, 1996, loans receivable increased
$39.0 million or 52.8%. The Company's portfolio of investment securities
increased to $40.2 million as of December 31, 1996 from $33.5 million as of
December 31, 1995. Gulf West's deposits increased to $149.3 million as of
December 31, 1996 from $109.2 million as of December 31, 1995, a 36.7% increase.
The Company had consolidated net earnings of $314,000 or $.10 per share for the
year ended December 31, 1996 compared to consolidated net earnings of $708,000
or $.25 per share for 1995. The consolidated net earnings for the year ended
December 31, 1996 included the effect of the SAIF special assessment of $470,000
(before taxes).
REGULATION AND LEGISLATION
As a state-chartered commercial bank, Mercantile is subject to
extensive regulation by the Department and the FDIC. Mercantile files reports
with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Department and the FDIC
to monitor Mercantile's compliance with the various regulatory requirements.
Gulf West and Mercantile are also subject to regulation and examination by the
Federal Reserve Board of Governors. As a Florida corporation, Mercantile is also
subject to the FBCA, the FFIC and the regulation of the Florida Department of
State under the authority to administer and implement the Florida Act.
PENDING ACQUISITION
On July 31, 1997, Gulf West, Mercantile, and Citizens National entered
into the Merger Agreement whereby Citizens National will merge with and into
Mercantile. Gulf West will issue 1,950,000 shares of Gulf West Common Stock in
exchange for all the outstanding shares of Citizens National Common Stock. This
transaction is subject to the approval of Citizens National's Stockholders and
various regulatory authorities. Gulf West expects to account for this
transaction using the purchase method of accounting in accordance with GAAP.
46
<PAGE> 51
CREDIT RISK
Mercantile's primary business is making commercial, business, consumer
and real estate loans. That activity entails potential loan losses, the
magnitude of which depend on a variety of economic factors affecting borrowers
which are beyond the control of Mercantile. While management has instituted
underwriting guidelines and credit review procedures to protect Mercantile from
avoidable credit losses, some losses will inevitably occur.
The following table sets forth certain information regarding nonaccrual
loans and foreclosed real estate, including the ratio of such loans and
foreclosed real estate to total assets as of the dates indicated, and certain
other related information.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans:
Residential real estate loans..................................................... $ 91 --
Commercial real estate............................................................ 628 747
Commercial loans.................................................................. 41 --
Consumer loans and other.......................................................... 39 26
---- -----
Total nonaccrual loans.................................................... 799 773
---- -----
Total nonperforming loans................................................. 799 773
---- -----
Total nonperforming loans to total assets................................. .46% .61%
==== =====
Foreclosed real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure...................................................... -- 497
---- -----
Total nonperforming loans and foreclosed real estate...................... $799 1,270
==== =====
Total nonperforming and foreclosed real estate to total assets............ .46% 1.01%
==== =====
</TABLE>
The following table sets forth information with respect to activity in
Mercantile's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding, net........................................... $ 87,000 65,747
======== ======
Allowance at beginning of year........................................... 830 663
-------- ------
Charge-offs:
Commercial loans................................................... -- (41)
Consumer loans..................................................... (54) (57)
-------- ------
Total loans charged-off...................................... (54) (98)
-------- ------
Recoveries 7 25
-------- ------
Net charge-offs.............................................. (47) (73)
-------- ------
Provision for loan losses charged to operating expenses............ 401 240
-------- ------
Allowance at end of year........................................... $ 1,184 830
======== ======
Ratio of net charge-offs to average loans outstanding.............. .0005 .0011
======== ======
Allowance as a percent of total loans.............................. 1.04% 1.11%
======== ======
Total loans at end of year......................................... $114,065 74,654
======== ======
</TABLE>
47
<PAGE> 52
The following table presents information regarding Mercantile's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1995
------------------------- ------------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans ....................... $ 179 15.9% $136 19.5%
Commercial real estate loans ........... 782 55.4 447 37.2
Residential real estate loans .......... 67 19.4 120 33.4
Consumer loans ......................... 156 9.3 127 9.9
------ ----- ---- -----
Total allowance for loan losses .. $1,184 100.0% $830 100.0%
====== ===== ==== =====
</TABLE>
RESULTS OF OPERATIONS
The operating results of Gulf West depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. Gulf West's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition, Gulf
West's net earnings are also affected by the level of nonperforming loans and
foreclosed real estate, as well as the level of its noninterest income, and its
noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and provisions for losses on foreclosed real estate and income
taxes.
The following tables sets forth for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of Gulf
West from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) interest margin; and (vi) ratio of average interest-earning asset to
average interest-bearing liabilities.
48
<PAGE> 53
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995
------------------------------ -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)................................................ $ 87,000 8,272 9.51% $ 65,747 6,326 9.62%
Securities.............................................. 33,387 2,086 6.25% 29,573 1,842 6.23%
Other interest-earning assets(2)........................ 9,084 486 5.35% 4,714 279 5.92%
-------- ------ -------- ------
Total interest-earning assets....................... 129,471 10,844 8.38% 100,034 8,447 8.44%
------ ------
Noninterest-earning assets................................. 14,966 12,159
-------- --------
Total assets........................................ $144,437 $112,193
======== ========
Interest-bearing liabilities:
Savings and NOW deposits................................ 28,219 812 2.88% 21,501 645 3.00%
Money-market deposits................................... 11,716 317 2.70% 10,068 304 3.02%
Time deposits........................................... 61,226 3,260 5.32% 50,245 2,669 5.31%
Other borrowings........................................ 5,447 270 4.96% 2,073 118 5.69%
-------- ------ -------- ------
Total interest-bearing liabilities.................. 106,608 4,659 4.37% 83,887 3,736 4.45%
------ ------
Demand deposits............................................ 25,005 17,671
Noninterest-bearing liabilities............................ 17 415
Stockholders' equity....................................... 12,807 10,220
-------- --------
Total liabilities and stockholders'
equity............................................ $144,437 $112,193
======== ========
Net interest income........................................ $6,185 $4,711
====== ======
Interest-rate spread(3).................................... 4.01% 3.99%
==== ====
Net interest margin(4)..................................... 4.78% 4.71%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities.................... 1.21 1.19
======== ========
</TABLE>
- ------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income dividend by average
interest-earning assets.
49
<PAGE> 54
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of Gulf West for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
---------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans .................................................. $(73) 2,043 (24) 1,946
Securities ............................................. 6 237 1 244
Other interest-earning assets .......................... (27) 259 (25) 207
---- ----- --- -----
Total ................................................ (94) 2,539 (48) 2,397
---- ----- --- -----
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits ............................. (26) 201 (8) 167
Money market deposits ................................ (32) 50 (5) 13
Time deposits ........................................ 5 584 2 591
Other borrowings ..................................... (15) 192 (25) 152
---- ----- --- -----
Total deposit accounts ............................... (68) 1,027 (36) 923
---- ----- --- -----
Net change in net interest income before provision
for loan losses ........................................ $(26) 1,512 (12) 1,474
==== ===== === =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
A Florida chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts less deposits of certain public funds. The liquidity
reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined
by the rules of the Department, such as federal funds sold and United States
securities or securities guaranteed by the United States or agencies thereof. As
of June 30, 1997 and December 31, 1996, the Bank has liquidity of approximately
$58.0 million and $52.2 million, or approximately 34.6% and 32.3% of total
deposits combined with borrowings, respectively.
During the six months ended June 30, 1997, Gulf West's primary sources
of funds consisted of principal payments on loans and net increases in deposits.
Gulf West used its capital resources principally to purchase investment
securities and fund existing and continuing loan commitments. At June 30, 1997,
Gulf West had commitments to originate loans totaling $11.2 million. Scheduled
maturities of certificates of deposit during the 12 months following June 30,
1997 totaled $57.5 million as of June 30, 1997. Management believes Gulf West
has adequate resources to fund all its commitments, that substantially all of
its existing commitments will be funded within the next twelve months and, if so
desired, that it can adjust the rates on certificates of deposit to retain
deposits in a changing interest-rate environment.
During the year ended December 31, 1996, Gulf West's primary sources of
funds consisted of principal payments on loans and investment securities,
proceeds from sales and maturities of securities available for sale and net
increases in deposits. Gulf West used its capital resources principally to
purchase investment securities and fund existing and continuing loan
commitments. At December 31, 1996, Gulf West had commitments to originate loans
totaling $7.6 million. Scheduled maturities of certificates of deposit during
the 12 months following December 31, 1996 totaled $53.2 million as of December
31, 1996.
50
<PAGE> 55
The following table sets forth the carrying value of Gulf West's
investment portfolio as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Securities available for sale:
U.S. agency obligations............................. $ 1,008 5,900
Municipal obligations............................... 699 700
U.S. Treasury securities............................ 15,967 10,966
Mortgage-backed securities.......................... 22,557 15,923
------- ------
Total available for sale.......................... $40,231 33,489
======= ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio at December 31,
1996 (dollars in thousands):
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEAR TO TEN YEARS AFTER TEN YEARS TOTAL
----------------- ----------------- ---------------- ----------------- ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. agency
obligations .................. $ -- --% $ 1,008 7.00% $ -- --% $ -- --% $ 1,008 7.00%
Municipal
obligations .................. 350 5.39 249 5.67 100 6.28 -- -- 699 5.62
U.S. Treasury
securities ................... 2,507 5.63 13,460 5.72 -- -- -- -- 15,967 5.70
Mortgage-backed
securities ................... 2,462 7.08 9,454 7.08 4,738 7.08 5,903 7.08 22,557 7.08
------ ---- ------- ---- ------ ---- ------ ---- ------- ----
Total ........................ $5,319 6.28% $24,171 6.30% $4,838 7.06% $5,903 7.08% $40,231 6.51%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
</TABLE>
REGULATORY CAPITAL REQUIREMENTS
Under FDIC regulations, Mercantile is required to meet certain minimum
regulatory capital requirements. This is not a valuation allowance and has not
been created by charges against earnings. It represents a restriction on
stockholders' equity.
Quantitative measures established by regulation to ensure capital
adequacy require Mercantile to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1997, that Mercantile
meets all capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the state and
federal regulators categorized Mercantile as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed Mercantile's category.
51
<PAGE> 56
The following table summarizes the FDIC's capital requirements for
Mercantile:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
--------------------- ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AT JUNE 30, 1997:
Total Capital
(to Risk-Weighted Assets)....... $14,437 11.7% $9,835 8.0% $12,294 10.0%
Tier I Capital
(to Risk-Weighted Assets)....... 13,022 10.6 4,918 4.0 7,376 6.0
Tier I Capital
(to Average Assets)............. 13,022 7.1 7,354 4.0 9,192 5.0
AT DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets)....... 13,719 11.4% 9,664 8.0% 12,079 10.0%
Tier I Capital
(to Risk-Weighted Assets)....... 12,535 10.4 4,832 4.0 7,248 6.0
Tier I Capital
(to Average Assets)............. 12,535 7.7 6,495 4.0 8,118 5.0
</TABLE>
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, Gulf West has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing Gulf West's
earnings. Management believes that these processes and procedures provide Gulf
West with better capital planning, asset mix and volume controls, loan-pricing
guidelines, and deposit interest-rate guidelines which should result in tighter
controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as dividing rate-sensitive assets by rate-sensitive
liabilities. A gap ratio of 1.0% represents perfect matching. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a positive gap would
adversely affect net interest income.
Since gap analysis does not take into account the probability that
potential maturities or repricings of interest-rate sensitive assets and
liabilities will occur, or the relative magnitude of the repricings, Gulf West
also uses an industry standard computer modeling system to perform "Income
Simulation Analysis." Income simulation analysis captures not only the potential
of assets and liabilities to mature or reprice but the probability that they
will do so. In addition, income simulation analysis attends to the relative
sensitivities of balance sheet items and projects their behavior over an
extended period of time and permits management to assess the probable effects on
balance sheet items of not only changes in market interest rates but also of
proposed strategies for responding to such changes.
On a quarterly basis, management of Gulf West performs an income
simulation analysis to determine the projected effect on net interest income of
both a 200 basis point increase and a 200 basis point decrease in the level of
interest rates. These scenarios assume that the 200 basis point rate changes
occur in even monthly increments over twelve months and then hold constant for
an additional twelve months. The volatility of net interest income over this
twenty-four month period in both an up and down rate scenario is measured by
reference to the levels of such income in a flat rate scenario.
52
<PAGE> 57
Gulf West has established guidelines for the acceptable volatility of net
interest income for the twenty-four month period and management institutes
appropriate strategies designed to keep the volatility levels within those
guidelines.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the results of operations, Gulf West's
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of its interest-earning assets
and interest-bearing liabilities. Such policies have consisted primarily of:
(i) emphasizing the origination of adjustable-rate loans; (ii) maintaining a
stable core deposit base; and (iii) maintaining a significant portion of liquid
assets (cash and short-term investments).
Gulf West has also maintained a relatively large portfolio of liquid
assets (cash and assets maturing or repricing in one year or less) in order to
reduce its vulnerability to shifts in market rates of interest. At December 31,
1996, 8% of Gulf West's total assets consisted of cash and short-term U.S.
Government securities maturing in one year or less. Furthermore, as of such
date, the Company's liquidity ratio was 32.3%.
Gulf West also seeks to maintain a large stable core deposit base by
providing quality service to its customers without significantly increasing its
cost of funds or operating expenses. The success of Gulf West's core deposit
strategy is demonstrated by the stability and growth of its demand accounts,
money-market deposit accounts, savings accounts and NOW accounts, which totaled
$77.3 million, representing 51.8% of total deposits at December 31, 1996.
Management anticipates that these accounts will increase and in the future
comprise a significant portion of its deposit base.
As of December 31, 1996, Gulf West's one-year negative interest-rate
sensitivity gap in dollars was $56.7 million. Although management believes that
the implementation of the foregoing strategies has reduced the potential
adverse effects of changes in interest rates on Gulf West's results of
operations, any substantial and prolonged increase in market rates of interest
could have an adverse impact on Gulf West's results of operations. As discussed
above, on a quarterly basis management performs an income simulation analysis
to measure the volatility of Gulf West's projected net interest income when
subjected to 200 basis point interest rate shocks. As a result of this
simulation analysis, management believes that its present gap position is
appropriate for the current interest rate environment and that a negative gap
will continue in the one year time period.
53
<PAGE> 58
The following table sets forth certain information relating to Gulf
West's interest-earning assets and interest- bearing liabilities at December
31, 1996 that are estimated to mature or are scheduled to reprice within the
period shown.
<TABLE>
<CAPTION>
MORE
THAN ONE
ONE YEAR TO MORE THAN
YEAR FIVE YEARS FIVE YEARS TOTAL
---- ---------- ---------- -----
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans (1),(2):
Adjustable rate................................................. $ 43,093 45,135 800 89,028
Fixed rate...................................................... 1,323 5,201 3,881 10,405
Consumer and other loans........................................ 5,642 6,391 2,599 14,632
-------- ------ ------ -------
Total loans................................................ 50,058 56,727 7,280 114,065
Investments (3),(4)................................................. 6,213 17,261 20,113 43,587
-------- ------ ------ -------
Total rate-sensitive assets................................ 56,271 73,988 27,393 157,652
-------- ------ ------ -------
Deposit accounts (5):
Savings and NOW................................................. 33,733 - - 33,733
Money market.................................................... 13,976 - - 13,976
Time deposits................................................... 53,163 18,832 30 72,025
-------- ------ ------ -------
Total deposit accounts.............................................. 100,872 18,832 30 119,734
Other borrowings.................................................... 12,047 - - 12,047
-------- ------ ------ -------
Total rate-sensitive liabilities........................... 112,919 18,832 30 131,781
-------- ------ ------ -------
Gap (repricing differences)......................................... $(56,648) 55,156 27,363 25,871
======== ====== ====== =======
Cumulative GAP...................................................... (56,648) (1,492) 25,871
======== ====== ======
Cumulative GAP/total assets......................................... (32.40)% (.85)% 14.80%
======== ====== ======
</TABLE>
- -------------------------
(1) In preparing the table above, adjustable-rate loans are included in
the period in which the interest rates are next scheduled to adjust
rather than in the period in which the loans mature. Fixed-rate loans
are scheduled, including repayment, according to their contractual
maturities.
(2) Includes nonaccrual loans.
(3) Investments are scheduled according to their respective repricing and
maturity dates.
(4) Includes federal funds sold.
(5) NOW accounts and savings accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according
to their respective maturity dates.
54
<PAGE> 59
The following table reflects the contractual principal repayments by
period of Gulf West's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
RESIDENTIAL
YEARS ENDING COMMERCIAL MORTGAGE CONSUMER
DECEMBER 31, LOANS LOANS LOANS TOTAL
------------ ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997........................................ $ 21,449 605 2,619 24,673
1998........................................ 8,048 817 2,163 11,028
1999........................................ 6,068 662 1,996 8,726
2000-2001................................... 10,718 1,635 2,855 15,208
2002-2003................................... 6,782 1,200 617 8,599
2004-2011................................... 28,311 6,736 344 35,391
Thereafter.................................. - 10,440 - 10,440
-------- ------ ------ -------
Total.................................. $ 81,376 22,095 10,594 114,065
======== ====== ====== =======
</TABLE>
The following table displays loan originations by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Originations:
Commercial loans........................................................................ $ 12,543 8,030
Commercial real estate loans............................................................ 49,234 18,342
Residential real estate................................................................. 3,125 2,314
Consumer loans.......................................................................... 9,689 8,979
-------- ------
Total loans originated............................................................ 74,591 37,665
Principal reductions......................................................................... (35,180) (27,070)
-------- -------
Increase in gross loans........................................................... $ 39,411 10,595
======== =======
</TABLE>
The following table sets forth information concerning Gulf West's loan
portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1996 1995
--------------------------------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans............................ $ 18,169 15.9% $ 14,531 19.5%
Commercial real estate loans................ 63,207 55.4 27,772 37.2
Residential real estate loans............... 22,095 19.4 24,949 33.4
Consumer loans.............................. 10,594 9.3 7,402 9.9
--------- ----- -------- -----
Total loans............................. 114,065 100.0% 74,654 100.0%
===== =====
Less:
Deferred loan fees........................ (221) (134)
Allowance for loan losses................. (1,184) (830)
------- ------
Loans, net.............................. $ 112,660 $ 73,690
========= ========
</TABLE>
55
<PAGE> 60
The following table shows the distribution of, and certain other information
relating to, deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1996 1995
-----------------------------------------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits.......................................................... $ 29,601 19.8% $ 20,106 18.4%
Savings and NOW deposits................................................. 33,733 22.6 25,754 23.6
Money-market deposits.................................................... 13,976 9.4 11,530 10.6
Time deposits............................................................ 72,025 48.2 51,802 47.4
--------- ----- --------- -----
Total deposits........................................................... $ 149,335 100.0% $ 109,192 100.0%
========== ===== ========= =====
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
(IN THOUSANDS)
<S> <C>
Due three months or less........................................... $ 7,357
Due over three months to one year.................................. 10,385
Due over one year.................................................. 4,938
--------
$ 22,680
========
</TABLE>
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
(IN THOUSANDS)
<S> <C>
Due in one year or less.......................................... $ 53,170
Due in more than one but less than three years................... 16,696
Due in more than three but less than five years.................. 2,159
Due in over five years........................................... 0
--------
$ 72,025
========
</TABLE>
The following table sets forth the net deposit flows of Gulf West
during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net increase before interest credited........................... $ 35,508 9,075
Net credited.................................................... 4,635 3,745
-------- ------
Net deposit increase......................................... $ 40,143 12,820
======== ======
</TABLE>
The following table shows the average amount of and the average rate
paid on each of the following interest-bearing deposit account categories
during the periods indicated:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and NOW deposits .......... $ 28,219 2.88% $21,501 3.00%
Money-market deposits ............. 11,716 2.70 10,068 3.02
Time deposits ..................... 61,226 5.32 50,245 5.31
-------- ---- ------- ----
Total interest-bearing deposits.. $101,161 4.34% $81,814 4.42%
======== ==== ======= ====
</TABLE>
56
<PAGE> 61
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
GENERAL
Net earnings for the six months ended June 30, 1997 were $456,000 or
$.14 per share compared to net earnings of $294,000 or $.09 per share for the
six months ended June 30, 1996. This increase in Gulf West's net earnings was
primarily due to an increase in net interest income and noninterest income,
partially offset by an increase in noninterest expenses, provision for loan
losses and income taxes.
INTEREST INCOME AND EXPENSE
Interest income increased from $4.9 million for the six months ended
June 30, 1996 to $6.8 million for the six months ended June 30, 1997. Interest
income on loans increased $1.4 million due an increase in the average loan
portfolio balance from $79.7 million for the six-month period ended June 30,
1996 to $112.0 million for the six-month period ended June 30, 1997, partially
offset by a decrease in the weighted-average yield earned on the portfolio.
Interest on investment securities increased $613,000 due to an increase in the
average yield earned from 6.0% in 1996 to 6.5% in 1997, as well as an increase
in the average investment securities portfolio to $44.2 million in 1997 from
$27.2 million in 1996. Interest on other interest-earning assets decreased
$40,000 due to a decrease in average other interest-earning assets from $9.0
million in 1996 to $7.5 million in 1997.
Interest expense increased to $3.0 million for the six months ended
June 30, 1997 from $2.0 million for the six months ended June 30, 1996.
Interest expense on deposit accounts increased primarily due to an increase in
average interest-bearing deposit balances from $90.7 million during the six
months ended June 30, 1996 to $124.9 million for the comparable period in 1997.
Interest expense on other borrowings increased $190,000 from $96,000 to
$286,000 primarily due to an increase in average borrowings from $3.7 million
in 1996 to $10.7 million in 1997 as well as an increase in average rates. The
average cost of all interest-bearing liabilities increased from 4.3% for the
six months ended June 30, 1996 to 4.5% for the six months ended June 30, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the
total allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by Mercantile,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Mercantile's market areas, and other
factors related to the collectibility of Mercantile's loan portfolio. The
provision increased from $91,000 for the six months ended June 30, 1996 to
$240,000 for the six months ended June 30, 1997. Management believes that the
allowance for loan losses of $1,415,000 is adequate at June 30, 1997.
NONINTEREST INCOME
Total noninterest income increased $373,000 for the six months ended
June 30, 1997 compared to the 1996 period, principally from an increase in
leasing fees due to the acquisition of Liberty Leasing on September 1, 1996 and
service fees on deposits.
NONINTEREST EXPENSE
Total noninterest expense increased $987,000 to $3.8 million for the
six months ended June 30, 1997 from $2.8 million for the six months ended June
30, 1996, primarily due to an increase in salaries and employee benefits and
occupancy expense relating to additional banking offices opened in 1996 and
1997.
57
<PAGE> 62
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net earnings for the year ended December 31, 1996 were $314,000 or
$.10 per share compared to $708,000 or $.25 per share for the year ended
December 31, 1995. This decrease in Gulf West's net earnings was primarily due
to an increase in noninterest expenses, including the one-time SAIF special
assessment, partially offset by an increase in net interest income and
noninterest income as well as a decrease in income taxes.
INTEREST INCOME AND EXPENSE
Interest income increased by $2.4 million from $8.4 million for the
year ended December 31, 1995 to $10.8 million for the year ended December 31,
1996. Interest income on loans increased $1.9 million due an increase in the
average loan portfolio balance from $65.7 million for the year ended December
31, 1995 to $87.0 million for 1996, partially offset by a decrease in the
weighted average yield from 9.6% in 1995 to 9.5% in 1996. Interest on
securities increased $244,000 due to an increase in the average securities
balance from $29.6 million in 1995 to $33.4 million in 1996, as well as an
increase in average yield from 6.2% in 1995 to 6.3% in 1996. Interest on other
interest-earning assets increased $207,000 primarily due to an increase from
$4.7 million in average other interest-earning assets in 1995 to $9.1 million
in 1996, partially offset by a decrease in weighted average yield.
Interest expense increased to $4.7 million for the year ended December
31, 1996 from $3.7 million for the year ended December 31, 1995. Interest
expense on deposit accounts and other borrowings increased because of a $22.7
million increase in the average balance, which was only partially offset by a
decrease of 8 basis points in the average yield paid on deposits and other
borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the
total allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by Mercantile,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Mercantile's market areas, and other
factors related to the collectibility of Mercantile's loan portfolio. The
provision increased from $240,000 for the year ended December 31, 1995 to
$401,000 for the year ended December 31, 1996. Management believes that the
allowance for loan loss of $1,184,000 is adequate at December 31, 1996.
NONINTEREST INCOME
Total noninterest income increased $182,000 for the year ended
December 31, 1996 compared to 1995 primarily from an increase in leasing fees
due to the acquisition of Liberty Leasing on September 1, 1996 and commissions,
service fees on deposit accounts and other income.
NONINTEREST EXPENSE
Total noninterest expense increased $2.1 million for the year ended
December 31, 1996 compared to 1995, primarily due to an increase in employee
compensation and benefits, occupancy and equipment expenses, the SAIF special
assessment, as well as other expenses. The increase in compensation and
occupancy expense was related to new banking offices opened during 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which requires the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets
and liabilities of Gulf West are monetary in nature. As a result, interest
rates have a more significant impact on Mercantile's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates.
58
<PAGE> 63
FUTURE ACCOUNTING REQUIREMENTS
The FASB has issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). This statement specifies the
computation, presentation and disclosure requirements for net earnings per
share for entities with publicly-held common stock. SFAS 128 is effective for
both interim and annual periods ending after December 15, 1997 and upon
adoption, all prior period net earnings per share data presented will be
restated to conform with SFAS 128.
SUPERVISION AND REGULATION
Mercantile and Gulf West are subject to a number of statutes and
regulations affecting financial institutions. These laws and regulations are
intended to protect depositors, not stockholders. The following excerpts of
certain material statutes and regulations are meant to be illustrative and do
not purport to include all laws and regulations to which Mercantile and Gulf
West are subject. Such summaries are qualified in their entirety by reference
to such statutes and regulations. Any change in applicable laws or regulations
may have a material effect on the business and prospects of Gulf West or
Mercantile. Gulf West and Mercantile are unable to predict the nature or the
extent of the effect on its business and earnings that monetary policies,
economic control, or new federal or state legislation may have in the future.
SUPERVISION AND REGULATION OF GULF WEST
FEDERAL LAW. The Bank Holding Company Act of 1956. As a bank holding
company, Gulf West is subject to the Bank Holding Company Act of 1956, as
amended (the "BHCA") and to regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). Gulf West must file annual reports with
the Federal Reserve and provide the Federal Reserve with such other information
and reports as the Federal Reserve may request from time to time. The Federal
Reserve is also authorized to conduct examinations of Gulf West and each of its
subsidiaries, including Mercantile.
Under the BHCA, prior approval of the Federal Reserve will be required
for any acquisition by Gulf West of more than 5% of the stock of any other bank
or bank holding company, or for merging or consolidating with another bank
holding company. Gulf West, except as noted below, is also prohibited from
acquiring a direct or indirect interest in or control of more than 5% of the
voting shares of any company which is not a bank, including any foreign
company, and from engaging directly or indirectly in activities other than
those of banking, managing or controlling banks or furnishing services to its
subsidiaries. Control is conclusively presumed to exist if an individual or
company acquires 25% or more of any class of voting securities of the bank
holding company. Under Federal Reserve regulations applicable to Gulf West,
after registration of its Common Stock under the Exchange Act control will be
rebuttably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of voting securities of Gulf West. Gulf West
may, however, with Federal Reserve approval, engage in, and may own shares of
companies engaged in, certain activities found by the Federal Reserve to be "so
closely related to banking or managing or controlling banks as to be a proper
incident thereto".
To date, the Federal Reserve has stated that the following activities,
among others, come within the above-quoted standard under certain limitations
set out more fully in Regulation Y: (1) making or acquiring, for its own
account or for the account of others, loans and other extensions of credit such
as would be made, for example, by a mortgage, finance, credit card or factoring
company; (2) operating an industrial bank, Morris Plan bank or industrial loan
company; (3) servicing loans and other extensions of credit for any person; (4)
performing or carrying on any of the activities that may be performed or
carried on by a trust company; (5) acting as investment or financial adviser
for a mortgage investment or real estate investment trust or for a registered
investment company, providing general financial advice to state and local
governments; (6) leasing personal property and real estate, or acting as agent,
broker or adviser in connection therewith, where the lease serves as the
functional equivalent of an extension of credit to the lessee of the property
and the transaction meets certain other specified criteria; (7) making equity
and debt investments designed primarily to promote community welfare; (8)
providing bookkeeping or data processing services for the bank holding company
and its subsidiaries or storing and processing certain other banking, financial
or related economic data; (9) acting as insurance agent or broker with respect
to any insurance for the bank holding company and its subsidiaries or with
respect to certain types of insurance written in connection with the extension
of credit by the bank or bank-related subsidiaries of the bank holding company
or written under certain other circumstances; (10) acting as an underwriter for
credit life insurance and credit accident and health insurance which is
directly related to extension of credit by the bank holding company system;
(11) providing courier services for certain purposes; (12) providing management
consulting advice to nonaffiliated banks under specified conditions; (13)
selling at retail money orders, travelers checks and United States savings
bonds; (14) performing
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appraisals of real property; (15) acting as intermediary for the financing of
commercial or industrial income-producing real estate in certain large
transactions; (16) providing securities brokerage services, related securities
credit activities and incidental activities; (17) underwriting and dealing in
obligations of the United States, general obligations of the state and their
political subdivisions and certain other obligations; (18) providing general
information and forecasting with respect to foreign exchange markets and
certain transaction service with respect to foreign exchange; (19) acting as a
futures commission merchant for nonaffiliated persons in the execution and
clearing on major commodity exchanges of futures contracts and options on
futures contracts for certain monetary instruments; (20) providing investment
advice as a futures commissions merchant or as a commodity trading adviser with
respect to certain monetary instruments; (21) providing advice, educational
courses and instruction materials to consumers on individual financial
management matters; (22) providing individual businesses and nonprofit
organization tax planning and tax preparation services; (23) authorizing
subscribing merchants to accept personal checks tendered by the merchants'
customers in payment of goods and services and purchasing from the merchant
validly authorized checks that are subsequently dishonored; (24) collecting
overdue accounts receivable for third parties and maintaining files on the past
credit histories on consumers and providing that information to a credit
grantor who is considering a borrower's application for credit; and (25)
owning, controlling or operating a savings association, if the savings
association engages only in deposit-taking activities and lending and other
activities which are permissible for bank holding companies.
In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking practices. For
example, factoring accounts receivable, acquiring or servicing loans, leasing
personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. The BHCA does not place
territorial limitations on permissible nonbanking activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or
control constitutes a serious risk to the financial safety, soundness, or
stability of any bank subsidiary of that bank holding company.
The BHCA further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
Under Federal Reserve policy, bank holding companies are expected to
act as a sources of financial strength to, and to commit resources to support,
their subsidiary banks. This support may be required at times when, absent such
Federal Reserve policy, the holding company may not be inclined to provide it.
In addition, any capital loans by a bank holding company to any bank subsidiary
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority payment.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
establishes several requirements and restrictions applicable to insured banks
that are deemed to be "undercapitalized." These provisions also affect bank
holding companies that control undercapitalized banks. Among these provisions
are restrictions on capital distributions, including dividend payments,
restrictions on asset growth, the establishment of branch offices and merger
and acquisition transactions, as well as provisions requiring bank holding
companies to guarantee the capital adequacy of certain subsidiary banks and the
divestiture of both bank and nonbank subsidiaries by bank holding companies in
certain circumstances.
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The Financial Institution Reform, Recovery and Enforcement Act of
1989. The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") generally allows bank holding companies to acquire healthy savings
and loan associations as well as failed or failing savings and loan
associations. However, FIRREA also provides for a cross guarantee which may
require a multi-bank holding company to indemnify the Federal Deposit Insurance
fund against losses it incurs with respect to such company's affiliated banks,
effectively making a bank holding company's equity investment in healthy bank
subsidiaries available to the FDIC to assist the company's failing or failed
bank subsidiaries.
FIRREA also grants regulatory agencies the ability to levy expanded
civil and criminal penalties against certain "institution- affiliated parties"
who cause or are likely to cause material financial loss to or a significant
adverse effect on a regulated institution or who knowingly or recklessly
violate a law or regulation, breach a fiduciary duty or engage in an unsafe or
unsound practice. Institution-affiliated parties are defined to include
management, employees, and agents of a financial institution, independent
contractors such as attorneys and accountants and others who participate in the
conduct of the financial institution's affairs. These practices can include the
failure of an institution to timely file required reports, the filing of false
or misleading information, or the submission of inaccurate reports. Civil
penalties may be as high as $1 million a day for such violations. Criminal
penalties for some financial institution crimes have been increased to 20
years. In addition, regulators are provided with greater flexibility to
commence enforcement actions against institutions and institution-affiliated
parties. Possible enforcement actions include the termination of deposit
insurance. Furthermore, FIRREA expands the appropriate banking agencies' power
to issue cease and desist orders that may, among other things, require
affirmative action to correct any harm resulting from a violation or practice,
including restitution, reimbursement, indemnification or guarantees against
loss. A financial institution may also be ordered to restrict its growth,
dispose of certain assets, rescind agreements or contracts, or take other
actions as determined by the ordering agency to be appropriate.
FLORIDA LAW. The provisions of the Florida Business Corporation Act
apply to Gulf West.
The Regional Reciprocal Bank Act of 1984 (Florida Statutes, Section
658.295) allows regional interstate banking by permitting banking organizations
in certain Southeastern states (Alabama, Arkansas, Florida, Georgia, Louisiana,
Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Texas,
Virginia, West Virginia and the District of Columbia) to acquire Florida
banking organizations if Florida banking associations are allowed to acquire
banking organizations in their states. As a result of this legislation, banking
organizations in other states have entered the Florida market through
acquisitions of Florida institutions.
The Regional Reciprocal Bank Act of 1984 was repealed effective May 1,
1995, and was replaced with the Florida Reciprocal Banking Act (Florida
Statutes, Section 658.295) (the "Act"). The Act permits entry into Florida by
an out-of-state bank holding company only by acquisition of a Florida bank or a
Florida bank holding company (except that an out-of-state bank holding company
may acquire all or substantially all of the shares of a bank organized solely
for the purpose of facilitating the acquisition of a bank which has been in
existence and continuously operated as a bank for more than three years) if the
approval of the Department, is obtained. The term "out-of-state bank holding
company" means a bank holding company that has its principal place of business
in a state other than Florida or the District of Columbia. The term "Florida
bank" means a bank that is organized under the laws of Florida or the United
States and that has banking offices located only in Florida. The term "Florida
bank holding company" means a bank holding company that has its principal place
of business in Florida and which is not controlled by an out-of-state bank
holding company.
The foregoing approval need not be obtained by a bank holding company
that controlled a Florida bank or Florida bank holding company subsidiary that
was acquired before May 14, 1994 and that was not acquired in a transaction
involving assistance by the Federal Deposit Insurance Corporation and under
certain other circumstances specified in the Act.
The Act gives the Department power to enforce the prohibitions of the
Act through the imposition of fines and penalties, the issuance of cease and
desist orders, injunctions, divestiture orders, and such other remedies as are
provided by law.
GLASS-STEAGALL ACT. Gulf West is restricted in its activities by the
provisions of the Glass-Steagall Act, which prohibits Gulf West from engaging
as principal in the issue, flotation, underwriting, public sale, or
distribution of securities. The interpretation, scope and application of the
provisions of the Glass-Steagall Act currently are being considered and
reviewed by regulators and legislators and the interpretation and application
of certain of those provisions have been challenged in the federal courts.
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SUPERVISION AND REGULATION OF MERCANTILE
Mercantile is organized as a Florida-chartered commercial bank and its
operations are primarily subject to supervision and regulation by the State of
Florida and as a non-member bank, the FDIC. Florida and federal regulations
include requirements for the maintenance of reserves against deposits, as well
as restrictions relating to loans, investments, payment of dividends,
branching, and other activities. Accordingly, the Department and the FDIC
conduct regular examinations of Mercantile, reviewing the adequacy of the loan
loss reserves, quality of loans and investments, liquidity, propriety of
management practices, compliance with laws and regulations, and other aspects
of the Mercantile's operations. In addition to these regular examinations,
Mercantile must furnish to the FDIC quarterly reports containing detailed
financial statements and schedules.
THE FDIC. Mercantile is subject to deposit insurance assessments. The
FDIC establishes rates for the payment of premiums by federally insured banks
and savings associations for deposit insurance. A Bank Insurance Fund ("BIF")
is maintained for commercial banks and a Savings Association Insurance Fund
("SAIF") is maintained for savings associations. Although Mercantile is a
commercial bank, its deposits of up to $100,000 (the maximum amount currently
permitted by law) for each account holder are insured by SAIF because
Mercantile was originally incorporated as a federal savings association. In
September of 1992, the FDIC adopted regulations which established, beginning in
1993, a risk-based deposit insurance premium system for all insured depository
institutions, including Mercantile. Under those regulations, institutions are
divided into three groups--well capitalized, adequately capitalized, and
under-capitalized--based on criteria consistent with those established pursuant
to the prompt corrective action provisions of the FDICIA. Each of these groups
is further divided into three subgroups, based on a subjective evaluation of
risk to the insurance fund posed by the institution. Insurance premium rates
are then established for each of the nine categories with the lowest rate being
charged to those institutions that are well-capitalized and are considered to
pose little or no risk to the insurance fund. From January, 1993 to October,
1996, the premiums ranged from 23 to 31 basis points per $100 of insured
deposits. Mercantile's premium during this time period was equal to the lowest
rate of 23 basis points per $100 of insured deposits. On September 30, 1996,
the Deposit Insurance Funds Act of 1996 was enacted which, among other things,
placed a special assessment on all SAIF insured deposits for the purpose of
recapitalizing the SAIF fund to the targeted reserve ratio of 1.25% of insured
deposits. Mercantile's portion of this assessment was $470,111 and was paid in
September, 1996. As a result of the SAIF recapitalization, the FDIC was able to
lower premium assessment rates while simultaneously widening the spread between
the lowest and highest rates to improve the effectiveness of the FDIC's risk
based premium system. For the last quarter of 1996 and for calendar year 1997,
the highest premium rate is 27 basis points per $100 of insured deposits while
the well-capitalized, lowest risk institutions pay no premium. Mercantile paid
no SAIF premium for the last quarter of 1996 and likewise is not being assessed
a premium in 1997. Another provision of the Deposit Insurance Funds Act of 1996
was to separate, effective January 1, 1997, the Financing Corporation (the
"FICO") assessment to service the interest on its bond obligations from the
SAIF assessment. Starting on that date, the amount assessed individual
institutions by the FICO will be in addition to the amount paid for deposit
insurance according to the FDIC's risk-related assessment rate schedules. The
Act established the FICO rate on BIF assessable deposits to be one-fifth the
rate on SAIF assessable deposits until January 1, 2000, or the funds are
merged, whichever occurs first. The FDIC may change the rates quarterly to
reflect changes in the assessment bases for the BIF and the SAIF. For the first
six months of 1997, the FICO assessment rate for SAIF assessable deposits was
6.48 basis points annually and 1.30 basis points for BIF assessable deposits.
Federal and Florida banking laws and regulations govern all areas of
the operations of Mercantile, including reserves, loans, mortgages, capital,
issuances of securities, payment of dividends, liquidity requirements and
establishment of branches. As its primary federal regulator, the FDIC has
authority to impose penalties, initiate civil and administrative actions, and
take other steps intended to prevent Mercantile from engaging in unsafe or
unsound practices. SAIF insurance of deposits may be terminated by the FDIC,
after notice and hearing, upon a finding that an institution has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. When
conditions warrant, the FDIC may impose less severe sanctions as an alternative
to termination of insurance. Management of Mercantile does not know of any
present condition pursuant to which the FDIC would seek to impose sanctions on
Mercantile or terminate insurance of its deposits.
Mercantile also is subject to the provisions of the CRA. Under the
CRA, Mercantile has a continuing and affirmative obligation consistent with its
safe and sound operation to help meet the credit needs of its entire
communities, including low-and moderate-income neighborhoods. The CRA does
not establish specific lending requirements or programs for financial
institutions nor does it limit Mercantile's discretion to develop the types of
products and services that it believes are best
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suited to its particular communities, consistent with the CRA. The CRA requires
the appropriate federal bank regulatory agency (in the case of Mercantile, the
FDIC), 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. The FDIC's assessment of Mercantile's record is made available to the
public. Further, such assessment is required whenever Mercantile applies to,
among other things, establish a new branch that will accept deposits, relocate
an existing office or merge or consolidate with, or acquire the assets of or
assume the liabilities of, a federally-regulated financial institution.
Mercantile received a "Satisfactory" CRA rating in its most recent examination.
In April 1995, the federal banking agencies adopted amendments
revising their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, which became
effective on July 1, 1997, substitute for the prior process-based assessment
factors a new evaluation system that will rate an institution based on its
actual performance in meeting community needs. In particular, the system will
focus on three tests: (i) a lending test, to evaluate the institution's record
of making loans in its service areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects; and (iii)
a service test, to evaluate the institution's delivery of services through its
branches and other offices. The amended CRA regulations also clarify how an
institution's CRA performance will be considered in the application process.
Mercantile does not anticipate that the revised CRA regulations will have any
material impact on Mercantile's operations or that they will have any impact on
Mercantile's CRA rating.
LOANS, INTEREST RATES AND CONSUMER SERVICES. Interest and certain
other charges collected or contracted for by Mercantile are subject to state
usury laws and certain federal laws concerning interest rates. Mercantile's
loan operations are also subject to federal laws applicable to credit
transactions, such as the Federal Truth-in-Lending Act governing disclosures of
credit terms to consumer borrowers, the CRA requiring financial institutions to
meet their obligations to provide for the total credit needs of the communities
they serve, including investing their assets in loans to low and moderate
income borrowers, the Home Mortgage Disclosure Act providing information to
enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to meet the housing needs of the
community it serves, 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 use and provision
of information to credit reporting agencies, the Fair Debt Collection Practices
Act governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of Mercantile are subject to the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board 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, and the Truth-in-Savings Act
which governs disclosure of the fees and yields upon deposit accounts with
Mercantile. All of the services provided by Mercantile to its customers are
subject to the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with the administrative subpoenas of financial records.
INTEREST RATE RISK AND GOVERNMENTAL MONETARY POLICY. The earnings of
Gulf West and Mercantile can be significantly affected by the policies of the
Federal Reserve Board, which regulates the money supply in order to mitigate
recessionary and inflationary pressures in the United States economy. Among the
techniques used to implement these objectives are open market operations in
United States government securities, changes in the rates paid by banks on bank
borrowings, changes in reserve requirements against bank deposits, and
limitations on interest rates which banks may pay on time and savings deposits.
These techniques are used in varying combinations to influence overall growth
and distribution of bank loans, investments, and deposits and their use also
may affect interest rates charged on loans or paid for deposits. The nature of
future monetary policies and the effect of such policies on the future business
and earnings of Mercantile and Gulf West cannot be predicted accurately.
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past,
and are expected to do so in the future. Controls on interest rates paid by
banks on deposits and the types of deposits that may be offered by banks are
also important. The authority of the Depository Institutions Deregulation
Committee ("DIDC"), created by Congress in 1980 to set ceilings on time,
savings and NOW accounts, expired on March 31, 1986, and has left the
prohibition of payment of interest on demand deposits as the only regulatory
deposit-rate constraint. The effect of the deregulation of deposit interest
rates has been to make banks' costs of funds, and thus their profits and
liquidity, more sensitive to fluctuations in money market rates.
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PAYMENT OF DIVIDENDS
As a Florida-chartered commercial bank, Mercantile is subject to the
laws of Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the
total of all dividends declared by a bank in any calendar year will exceed the
sum of the bank's net profits for that year and its retained net profits for
the preceding two years.
Under Federal law, if, in the opinion of the federal banking
regulator, a bank or thrift under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution, could include the payment of
dividends), such regulation may require, after notice and hearing, that such
institution cease and desist from such practice. The federal banking agencies
have indicated that paying dividends that deplete a depository institution's
capital base to an inadequate level would be an unsafe and unsound banking
practice. Under the Prompt Corrective Action regulations adopted by the federal
banking agencies in December 1992, a depository institution may not pay any
dividend to its holding company if payment would cause it to become
undercapitalized or if it already is undercapitalized.
Due to Mercantile's anticipated continued growth and management's
intent to maintain certain regulatory capital levels, dividend payments on the
Gulf West Common Stock are not expected in the foreseeable future.
RISK BASED CAPITAL REGULATIONS
Gulf West and Mercantile are required to comply with the capital
adequacy standards established by the Federal Reserve (for Gulf West), and the
FDIC (for Mercantile). There are three basic measures of capital adequacy for
banks that have been promulgated by the Federal Reserve; two risk-based
measures and a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off- balance- sheet items,
such as standby letters of credit) is 8%. At least half of Total Capital (i.e.,
4% of risk-weighted assets) must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a
limited amount of loan loss reserves ("Tier 2 Capital"). In addition, the
Federal Reserve has established minimum leverage ratio guidelines for bank
holding companies. These guidelines provide for a minimum ratio of Tier 1
Capital to average assets, less goodwill and certain other intangible assets,
of 3% for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. All other bank holding
companies generally are required to maintain a Leverage Ratio of at least 3.0%,
plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant
reliance on intangible assets. Furthermore, the Federal Reserve has indicated
that it will consider a "tangible Tier I Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.
FEDERAL RESERVE SYSTEM
The Federal Reserve regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The new Federal Reserve regulations effective
April 1, 1997, generally require that reserves be maintained against aggregate
transaction accounts as follows: (i) for accounts aggregating $49.3 million or
less (subject to adjustment by the Federal Reserve) the reserve requirement is
3.0%; and (ii) for accounts greater than $49.3 million, the reserve requirement
is $1.5 million plus 10.0% (subject to adjustment by the Federal Reserve
between 8.0% and 14.0%) against that portion of total transaction accounts in
excess of $49.3 million. The first $4.4 million of otherwise reservable
balances (subject to adjustments by the Federal Reserve) are exempted from the
reserve requirements. Mercantile anticipates that it will be in compliance with
the foregoing requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to satisfy liquidity
requirements imposed by the Department. Because required reserves must be
maintained in the form of either vault cash, a noninterest-bearing
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account at a Federal Reserve Bank or a pass-through account as defined by the
Federal Reserve, the effect of this reserve requirement is to reduce
Mercantile's interest-earning assets.
LIQUIDITY
Under Florida banking regulations, Mercantile is required to maintain
a daily liquidity position equal to at least 15 percent of its total
transaction accounts and eight percent of its total nontransaction accounts,
less those deposits of public funds for which security has been pledged as
provided by law. Mercantile may satisfy its liquidity requirements with cash on
hand (including cash items in process of collection), deposits held with the
Federal Reserve, demand deposits due from correspondent banks, Federal funds
sold, interest-bearing deposits maturing in 31 days or less and the market
value of certain unencumbered, rated, investment- grade securities and
securities issued by Florida or any county, municipality or other political
subdivision within the State. The FDIC also reviews Mercantile's liquidity
position as part of its examination and imposes similar requirements on
Mercantile. Any Florida-chartered commercial bank that fails to comply with its
liquidity requirements generally may not further diminish liquidity either by
making any new loans (other than by discounting or purchasing bills of exchange
payable at sight) or by paying dividends. At June 30, 1997, Mercantile's net
liquid assets exceeded the minimum amount required under the applicable Florida
regulations.
MONETARY POLICY AND ECONOMIC CONTROLS
The banking business is affected not only by general economic
conditions, but also by the monetary policies of the Federal Reserve. Changes
in the discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against bank deposits and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. The
monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment and short- and long-term changes in the
international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of the Mercantile cannot be predicted.
OTHER REGULATORY LIMITATIONS. Mercantile, Liberty and Gulf West are
"affiliates" within the meaning of the Federal Reserve Act. As such, the amount
of loans or extensions of credit which Mercantile may make to Gulf West and
Liberty or to third parties secured by securities or obligations of Gulf West
or Liberty are substantially limited by the Federal Reserve Act and the FDIC.
Such acts further restrict the range of permissible transactions between a bank
and an affiliated company.
RECENT LEGISLATION. In September 1994, Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act (the "Interstate Banking Act"),
which allows the Federal Reserve Board (the "Board") to approve an application
by a bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than the
home state of such bank holding company, without regard to whether such
transaction is prohibited under the law of any state. However, the Board may
not approve an application that would have the effect of permitting an
out-of-state bank holding company to acquire a bank in a host state that has
not been in existence for the minimum period of time, if any, specified in the
statutory law of the host state, unless the bank in question has been in
existence for at least five years, in which case the Federal Reserve Board may
approve the acquisition without regard to any longer minimum period of time
specified in a statutory law of the host state. Under the Interstate Banking
Act, the Board may not approve an application if (1) the applicant and certain
affiliates control, or upon consummation of the acquisition would control, more
than ten percent of the total amount of deposits of insured depository
institutions in the United States; or (2) immediately before the acquisition
the applicant (including certain affiliates) controls any insured depository
institution or any branch of an insured depository institution in the home
state of any bank to be acquired or in any host state in which any such bank
maintains a branch and the applicant (including certain affiliates), upon
consummation of the acquisition, would control thirty percent or more of the
total amount of deposits of insured depository institutions in any such state.
Notwithstanding the provisions discussed above, the Interstate Banking
Act permits states to limit the percentage of the total amount of deposits of
insured depository institutions in the state which may be held or controlled by
any bank or bank holding company to the extent such limitation does not
discriminate against out-of-state banks, out-of-state bank holding companies,
or subsidiaries of such banks or holding companies. The provisions discussed
above became effective in September, 1995.
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<PAGE> 70
The Interstate Banking Act also provides that, beginning June 1, 1997,
the responsible agency may approve a merger transaction between insured banks
with different home states, without regard to whether such transaction is
prohibited under the law of any state, unless the transaction involves a bank
the home state of which has enacted a law after the date of enactment of the
Interstate Banking Act and before June 1, 1997, that (1) applies equally to all
out-of-state banks; and (2) expressly prohibits merger transactions involving
out-of-state banks. However, a merger transaction may be approved before June
1, 1997, if the home state of each bank involved in the transaction has in
effect, as of the date of the approval of such transaction, a law that (1)
applies equally to all out-of-state banks, and (2) expressly permits interstate
merger transactions with all out-of-state banks. An interstate merger
transaction may involve the acquisition of a branch of an insured bank without
the acquisition of the bank only if the law of the state in which the branch is
located permits out-of-state banks to acquire a branch of a bank in such state
without acquiring the bank. For this purpose the branch bank shall be treated
as an insured bank the home state of which is the state in which the branch is
located. Various other provisions of the Interstate Banking Act have the effect
of facilitating mergers between insured banks with different home states and
the opening of branches in states other than a bank's home state.
The chances for enactment of legislation containing additional
measures which would affect the ability of Mercantile of Gulf West to engage in
various activities, or the possibility of elimination of burdensome
regulations, in the future is at present uncertain.
REGULATION OF SALE OF SECURITIES
Gulf West is subject to federal and state securities laws which
regulate any sale of its securities. Accordingly, Gulf West must either
register with the SEC and the securities regulators of the various states in
which it offers such securities, or it must avail itself of an exemption from
such registration under the applicable securities laws.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE SOME OF THE RELEVANT LAWS,
RULES AND REGULATIONS GOVERNING BANKS AND BANK HOLDING COMPANIES. IT DOES NOT,
HOWEVER, PURPORT TO BE A COMPLETE SUMMARY OF ALL APPLICABLE LAWS, RULES AND
REGULATIONS GOVERNING MERCANTILE AND GULF WEST.
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<PAGE> 71
MANAGEMENT OF GULF WEST
DIRECTORS AND EXECUTIVE OFFICERS
The bylaws of Gulf West and Mercantile both provide that directors
will be divided into three classes with the number of directors in each class
being as nearly equal as possible. The terms of all members of one class expire
in the same year and each class is elected for a three-year term. The members
of the Board of Directors of Gulf West were all elected for the first time in
1994. All of the directors of Mercantile are directors of Gulf West. There are
no arrangements or understandings between either Gulf West or Mercantile or any
director or executive officer pursuant to which any such individual has been
elected a director or executive officer of Gulf West or Mercantile. All
executive officers of Gulf West and Mercantile hold office at the pleasure of
their respective Boards of Directors. The following table sets forth the names
of the directors and executive officers of Gulf West and Mercantile, their
ages, and positions held by them with Gulf West and Mercantile.
<TABLE>
<CAPTION>
POSITION(S) POSITION(S) DIRECTOR OF TERM
NAME AGE WITH GULF WEST WITH MERCANTILE BANK SINCE EXPIRES (1)
- ---- --- -------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Robert A. Blakley 48 Vice President Executive Vice President N/A N/A
Gordon W. Campbell 65 Chairman/President Chairman/President 1990 2000
John Wm. Galbraith 76 Director N/A N/A 2000
Thomas M. Harris 63 Director Director 1986 1998
Algis Koncius 52 Director Director 1989 1999
Barry K. Miller 49 Secretary/Treasurer Executive Vice President/ N/A N/A
Secretary/Treasurer
Louis P. Ortiz, CPA 53 Director Director 1986 1999
John C. Petagna, Jr. 48 Director Director 1994 2000
P. N. Risser, III 56 Director Director 1986 1999
Ross E. Roeder 59 Director Director 1995 1998
John T. Sica 57 Vice President Executive Vice President N/A N/A
Douglas Winton 50 Vice President Executive Vice President N/A N/A
</TABLE>
(1) To the extent any of the directors are directors of both Gulf West
and Mercantile, the terms of their directorships are concurrent.
Biographical information about the executive officers and directors of
Mercantile and Gulf West is set forth below. All such information has been
furnished to Gulf West by each such person.
GORDON W. CAMPBELL has served as director of Gulf West, in the
capacity of Chairman of the Board, and President of Gulf West since its
inception and has served as Chairman of the Board and President of Mercantile
since 1990. He was Chairman of SouthTrust Bank of Tampa (formerly Gulf/Bay
Bank) from 1985 to 1990, Vice Chairman of NCNB National Bank, Tampa from
1983-1984 and President and CEO of Exchange Bancorp of Tampa from 1974-1983.
JOHN WM. GALBRAITH has served as director of Gulf West since its
inception and served as a director of Mercantile from 1990 to 1996. He has been
the President and owner of Galbraith Properties, Inc. since 1991, through which
he conducts his personal investments. He was Chairman of Templeton Funds
Management, Inc., a mutual funds management
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<PAGE> 72
company located in St. Petersburg, Florida from 1974-1992, and was re-elected
to the Board in 1995 and continues to serve as a director presently.
THOMAS M. HARRIS has served as director of Gulf West since its
inception and has served as a director of Mercantile since 1986. He has been a
partner with the law firm of Harris, Barrett, Mann & Dew in St. Petersburg,
Florida, since 1979.
ALGIS KONCIUS has served as director of Gulf West since its inception
and has served as a director of Mercantile since 1989. He has been the owner
and President of Koncius Enterprises, a real estate investment company in
Cincinnati, Ohio, since 1968.
LOUIS P. ORTIZ, CPA has served as director of Gulf West since its
inception and has served as a director of Mercantile since 1986. He has been a
partner with the public accounting firm of McNulty, Garcia & Ortiz, P.A.
located in St. Petersburg, Florida, since 1972.
JOHN C. PETAGNA, JR. has served as director of Gulf West since its
inception and began serving as a director of Mercantile in 1994. He has been
the President of American Municipal Securities, Inc., an investment brokerage
firm with headquarters in St. Petersburg, Florida, since 1980.
P. N. RISSER, III has served as director of Gulf West since its
inception and has been a director of Mercantile since 1986. Since 1975 he also
has been the Chairman and Chief Executive Officer of Risser Oil Corporation
which is involved in the petroleum industry with headquarters in Clearwater,
Florida.
ROSS E. ROEDER joined the Board of Gulf West and Mercantile in 1995.
Mr. Roeder was Chairman and CEO of M.D.R., Inc., an international consulting
group from 1980 to present. He is also Chairman of Morgan Kaufman Publishers,
San Francisco, California; a director of Smart & Final Stores Corporation,
Vernon, California; a director of HTI Technologies, Inc., St. Petersburg,
Florida; a director of Henry Lee, Miami, Florida; a director of Chicos FAS,
Inc., Ft. Myers, Florida; and a director of Port Stockton Foods, Stockton,
California.
BARRY K. MILLER serves as Executive Vice President, Chief Financial
Officer, Corporate Secretary and Treasurer of Mercantile and has held an
officer position with Mercantile since 1986. He is also Corporate Secretary and
Treasurer of Gulf West. He has over 25 years of banking experience.
ROBERT A. BLAKLEY serves as Chairman of the Board of Liberty Leasing
Corporation, Vice President of Gulf West and Executive Vice President of
Mercantile and manages all bank lending functions. He has been with Mercantile
since 1991. Prior to joining Mercantile he was with Southeast Bank from 1989 to
1991 as Vice President in Commercial Lending. He has been in the banking
business since 1978.
JOHN T. SICA serves as Vice President of Gulf West and as Executive
Vice President of Mercantile, with responsibility for administration of
Mercantile's branch office network. He joined Mercantile in 1993. Prior to
joining Mercantile he was Executive Vice President and Chief Operating Officer
with SouthTrust Bank of Tampa where he was employed from 1985 to 1993.
DOUGLAS WINTON serves as Vice President of Gulf West and as Executive
Vice President of Mercantile with responsibility for community banking,
marketing, and business development. He joined Mercantile in 1995. Prior to
joining Mercantile, he was President, Chief Executive Officer and a director of
The Terrace Bank in Temple Terrace, Florida.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The compensation of the executive officers of Gulf West and Mercantile
is established from time to time by the respective Boards of Directors.
Currently, the executive officers of Gulf West are not compensated for their
services. The following table shows the aggregate compensation paid by
Mercantile for the last three years to Messrs. Campbell and Miller (the "Named
Officers"). There was no other executive officer of Gulf West or Mercantile
whose total annual salary and bonus exceeded $100,000 for the periods
indicated.
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<PAGE> 73
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------------------
All
Other Other
Name & Principal Salary Bonus Annual Compensation (2)
Position Year ($) ($) Compensation (1) ($)
---------------- ---- ------ ----- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Gordon W. Campbell 1996 145,000 14,500 6,000 5,182
Chairman and President 1995 145,000 -- 1,000 2,662
1994 134,583 -- -- 2,086
Barry K. Miller 1996 100,000 10,000 6,000 3,630
Executive Vice President 1995 100,000 -- 1,000 1,841
Secretary/Treasurer 1994 97,520 -- -- 1,512
</TABLE>
(1) An automobile allowance of $500 per month instituted in November, 1995.
(2) Represents Bank's match of officer's contribution to 401(k) plan.
Directors of Gulf West are currently paid an annual retainer fee of
$2,100. In 1997, this fee was paid to the directors in the form of 420 shares
of Gulf West Common Stock. Directors of Mercantile who are otherwise employed
by Mercantile are not compensated for their services as directors. Outside
directors of Mercantile are currently paid $500 per each Board meeting attended
and $100 per each committee meeting attended.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during 1996 and unexercised options
held by the Named Officers at fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS HELD AT 12/31/96 AT 12/31/96
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gordon W. Campbell -0- $-0- 97,125/10,500 207,375/21,840
Barry K. Miller -0- -0- 52,500/0 92,925/0
</TABLE>
- ------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR AND LONG-TERM INCENTIVE PLANS
No options were granted to Messrs. Campbell or Miller during 1996, and
there are no long-term incentive programs for Messrs. Campbell or Miller.
SALARY CONTINUATION AGREEMENTS
Mercantile has entered into agreements with five of its executive
officers whereby Mercantile has agreed to make certain payments to the
executives upon their severance or retirement and to their designated
beneficiaries in the event of their deaths. The payments will be made to the
officers or beneficiaries over a period of fifteen years. The table below
provides information relative to each of the executives covered under this
plan.
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<PAGE> 74
<TABLE>
<CAPTION>
ANNUAL BENEFIT RETIREMENT EFFECTIVE VESTING
OFFICER AT RETIREMENT DATE DATE PERIOD
------- ------------- ---- ---- ------
<S> <C> <C> <C> <C>
Gordon W. Campbell....... $50,000 9/1/02 8/17/92 10 years
Barry K. Miller ........ $50,000 2/1/14 1/01/94 20 years
Robert A. Blakley ....... $50,000 2/1/14 1/01/94 20 years
John T. Sica............. $25,000 6/1/05 5/01/95 10 years
Douglas Winton........... $40,000 2/1/13 1/01/97 16 years
</TABLE>
Mercantile has not committed to fund these agreements and the covered
executives or their beneficiaries shall be general creditors of Mercantile in
the same manner as any other creditor having an unsecured claim against
Mercantile.
The cost of providing these benefits is being accrued by Mercantile
over the working lives of the executives. The benefits are self-funded because
the plan is self-funded. Mercantile will have use of these assets for
investment in Mercantile's loan and securities portfolio throughout the term.
These accruals are charged to employee benefit expense on Mercantile's income
statement. The table below shows the amount which was or will be charged to
expense by period indicated.
<TABLE>
<CAPTION>
TIME EXPENSE AMOUNT
---- --------------
<S> <C>
1995 $ 66,000
1996 76,000
1997 96,000
1998 106,000
1999 115,000
2000 124,000
2001-2005 524,000
2006-2010 421,000
</TABLE>
KEY MAN LIFE INSURANCE
Mercantile is the beneficiary of life insurance contracts purchased on
the lives of five of its executive officers. These policies are whole life
policies with the premiums paid either lump sum at inception or over a five
year period. The cash values of these policies are carried as an asset on Gulf
West's financial statements. Information relative to these policies is shown
below.
<TABLE>
<CAPTION>
CASH VALUE AT
INSURED PREMIUM FACE AMOUNT DECEMBER 31, 1996
------- ------- ----------- -----------------
<S> <C> <C> <C>
Robert A. Blakley............. $ 42,187(1) $ 771,235 $ 75,532
$100,000(2) $ 285,000 $107,538
Gordon W. Campbell............ $500,000(3) $ 900,000 $602,522
Barry K. Miller............... $ 58,014(1) $1,026,895 $103,369
John T. Sica.................. $200,000(4) $ 428,000 $214,157
Douglas Winton................ $305,000(5) $ 775,000 Issued in 1997
</TABLE>
(1) Annual premium paid over five year period from 1993-1997.
Insurer is Confederation Life Insurance Company (U.S.).
(2) Lump sum premium paid in 1995. Insurer is West Coast Life
Insurance Company.
(3) Lump sum premium paid in 1992. Insurer is Alexander Hamilton
Life Insurance Company of America.
(4) Lump sum premium paid in 1995. Insurer is Chubb Life America.
(5) Lump sum premium paid in 1997. Insurer is The Mutual Group.
70
<PAGE> 75
The life insurance policies on Mr. Blakley and Mr. Miller were placed
through the United States subsidiary of Confederation Life Insurance Company
("Confederation"), a Canadian mutual insurance company. In August 1994, the
Canadian parent was placed in liquidation by the Canadian courts and the U.S.
subsidiary was placed in rehabilitation by the Michigan Commissioner of
Insurance. While in rehabilitation, all payouts of accumulated cash values have
been suspended until a course of action has been determined by the
rehabilitators. Several options exist, including the sale of portions or all of
Confederation. Mercantile has been advised that Confederation is continuing to
honor death benefit claims. Until this matter has been resolved, Mercantile has
discontinued making the annual premium payments on the Increasing Whole Life
Rider portion of the coverages amounting to $52,740 for Mr. Miller and $38,352
for Mr. Blakley. The base policy premiums are being paid out of accumulated
cash values. In addition, Mercantile has suspended the accrual of any earnings
on these policies. The State of Florida has a Florida Guarantee Fund which pays
up to $100,000 in cash surrender values per insured individual should a life
insurance company fail. Mercantile was informed in March, 1997, that the
liquidator of Confederation has entered into an Assumption Reinsurance
Agreement (the "Reinsurance Agreement") with Phoenix Home Life Mutual Insurance
Company ("Phoenix"). If implemented, the terms of the Reinsurance Agreement
provide for the assumption of certain individual policies, including
Mercantile's policies, on a paid in full basis. Closing of the transaction is
anticipated in the fourth quarter of 1997. The exact effect of the Reinsurance
Agreement on the carrying value and other terms of Mercantile's policies has
not yet been determined but management anticipates minimal, if any, losses.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Mercantile has entered into an employment contract with Gordon W.
Campbell. The contract is for a term of ten years ending August 25, 2002 at
such reasonable salary as the parties shall agree to from time to time. The
contract requires him to perform the duties associated with the position of
Chairman and President. Upon separation from Mercantile for any reason other
than cause, Mr. Campbell shall be retained as a consultant for a salary of
$60,000 per year for the remaining term of the contract. In the event there is
a "sale of the bank" (as defined therein), the term of the contract may be
reduced to the lesser of five (5) years from the date of the reduction or the
balance of the contract. Additionally, pursuant to the contract, Mr. Campbell
was granted options to acquire Fifty-Two Thousand Five Hundred (52,500) shares
of stock at the price of Three Dollars and Four Cents ($3.04) per share, as
adjusted for stock dividends and stock splits, upon execution. For loan
transactions with management, see "--Indebtedness of Management."
STOCK PURCHASE PLAN
Gulf West maintains an Employee Stock Purchase Plan for the officers
and employees of Gulf West and Mercantile. Under the plan, officers and
employees are able to purchase up to 480 shares of Gulf West Common Stock each
calendar year, with a minimum purchase of 24 shares per year. Stock purchases
must be paid for in cash or through payroll deduction during the year of
purchase. Elections to purchase stock must be made prior to January 1 of each
year. The purchase price is the greater of market value or book value as of the
close of business on December 31 of the year immediately prior to the year of
purchase ($5.12 per share for December 31, 1996), with certificates issued on
January 31, if paid for in cash by January 15, and/or December 31 if paid for
through payroll deductions. Any officer or employee who can not complete the
current year's purchase commitment will be barred from any more purchases under
the plan for the current year plus one full calendar year, and will receive a
refund of all money collected for that year.
STOCK OPTION PLAN
Gulf West has a stock option plan for the directors and employees of
Gulf West and Mercantile. Under the plan, Gulf West's Board may award options
totaling up to 12% of Gulf West's total outstanding shares. Thus, the total
shares authorized under the stock option plan increases when additional shares
are issued. Consequently, when the shares are issued pursuant to the Merger,
the shares authorized under the stock option plan will automatically increase.
The option price is established by Gulf West's Board but shall not be less than
the greater of the fair market value of the stock as of the date the option is
granted or the par value of such shares. If the shares are not publicly traded,
the book value may be substituted for the fair market value. The period over
which options may be exercised and vesting periods are determined by the Board
for each option granted. Upon sale or change in control of Gulf West, all
options become immediately vested and exercisable. The following table provides
information regarding the options that have been granted to directors and
executive officers as of August 31, 1997.
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<PAGE> 76
<TABLE>
<CAPTION>
EXERCISABLE OPTION
GRANT OPTIONS AT EXPIRATION EXERCISE
DIRECTOR/OFFICER DATE GRANTED AUGUST 31, 1997 DATE PRICE
- ---------------- -------- ------- --------------- ---------- -----
<S> <C> <C> <C> <C> <C>
Robert A. Blakley................ 1/16/92 26,250 26,250 11/16/02 2.91
6/17/93 5,250 5,250 6/17/03 3.05
9/22/94 7,875 3,938 9/22/04 3.25(1)
8/21/97 4,000 4,000 8/21/07 5.50
Gordon W. Campbell............... 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 52,500 52,500 1/16/02 2.91(1)
8/28/92 52,500 52,500 8/28/02 3.04
8/21/97 8,500 8,500 8/21/07 5.50
John Wm. Galbraith............... 8/16/90 2,625 -0- (2) 3.81
1/16/92 2,625 -0- (2) 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Thomas M. Harris................. 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Algis Koncius.................... 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Barry K. Miller.................. 5/2/86 5,250 5,250 7/1/98 3.81
7/1/87 5,250 5,250 7/1/98 3.81
7/1/88 5,250 5,250 7/1/98 3.81
7/1/89 5,250 5,250 7/1/99 3.81
7/1/90 5,250 5,250 7/1/00 3.81
1/16/92 26,250 26,250 1/16/02 2.91(1)
8/21/97 4,000 4,000 8/21/07 5.50
Louis P. Ortiz, CPA.............. 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
J. Cooper Petagna................ 4/21/94 5,250 5,250 4/21/04 3.13
8/21/97 2,500 2,500 8/21/07 5.50
P.N. Risser, III................. 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Ross E. Roeder................... 8/17/92 5,250 5,250 8/17/02 4.28
8/21/97 2,500 2,500 8/21/07 5.50
John T. Sica..................... 6/17/93 13,125 13,125 6/17/03 3.05
2/20/97 3,875 -0- 2/20/07 5.13(1)
8/21/97 4,000 4,000 8/21/07 5.50
Douglas Winton................... 10/19/95 13,125 3,281 10/19/05 4.28(1)
2/20/97 3,875 -0- 2/20/07 5.13(1)
8/21/97 4,000 4,000 8/21/07 5.50
All Directors and
Employees as a group............. -- 399,001 330,754 -- $2.91 - 5.50
</TABLE>
- -----------------
(1) The options covered by these grants are vested over a four-year period.
(2) These options were exercised in 1996.
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<PAGE> 77
COMMITTEES OF THE BOARD OF DIRECTORS OF GULF WEST AND MERCANTILE
Gulf West has an Executive Committee comprised of Messrs. Campbell,
Harris, Ortiz, Petagna and Roeder. Mr. Campbell serves as Chairman. The
Executive Committee, when the Board is not in session, has the authority to act
on behalf and exercise all powers of the Board except as limited by any
resolution of the Board or by the Bylaws of Gulf West. The Executive Committee
may not declare dividends; amend the charter or bylaws; recommend to
stockholders a merger, consolidation or conversion; sell, lease or otherwise
dispose of all or substantially all of the property and assets of Gulf West;
dissolve the company; or approve a transaction in which any member of the
Executive Committee has any material beneficial interest.
Mercantile presently has four committees -- an Executive Committee, an
Audit Committee, an Investment Committee, and a Director Loan Committee, which
meet as necessary. Pursuant to the Bylaws of Mercantile, the Board of
Directors, by resolution adopted by a majority of the full Board, shall
designate members of the various committees of the Board.
The Executive Committee is comprised of Messrs. Campbell (who serves
as Chairman), Koncius, Harris, Risser and Roeder. The principal function of the
Executive Committee is to act on behalf and exercise all powers of the Board of
Directors of Mercantile which may lawfully be delegated to it in the management
of the business and affairs of Mercantile, when the Board of Directors is not
in session. The Executive Committee also serves as Mercantile's
Compensation/Stock Option Committee. The function of this committee is to
review and establish compensation and benefit plans for executive officers of
Mercantile and to recommend the award of stock options to Bank officers and
directors.
The Audit Committee is comprised of Messrs. Ortiz (who serves as
Chairman), Risser and Roeder. This committee's principal functions is to
oversee and direct the internal audit program of Mercantile and determine that
adequate internal audit controls and procedures are being maintained.
The Investment Committee is comprised of Messrs. Koncius (who serves
as Chairman), Campbell and Petagna. The Investment Committee's principal
function is to ensure adherence to investment policies, to recommend amendments
thereto and to advise management on investment strategies.
The Director Loan Committee is comprised of Messrs. Campbell (who
serves as Chairman), Harris, Ortiz, Petagna and Roeder. Messrs. Koncius and
Risser serve as alternate members. The principal function of the Director Loan
Committee is to ensure compliance with loan policies, to recommend any
amendments thereto, to approve or recommend action on designated credits above
any bank officer's lending authority, to exercise authority regarding loans and
to exercise, when the Board of Directors is not in session, all other powers of
the Board regarding loans that may be lawfully delegated to it. This committee
meets jointly with the Board of Directors at its regularly scheduled monthly
meetings and on-call as needed.
INDEBTEDNESS OF MANAGEMENT
Mercantile has made loans to its directors, executive officers and
their affiliates in the ordinary course of business. All the loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons, and do
not involve more than the normal risk of collectibility or present other
unfavorable features.
Mercantile has had, and Gulf West and Mercantile expect to continue to
have, banking and other transactions in the ordinary course of business with
directors and officers of Gulf West and Mercantile and their affiliates,
including members of their families or corporations, partnerships or other
organizations in which such officers or directors have a controlling interest,
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with unrelated
parties. Such transactions are not expected to involve more than the normal
risk of collectibility nor present other unfavorable features to Gulf West and
Mercantile. Although Mercantile has set no limits in the aggregate amount it
would be willing to lend to its directors and officers as a group, loans to
individual directors and officers must comply with Mercantile's lending
policies and statutory and regulatory lending limits, and directors with a
personal interest in any loan application are excluded from the consideration
of such loan application.
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<PAGE> 78
At December 31, 1996 Mercantile had loans outstanding to its
directors, executive officers and their related entities in the amount of
$697,000, representing 5.53% of total capital. The following table presents
information regarding loans outstanding to each of the directors, executive
officers and/or their related entities which totaled $60,000 or more for each
borrower at June 30, 1997 and December 31, 1996 and 1995.
<TABLE>
<CAPTION>
BALANCE AT
-----------------------------------
AVAILABLE JUNE 30 DECEMBER 31,
NAME LOAN TYPE LINE 1997 1996 1995
---- --------- -------------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Gordon W. Campbell........... First Mortgage Loan N/A $282,268 $284,844 $132,655
Credit Cards 8,500 417 102 2,054
Thomas M. Harris............. Personal Line of Credit 100,000 -0- -0- -0-
Credit Cards 25,000 414 1,491 1,447
Overdraft Protection 5,000 -0- -0- -0-
Algis Koncius................ Personal Line of Credit 150,000 120,896 129,896 112,596
Credit Cards 30,000 1,568 3,092 1,041
Overdraft Protection 5,000 -0- -0- -0-
J. Cooper Petagna............ Personal Line of Credit 250,000 -0- -0- -0-
Business Line of Credit 100,000 -0- -0- -0-
Credit Cards 10,000 -0- -0- 613
Business Loan N/A 30,743 38,678 -0-
Overdraft Protection 5,000 -0-
P. N. Risser, III............ Commercial Mortgage N/A 125,146 128,146 134,146
Business Line of Credit 500,000 -0- -0- 500,000
Commercial Mortgage N/A 354,552 -0- -0-
Ross E. Roeder............... Commercial Mortgage N/A 67,865 69,156 -0-
Personal Line of Credit 75,000 -0- 25,000 -0-
Credit Cards 15,000 621 6,064 -0-
-------- -------- --------
TOTAL $984,490 $686,469 $884,552
======== ======== ========
</TABLE>
Total loans outstanding to Mercantile's directors, executive officers,
and their related interests at June 30, 1997 and December 31, 1996 and 1995
were $1,017,000, $697,000 and $899,000 respectively.
REGISTRATION RIGHTS AGREEMENT
Gulf West has entered into a Registration Rights Agreement with Gordon
W. Campbell and John Wm. Galbraith. Under the Registration Rights Agreement,
Gulf West has agreed with Messrs. Campbell and Galbraith that if it files a
registration statement as to any of its securities with the SEC at any time
while either of them owns Gulf West stock, Gulf West will at its expense
register or qualify all or, at their option, any portion of the Gulf West stock
owned by them concurrently with the registration of Gulf West securities.
However, the Registration Rights Agreement specifically excludes the instant
case registration statement because it is being filed on Form S-4.
In addition, Messrs. Campbell and Galbraith have the right under the
Registration Rights Agreement (subject to certain exceptions) at any time to
direct Gulf West to prepare and file with the SEC, at Gulf West's expense, a
registration statement sufficient to permit the public offering and sale of
Gulf West stock owned by them through the facilities of all appropriate
securities exchanges and the over-the-counter market. Gulf West shall, however,
only be obligated to file one such registration statement at the direction of
Messrs. Campbell and Galbraith.
If the managing underwriter of any offering covered by a registration
statement described above advises Messrs. Campbell and Galbraith in writing
that marketing factors require a limitation of the number of shares to be
underwritten,
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Gulf West stock held by stockholders other than Messrs. Campbell and Galbraith
shall first be excluded from such registration on a pro rata basis in
proportion to ownership of Gulf West stock by such other holders of Gulf West
stock to the extent required by such limitation. Thereafter, Gulf West stock
held by Messrs. Campbell and Galbraith shall be excluded from such registration
on a pro rata basis in proportion to their ownership of Gulf West stock to the
extent required by such limitation.
The Registration Rights Agreement also contains provisions pursuant to
which (i) Gulf West agrees to indemnify Messrs. Campbell and Galbraith against
losses, costs, and expenses incurred by them as a result of any untrue
statement of a material fact contained in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, relating to the sale of any of the Gulf West stock owned by them, or
in any application or other document or communication executed by or on behalf
of Gulf West or based upon written information furnished by or on behalf of
Gulf West filed in any jurisdiction in order to register or qualify Gulf West
stock owned by them under the securities or blue sky laws of any state or filed
with the SEC or any other securities commission, and (ii) Messrs. Campbell and
Galbraith agree to indemnify Gulf West, to the same extent as the foregoing
indemnity by Gulf West, and under the same circumstances, with respect to
information furnished by them. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of Gulf West pursuant to such provisions, or otherwise,
Gulf West has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only class of voting securities of Gulf West is its Common Stock,
3,337,081 shares of which were outstanding as of June 30, 1997. To the best
knowledge of Gulf West, no one except management and/or directors listed in the
table under "Security Ownership of Management" owns more than five percent (5%)
of the Gulf West Common Stock.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of August 31, 1997, the beneficial
ownership of Gulf West's outstanding Common Stock by (i) each of the Named
Officers named in the Summary Compensation Table and each director of
Mercantile and Gulf West, (ii) all executive officers and directors as a group.
Unless otherwise indicated, all shares are held with sole voting and investment
power.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIAL OWNER ADDRESS BENEFICIALLY OWNED (1) OF CLASS (2)
---------------- ------- ---------------------- ------------
<S> <C> <C> <C>
Gordon W. Campbell 2000 Bayview Drive 546,821(3) 14.91
Tierra Verde, FL 33715
John Wm. Galbraith 1 Beach Drive S.E., #1802 810,500(4) 21.10
St. Petersburg, FL 33701
Thomas M. Harris 12375 Fifth Street East 78,898(5) 2.15
Treasure Island, FL 33706
Algis Koncius 4340 Willow Hills Lane 131,760(6) 3.59
Cincinnati, OH 45243
Louis P. Ortiz, CPA 6 Island Drive 40,062(7) 1.09
Treasure Island, FL 33706
John Cooper Petagna 615 16th Avenue N.E. 14,470(8) *
St. Petersburg, FL 33704
P.N. Risser, III 1844 Brightwaters Blvd. 169,750(9) 4.63
St. Petersburg, FL 33704
Ross E. Roeder 6901-B 16th St. N.E. 34,420(10) *
St. Petersburg, FL 33702
Barry K. Miller 7266 Rosetree Place West 57,025(11) 1.55
Seminole, FL 33772
All Directors and Executive Officers as a __
group (12 persons) 1,951,293(12) 53.20
</TABLE>
- -----------------
*less than 1%
(1) The amount beneficially owned by each person has been determined under
Rule 13d-3, and includes shares which each person has the right to
acquire within the next sixty (60) days.
(2) In calculating the percentage ownership for a given individual or
group, the number of shares of Gulf West Common Stock outstanding
includes unissued shares subject to options, rights, or conversion
privileges exercisable within sixty (60) days held by such individual
or group, but are not deemed outstanding by any other person or group.
(3) Consists of 116,125 shares which Mr. Campbell has the right to acquire
under presently exercisable outstanding stock options, 409,696 shares
held in a Revocable Trust, 10,500 shares held in an IRA account, and
10,500 shares owned by his spouse and as to which Mr. Campbell
disclaims beneficial ownership.
(4) Includes 2,500 shares which Mr. Galbraith has the right to acquire
under presently exercisable outstanding stock options, and 94,500
owned by his spouse and as to which Mr. Galbraith disclaims beneficial
ownership.
(5) Includes 7,750 shares which Mr. Harris has the right to acquire under
presently exercisable outstanding stock options, 2,835 shares owned
jointly with his spouse, and 420 shares held only in his spouse's name
and as to which Mr. Harris disclaims beneficial ownership.
(6) Includes 7,750 shares which Mr. Koncius has the right to acquire under
presently exercisable outstanding stock options, and 6,825 shares
owned by his spouse.
(7) Consists of 7,750 shares which Mr. Ortiz has the right to acquire
under presently exercisable outstanding stock options, and 32,312
shares in the name of his partnership.
(8) Includes 7,750 shares which Mr. Petagna has the right to acquire under
presently exercisable outstanding stock options, and 6,720 shares held
jointly with his spouse.
(9) Includes 7,750 shares which Mr. Risser has the right to acquire under
presently exercisable outstanding stock options, and 40,830 shares
held through his company retirement plan.
(10) Includes 7,750 shares which Mr. Roeder has the right to acquire under
presently exercisable outstanding stock options.
(11) Includes 56,500 shares which Mr. Miller has the right to acquire under
presently exercisable outstanding stock options.
(12) Includes 289,406 shares the executive officers and directors have the
right to acquire under agreements and presently exercisable stock
options.
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DESCRIPTION OF CAPITAL STOCK OF GULF WEST
COMMON STOCK
Shares of Gulf West Common Stock are evidenced by common stock
certificates, which will be mailed to stockholders of Citizens National who
forward their shares in Citizens National together with the applicable
transmittal letter, to the Paying Agent (SunTrust), as soon as practicable
following receipt of transmittal letters. The following summary of the rights
of the holders of Gulf West Common Stock is qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of Gulf West, the general
corporation laws of the State of Florida, and other applicable law.
NUMBER OF SHARES; PAR VALUE. Gulf West is authorized by the Gulf West
Articles to issue 10,000,000 shares of Gulf West Common Stock, par value $1.00
per share. As of June 30, 1997, there were 3,337,081 shares of Common Stock
issued and outstanding, excluding shares available for issuance pursuant to
Gulf West's stock options plans. Gulf West's Common Stock is not presently
registered under the Exchange Act.
VOTING RIGHTS. Each holder of Gulf West Common Stock is entitled to
one vote per share held of record on all matters submitted to a vote of holders
of Gulf West Common Stock. Stockholders have no cumulative voting rights in any
matters coming before them for a vote, including the election of directors.
DIVIDENDS. All shares of Gulf West Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors. Gulf West's ability to declare and pay
dividends will depend on a large extent on its receipt of dividends from
Mercantile, as well as on future earnings, results of operations, financial
position, capital requirements and capital needs of Mercantile, tax
considerations and general economic conditions. Payment of dividends is also
subject to regulatory requirements at both Mercantile and holding company
levels. SEE "SUPERVISION AND REGULATION."
PREEMPTIVE RIGHTS. Holders of Gulf West Common Stock have no
preemptive rights to subscribe for and purchase a proportionate share of any
additional stock issued by Gulf West. There are no conversion, redemption, or
sinking fund provisions applicable to the Gulf West Common Stock.
LIQUIDATION RIGHTS. Upon liquidation or dissolution of Gulf West,
whether voluntary or involuntary, holders of Gulf West Common Stock will have
the right to share equally in the assets of Gulf West available for
distribution to stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Gulf West Articles
provide, to the extent permitted by Florida law, that directors, officers,
employees and agents of Gulf West be indemnified against certain liabilities
which they may incur in their capacity as such. With certain exceptions, such
indemnification is generally available if the person acted in good faith and in
a manner he or she reasonably believed to be in, or not opposed to, the best
interests of Gulf West, and with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, and controlling persons of Gulf West pursuant
to such provisions, or otherwise, Gulf West has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
STAGGERED BOARD. The Articles of Incorporation of Gulf West provide
that the Gulf West Board shall be divided into three classes of directors. Such
classes shall be as nearly equal in number as is possible with the terms of all
members of one class expiring each year. Successors to the class of directors
whose term has then expired are chosen for a full term of three years.
FAIR PRICE AND ANTITAKEOVER PROVISIONS. The Articles of Incorporation
of Gulf West provide for a "fair price" requirement in certain takeover
transactions. In general, under the "fair price" requirement (and subject to
certain exceptions set forth in the Gulf West Articles), the ratio of (i) the
aggregate amount of cash and fair market value of other consideration to be
received per share by the holders of Gulf West Common Stock in a Business
Combination (hereafter defined) to (ii) the Market Price (hereafter defined) of
the Gulf West Common Stock immediately before the announcement of the Business
Combination or the solicitation of holders of Gulf West Common Stock regarding
the Business Combination, whichever is first, shall be at least as great as the
ratio of (x) the highest price per share previously paid by the Principal
Stockholder (hereafter defined) for any Gulf West Common Stock at any time
beneficially owned by the Principal Stockholder to (y) the Market Price
(hereafter defined) of the Gulf West Common Stock on the trading date
immediately before the earliest date on which the Principal Stockholder
purchased any Gulf West Common Stock during the two year period before the date
on which the Principal Stockholder acquired the Gulf West Common Stock at any
time
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owned by it for which it paid the highest price per share (or, if the Principal
Stockholder did not purchase any shares of Gulf West during such two year
period, the Market Price of the Gulf West Common Stock on the date two years
before the date on which the Principal Stockholder acquired the shares of Gulf
West Common Stock at any time owned by it for which it paid the highest price
per share).
Subject to certain exceptions contained in the Gulf West Articles, the
aggregate amount of cash and fair market value of the other consideration to be
received per share by the holders of Gulf West Common Stock in the Business
Combination shall be not less than the highest price per share previously paid
by the Principal Stockholder for any of the Gulf West Common Stock at any time
beneficially owned by the Principal Stockholder.
The foregoing provisions shall not apply to a Business Combination
approved by two-thirds of those members of the Board of Directors of Gulf West
who were Directors prior to the time when the Principal Stockholder became a
Principal Stockholder.
As used above, the terms "Business Combination," "Market Price," and
"Principal Stockholder" have the following meanings:
"Business Combination" means any merger, reorganization, or
consolidation of Gulf West, including certain combinations of subsidiary
corporation.
"Market Price" is the mean between the high "bid" and the low "asked"
prices of the Gulf West Common Stock in the over-the-counter market on the day
on which such value is to be determined or, if no shares were traded on such
date, on the next preceding day on which such shares were traded, as reported
by the National Association of Securities Dealers Automated Quotation System
("Nasdaq") or other national quotation service. If the Gulf West Common Stock
is not regularly traded in such market but is registered on a national
securities exchange or traded in the national over-the-counter market, the term
"Market Value" shall mean the closing price on such national securities
exchange or market on the date on which such value is to be determined or, if
no shares were traded on such day, on the next preceding day on which shares
were traded, as reported by Nasdaq or other national quotation service. If no
such quotations are available, the fair market value on the date in question
shall be as determined by the Board of Directors of Gulf West in good faith
and, in the case of property other than cash, such property shall be valued by
the Board of Directors in good faith.
"Principal Stockholder" means any individual or entity which, together
with its affiliates and associates beneficially owns ten percent or more of the
outstanding shares of Gulf West Stock, and any affiliate or associate of any
such individual or entity.
The foregoing is intended only as a brief summary of the fair pricing
provisions contained in Article X of the Articles of Incorporation of Gulf
West.
EVALUATION OF OFFERS. The Gulf West Articles provide that in
evaluating any offer to (i) make a tender or exchange offer for any equity
security of Gulf West, (ii) merge or consolidate Gulf West with another
corporation or entity, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of Gulf West, the Board of
Directors of Gulf West may give due consideration to all relevant factors
including the social and economic effect of acceptance of such offer (i) on
Gulf West's present and future customers and employees and those of its
subsidiaries, (ii) on the communities in which Gulf West and its subsidiaries
operate or are located, (iii) on the ability of Gulf West to fulfill its
corporate objective as a bank holding company, and (iv) on the ability of its
subsidiary bank to fulfill the objectives of the bank under applicable statutes
and regulations.
BYLAW AMENDMENTS; REMOVAL OF DIRECTORS. The Gulf West Articles provide
that (i) the Board of Directors is authorized to make, repeal, alter, amend,
and rescind the Bylaws of Gulf West and that the stockholders cannot do so
except by vote of the holders of not less than two-thirds of the outstanding
shares of capital stock of Gulf West entitled to vote generally in the election
of directors cast at a meeting called for that purpose (a "Two-Thirds Vote"),
and (ii) no member of the Board of Directors may be removed except for cause
and then only by a Two-Thirds Vote.
PREFERRED STOCK
Gulf West is authorized to issue 1,000,000 shares of "Class A
Preferred Stock," with a par value of $5.00 per share (the "Preferred Stock").
The Preferred Stock may be issued in different series. Preferred Stock has no
voting rights in Gulf West. There are no outstanding shares of Preferred Stock.
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<PAGE> 83
DIVIDENDS. Holders of Gulf West Preferred Stock are entitled to
receive on a noncumulative basis out of any assets at the time legally
available therefor and when and as declared by the Board of Directors of Gulf
West, dividends at the rate determined by the Board for each series of
Preferred Stock.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Gulf West, the holders of Preferred
Stock then outstanding shall be entitled to be paid out of the assets of Gulf
West available for distribution to its stockholders, before any payment is made
in respect of the Common Stock, an amount equal to $5.00 per share plus all
unpaid but declared dividends thereon to the date fixed for distribution. The
remaining assets of Gulf West are to be distributed exclusively among holders
of Gulf West Common Stock. If upon liquidation the assets of Gulf West shall be
insufficient to pay the holders of Preferred Stock the full amount to which
they shall be entitled, they shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect to the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
OTHER RIGHTS. Except as provided above, the Board of Directors shall
establish the series and determine the relative rights and preferences between
series.
REPORTS TO STOCKHOLDERS
Gulf West intends to furnish its stockholders with annual reports
containing Company prepared financial statements, and may distribute quarterly
and/or other interim reports containing unaudited financial information to its
stockholders as it deems appropriate.
CITIZENS NATIONAL BANK AND TRUST COMPANY
INTRODUCTION
Citizens National, headquartered in Port Richey, Florida, is a
national banking association chartered on February 29, 1988. Citizens National
engages in general commercial banking and related businesses from its one full
service banking location located in Pasco County, Florida. At June 30, 1997,
Citizens National had total assets of approximately $73.5 million, net
portfolio loans of approximately $29.0 million, total deposits of $64.7
million, and stockholders' equity of $8.6 million.
ACTIVITIES OF CITIZENS NATIONAL
The business of Citizens National consists primarily of attracting
deposits from the general public in the areas served by its banking office and
applying those funds, together with funds derived from other sources, to the
origination of loans for various types of collateralized and uncollateralized
consumer and commercial loans, and loans for the purchase, construction,
financing and refinancing of commercial and residential real estate primarily
in West Pasco County, Florida and surrounding communities. The revenues of
Citizens National are derived primarily from interest on, and fees received in
connection with its lending activities, and from interest and dividends from
investment securities and short-term investments and other services. The
principal sources of funds for Citizens National's lending and investment
activities are deposits, amortization and prepayment of loans, the repayment of
loans, and proceeds from the maturity of investment securities. The principal
expenses of Citizens National are the interest paid on deposits and operating
and general and administrative expenses.
Citizens National originates commercial, consumer, and real estate
loans to individuals and businesses. Commercial loans include both
collateralized and uncollateralized loans for working capital (including
inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchases of equipment and machinery.
Consumer loans include collateralized and uncollateralized loans for financing
automobiles, boats, home improvements, and personal investments. Citizens
National also originates a variety of residential real estate loans, including
conventional mortgages collateralized by first mortgage liens to enable
borrowers to purchase, refinance, construct upon or improve real property.
Citizens National is a general commercial bank which offers a variety
of corporate and personal banking services to individuals, businesses, and
other institutions located in its market area. Deposit services include
certificates of deposit, individual retirement accounts ("IRAs") and other time
deposits, checking and other demand deposit accounts, interest paying checking
accounts ("NOW accounts"), savings accounts and money market accounts. The
transaction accounts and time certificates are tailored to the principal market
areas at rates competitive to those in the area. All deposit accounts are
insured by the FDIC up to the maximum limits permitted by law. Citizens
National solicits these accounts from small to medium sized businesses,
professional firms and households located throughout its primary market area.
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Citizens National also offers ATM cards with access to local, state,
and national and international networks, safe deposit boxes, wire transfers,
direct deposit of payroll and social security checks, and automatic drafts for
various accounts. Citizens National provides personal and corporate credit
cards, VISA or MasterCard credit cards as issued by a correspondent bank which
assumes all liabilities relating to underwriting of the credit applicant.
Citizens National has a trust department which specializes in personal trust
and estate services. Securities and other property held by the trust department
in a fiduciary capacity are not included in Citizens National's balance sheet
since such items are not assets of Citizens National.
Citizens National is subject to examination and comprehensive
regulation by the Office of the Comptroller of the Currency ("OCC") and, as a
member of the Federal Reserve System, the Federal Reserve Board, and the FDIC.
As is the case with banking institutions generally, Citizens National's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the OCC and the FDIC. Deposit flows and cost of
funds are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn are affected
by the interest rates at which such financing may be offered and other factors
affecting local demand and availability of funds. Citizens National has faced
strong competition in attracting deposits (its primary source of lendable
funds) and in the origination of real estate loans.
MARKET FOR SERVICES
Citizens National's primary market area is West Pasco County, Florida
located in Pasco County. Management of Citizens National believes that its
principal markets have been: (i) the expanding residential market within its
primary market area; (ii) the established and expanding commercial market
within its primary market area; and (iii) the real estate mortgage market
within its primary market areas and their environs. Specifically, Citizens
National has targeted businesses with annual gross revenues up to $10 million,
and all households within the primary market area. Businesses have been
solicited through the personal efforts of Citizens National's directors and
officers.
The primary source of income generated by Citizens National is from
the interest earned from both its loan and investment portfolios. In this
regard, Citizens National has introduced competitive mortgage products and
increased its business development through marketing of its services by direct
solicitation. Citizens National has attempted to maintain diversification when
considering investments and the approval of loan requests. Emphasis has been
placed on the borrower's ability to generate cash flow sufficient to support
its debt obligations and other cash related expenses. Current lending
activities presently include commercial and consumer loans, and loans for
residential purposes. Commercial real estate loans are originated for
commercial construction, acquisition, refinancing, or remodeling. Consumer
loans include the origination of conventional mortgages, residential lot loans
and residential acquisition, development or construction loans for the
purchase, construction or refinancing of single family housing or lots.
At June 30, 1997, Citizens National's net loan portfolio was
approximately $29.0 million representing approximately 39.4% of its total
assets. As of such date, the loan portfolio consisted of 8.9% commercial loans,
37.4% commercial real estate loans, 47.8% residential real estate mortgage
loans, and 5.9% installment or consumer loans.
COMPETITION
Citizens National encounters competition both in attracting deposits
and the origination of loans. The deregulation of the banking industry and the
widespread enactment of state laws which permit multi-bank holding companies as
well as a degree of interstate banking has created a highly competitive
environment for commercial banking in Citizens National's primary market area.
In one or more aspects of its business, Citizens National has competed with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries operating in its market area and
elsewhere. Most of these competitors, some of which are affiliated with large
bank holding companies, have substantially greater resources and lending
limits, and may offer certain services, such as brokerage services, that
Citizens National does not provide. In addition, many of Citizens National's
non-bank competitors are not subject to the same extensive federal regulations
that govern federal chartered and insured banks.
Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality of the services rendered, the convenience of
banking facilities, and, in the case of loans to commercial borrowers, relative
lending limits.
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EMPLOYEES
At June 30, 1997, Citizens National employed twenty-two full-time
employees and one part-time employee. None of these employees is covered by a
collective bargaining agreement and management believes that its employee
relations are good.
PROPERTY
The principal executive and administrative offices of Citizens
National located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668 serves
as Citizens National's sole banking facility. This facility consists of
approximately 10,210 square feet on two floors. The first floor which is a
comprised of a lobby, administrative offices, four (4) inside teller stations,
safe deposit booths and related non-vault area, and vault operations, is the
location of the primary retail banking operations a the main office. The second
floor houses the trust department and space for future expansion. Citizens
National's banking office also includes two (2) outside drive-in teller
operations. Citizens National leases this building and improvements thereon
pursuant to a ten year, triple net lease, which expires in 1998. Under the
lease, Citizens National pays a base rent of approximately $9,436 per month.
Citizens National has the option to renew the lease with respect to the first
floor or second floor of the building, or both, for up to an additional ten
(10) year period.
LEGAL PROCEEDINGS
Citizens National has periodically been a party to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, foreclose on loan defaults, claims involving the
making and servicing of real property loans, and other issues incident to
Citizens National's business. Management is not aware of any proceeding
threatened or pending against Citizens National which, if determined adversely,
would have a material effect on the business or financial position of Citizens
National.
In February 1997, Citizens National entered into a settlement
agreement with Mr. Loue E. Stockwell and the estate of Mr. Camille L. LaRose in
connection with a lawsuit filed by Mr. Stockwell and Mr. Camille L. LaRose,
former executive officers of Citizens National, against Citizens National to
enforce their employment contracts with Citizens National. Under this
settlement agreement, on or about February 24, 1997, Citizens National paid
$220,000, including attorney's fees, to Mr. LaRose's estate and $240,000,
including attorney's fees, to Mr. Stockwell. Citizens National, pursuant to
this settlement, also has forgiven the amount outstanding on Mr. Stockwell's
loan with Citizens National (including any rights to interest which may have
accrued under this loan), previously charged-off on June 30, 1994, in the
amount of approximately $89,227 ($96,143 less recoveries of $6,916).
CERTAIN REGULATORY MATTERS
In February 1997, the OCC commenced an examination of Citizens
National reviewing certain bank data through December 31, 1996. Citizens
National received a report in March 1997 of combined safety and soundness,
consumer compliance, Community Reinvestment Act (CRA), and fiduciary
examinations by the OCC. The report reflected that Citizens National (i)
remains sound, (ii) has satisfactorily complied with consumer regulations and
(iii) has received a favorable review with respect to its trust department.
However, Citizens National received a "needs to improve" rating with respect to
CRA. Although Citizens National satisfactorily met four of the five assessment
criteria used by the OCC to evaluate small banking institutions, the OCC gave
Citizens National this CRA rating due to Citizens National's low
loan-to-deposit ratio.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citizens National has had various loan and other banking transactions
in the ordinary course of business with the directors, executive officers, and
principal stockholders of Citizens National (or an associate of such person).
All such transactions: (i) have been made in the ordinary course of business;
(ii) have been made on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the time for comparable
transactions with unrelated persons; and (iii) in the opinion of management do
not involve more than the normal risk of collectibility or present other
unfavorable features. At June 30, 1997 and December 31, 1996, the total dollar
amount of extensions of credit to directors and executive officers identified
above and principal stockholders of Citizens National identified below, and any
of their associates (excluding extensions of credit which were less than
$60,000 to any one such person and their associates) were $1,042,253 and
$663,052, respectively, which represented approximately 12.3% and 7.83%,
respectively, of total stockholders' equity.
Each director of Citizens National is paid a $300 fee for each meeting
of Citizens National's Board of Directors attended and each non-employee
director receives a $60 fee for each committee meeting attended.
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Outside of normal customer relationships, none of the directors or
executive officers of Citizens National, and its stockholders holding over 5%
of the Citizens National Common Stock and no corporations or firms with which
such persons or entities are associated, currently maintains or has maintained
since the beginning of the fiscal year, any significant business or personal
relationship with Citizens National, other than such as arises by virtue of
such position or ownership interest of Citizens National.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the outstanding Citizens National Common Stock as of
August 31, 1997, by (i) each person known to Citizens National to own
beneficially more than 5% of its outstanding Citizens National Common Stock,
(ii) each director and executive officer of Citizens National, and (iii) all
directors and executive officers of Citizens National as a group. Except as
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all Citizens National Common Stock owned by
them.
<TABLE>
<CAPTION>
CURRENT BENEFICIAL OWNERSHIP
-----------------------------------
NUMBER PERCENT
NAME OF BENEFICIAL OWNER (1) OF SHARES (2) OF CLASS(3)
- ---------------------------- ------------- -----------
<S> <C> <C>
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Philip A. Chesnut (1).................................................. 1,325 *
Melvin C. Draft........................................................ 50,500 8.37%
4354 Reeves Road
New Port Richey, FL 34652
Austin L. Fillmon...................................................... 15,000 2.49%
7319 Sunfish Circle
Spring Hill, FL 34607
Henry W. Hanff, M.D.................................................... 69,875 11.59%
5243 Hanff Lane
New Port Richey, FL 34652
Pandurang V. Kamat, M.D................................................ 79,500 13.18%
3565 Seaway Drive
New Port Richey, FL 34652
Carol L. Kinnard (1)................................................... 8,600 1.43%
Lester Mallett......................................................... 40,000 6.64%
5703 Main Street
New Port Richey, FL 34652
Charles B. McKenzie (1)................................................ 17,500 2.90%
Dennis L. Murphy....................................................... 17,500 2.90%
281 Rue des Chateaux
Tarpon Springs, FL 34689
Ralph W. Shannon....................................................... 8,500 1.41%
5015 Waterside Drive
Port Richey, FL 34673
Thomas D. Stelnicki, D.P.M............................................. 29,000 4.81%
13944 Lake Shore Boulevard, Suite A
Hudson, FL 34667
N. John Stewart, Jr.................................................... 30,000 4.97%
5435 Main Street
New Port Richey FL 34652
All Directors and Executive Officers as a group (13 persons)........... 367,300 60.91%
OTHER PRINCIPAL STOCKHOLDERS
Selma P. Marlowe....................................................... 43,100 7.15%
Post Office Box 358
Trenton, FL 32693-0358
</TABLE>
- ----------
* Less than 1%.
82
<PAGE> 87
(1) The business address for Mr. Chesnut, Ms. Kinnard and Mr. McKenzie is
9550-1 U.S. Highway 19, Port Richey, Florida 34668.
(2) In accordance with Rule 13d-3 promulgated under the Exchange Act, a
person is deemed to be the beneficial owner of a security for purposes
of the rule if he or she has or shares voting power or dispositive
power with respect to such security or has the right to acquire such
ownership with sixty (60) days. As used herein, "voting power" is the
power to vote or direct the voting of shares, and "dispositive power"
is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
(3) In calculating the percentage ownership for a given individual or
group, the number of shares of Citizens National Common Stock
outstanding includes unissued shares subject to options, warrants,
rights or conversion privileges exercisable within sixty (60) days
held by such individual or group, but are not deemed outstanding by
any other person or group.
CITIZENS NATIONAL
The following is a summary of selected financial data for Citizens
National for the six month periods ended June 30, 1997 and 1996 and the five
years ended December 31, 1996. This summary should be read in conjunction with
the financial statements and notes thereto of Citizens National which are
presented elsewhere herein.
83
<PAGE> 88
CITIZENS NATIONAL BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks.................... $ 1,385 1,896 1,847 1,241 1,837 4,982
Securities ................................ 40,846 41,576 43,286 44,512 40,980 39,849
Federal funds sold......................... 200 5,050 2,200 1,700 4,850 2,000
Loans, net................................. 28,994 25,492 23,397 22,409 23,348 27,854
All other assets........................... 2,086 1,968 1,927 2,066 1,474 1,586
-------- ------ ------ ------ ------ ------
Total assets.................... $ 73,511 75,982 72,657 71,928 72,489 76,271
======== ====== ====== ====== ====== ======
Deposit accounts........................... 64,712 66,913 65,554 65,858 66,276 71,065
Other borrowings........................... - - - - - -
All other liabilities...................... 249 597 464 502 598 450
Stockholders' equity....................... 8,550 8,472 6,639 5,568 5,615 4,756
-------- ------ ------ ------ ------ ------
Total liabilities and
stockholders' equity.......... $ 73,511 75,982 72,657 71,928 72,489 76,271
======== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
------------------ -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income............ $ 2,626 2,460 4,990 4,844 4,454 4,914 5,283
Total interest expense........... 1,479 1,453 2,940 2,923 2,260 2,556 2,953
-------- -------- ------- --------- -------- -------- --------
Net interest income.............. 1,147 1,007 2,050 1,921 2,194 2,358 2,330
Provision (credit) for
loan losses........... - (100) (100) - 497 171 30
-------- -------- ------- --------- -------- -------- --------
Net interest income after
provision (credit)
for loan losses....... 1,147 1,107 2,150 1,921 1,697 2,187 2,300
Noninterest income............... 169 171 337 342 360 828 470
Noninterest expense.............. 1,209 852 1,857 1,648 1,658 1,797 1,835
-------- -------- ------- --------- -------- -------- --------
Earnings before income tax
provision (credit).... 107 426 630 615 399 1,218 935
Income tax provision (credit).... (12) 55 60 115 17 359 135
-------- -------- ------- --------- -------- -------- --------
Net earnings..................... $ 119 371 570 500 382 859 800
======== ======== ======= ========= ======== ======== ========
Net earnings per share........... $ .20 .70 1.06 .98 .78 1.80 1.75
======== ======== ======= ========= ======== ======== ========
Cash dividends per share......... $ 0.10 - - - - - -
======== ======== ======= ========= ======== ======== ========
Weighted average number of
shares outstanding.... 603,030 533,614 537,723 509,256 493,510 477,900 456,530
======== ======== ======= ========= ======== ======== ========
</TABLE>
84
<PAGE> 89
CITIZENS NATIONAL BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets............ .32% 1.03% 0.78% 0.70% 0.54% 1.15% 1.20%
Return on average equity............ 2.83% 10.94% 8.37% 8.47% 7.11% 16.29% 18.22%
Average equity to average
assets................... 11.26% 9.40% 9.36% 8.26% 7.60% 7.08% 6.58%
Interest rate spread
during the period (1).... 2.72% 2.50% 2.51% 2.44% 3.03% 3.11% 3.43%
Net yield on average
interest-earning assets 3.20% 2.92% 2.95% 2.80% 3.25% 3.33% 3.70%
Noninterest expenses to
average assets........... 3.23% 2.36% 2.55% 2.31% 2.35% 2.41% 2.75%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities...... 1.12 1.10 1.10 1.08 1.07 1.06 1.06
Nonperforming loans, and
foreclosed real
estate as a percentage
of total assets.......... .09% .13% .08% .39% .52% .32% --%
Allowance for loan losses
as a percentage
of total loans........... 1.45% 1.68% 1.65% 2.12% 2.21% 1.13% .99%
Allowance for loan losses
as a percentage of
nonperforming loans...... --% 444.89% --% 180.08% 153.21% 115.38% --%
Number of banking offices........... 1 1 1 1 1 1 1
Total shares outstanding
at end of period........ 603,030 492,530 603,030 472,530 472,530 456,530 456,530
Book value per share............... $ 14.18 14.40 14.05 14.05 11.78 12.30 10.42
</TABLE>
- -----------------------------
(1) Difference between weighted average yield on all interest-earning
assets and weighted-average rate on all interest-bearing
liabilities.
85
<PAGE> 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CITIZENS NATIONAL
GENERAL
Citizens National is a nationally-chartered BIF-insured commercial
bank which provides a wide range of banking services to small and middle-market
businesses and individuals through its one office in Pasco County, Florida.
Citizens National conducts a general commercial banking business which consists
of attracting deposits from the general public and applying those funds to the
origination of loans for commercial, consumer, and residential purposes.
Citizens National's profitability depends primarily on net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rate paid on these balances.
Net interest income is dependent upon Citizens National's interest
rate spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. During 1996, Citizens National maintained a return on
average earning assets of 0.78%. The return is impacted by interest rates,
deposit flows, and loan demand.
Additionally, Citizens National profitability also is affected by such
factors as the level of non-interest income and expenses, the provision for
loan losses, and the effective tax rate. Non-interest income consists primarily
of loan service charges and other fees. Citizens National's non-interest
expenses primarily consist of compensation and benefits, occupancy related
expenses, deposit insurance premiums paid to the FDIC, and other operating
expenses.
As of June 30, 1997, the total assets of Citizens National was
approximately $73.5 million, a decrease of 3.3% compared to total assets of
$76.0 million as of December 31, 1996. During the six-months ended June 30,
1997, net loans receivable increased $3.5 million or 13.7%. Citizens National's
total securities portfolio decreased to $40.8 million as of June 30, 1997 from
$41.6 million as of December 31, 1996. Citizens National's cash and cash
equivalents decreased from $6.9 million at December 31, 1996 to $1.6 million at
June 30, 1997. Citizens National's deposits decreased from $66.9 million as of
December 31, 1996 to $64.7 million as of June 30, 1997. Citizens National, for
the six months ended June 30, 1997 had net earnings of $119,000 compared to net
earnings of $371,000 for the comparable period in 1996. The decrease in net
earnings is primarily due to the loss incurred by Citizens National in
connection with a litigation settlement of $324,000.
As of December 31, 1996, the total assets of Citizens National was
approximately $76.0 million, an increase of 4.5% over total assets of $72.7
million at December 31, 1995. During the year ended December 31, 1996 net loans
receivable increased $2.1 million or 9.0%. Citizens National's total securities
portfolio decreased to $41.6 million as of December 31, 1996 from $43.3 million
as of December 31, 1995. Citizens National's deposits increased to $66.9
million as of December 31, 1996 from $65.6 million as of December 31, 1995, a
2.0% increase. Citizens National for the year ended December 31, 1996, had net
earnings of $570,000 compared to net earnings of $500,000 for 1995.
REGULATION AND LEGISLATION
As a nationally-chartered commercial bank, Citizens National is
subject to extensive regulation by the OCC and the FDIC, and it files reports
with these regulators concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the OCC to monitor
Citizens National's compliance with the various regulatory requirements.
Citizens National is also subject to regulation by the Federal Reserve Board
with respect to reserves required to be maintained against deposits and certain
other matters.
PENDING ACQUISITION OF CITIZENS NATIONAL
On July 31, 1997, the Board of Directors of Citizens National signed a
definitive agreement for the merger of Citizens National into another financial
institution (Gulf West Banks, Inc.). Under the terms of the agreement Citizens
National's stockholders will collectively receive 1.95 million shares of Gulf
West Banks, Inc. common stock, an exchange ratio of 3.2337 shares, for each
share of Citizens National's common stock. The merger is expected to be
completed near the end of 1997 or early 1998 and is subject to various
regulatory approvals as well as the approval of Citizens' stockholders.
86
<PAGE> 91
CREDIT RISK
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is management's policy to
discontinue the accrual of interest income and classify a loan as non-accrual
when principal or interest is past due ninety (90) days or more and the loan is
not adequately collateralized, or when in the opinion of management, principal
or interest is not likely to be paid in accordance with the terms of the
obligation. If a loan or a portion of a loan is classified as doubtful or
partially charged-off, the loan will be classified as non-accrual. Loans that
are on a current payment status or past due less than ninety (90) days also may
be classified as non-accrual if repayment in full of principal, interest, or
both is in doubt. Consumer installment loans will be charged-off after ninety
(90) days of delinquency unless adequately collateralized and in the process of
collection.
Loans will not be returned to accrual status until principal and
interest payments are brought current and future payments appear certain.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. While a loan is classified as non-accrual
and the future collectibility of the recorded loan balance is doubtful,
collections of interest and principal are generally applied as a reduction to
principal outstanding. When the future collectibility of the recorded loan
balance is expected, interest income may be recognized on a cash basis. In the
case where a non-accrual loan had been partially charged off, recognition of
interest on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Cash interest
receipts in excess of that amount are recorded as recoveries to the allowance
for credit losses until prior charge-offs have been fully recovered.
Real estate acquired by Citizens National as a result of foreclosure
or acceptance of deeds in lieu of foreclosure is classified as foreclosed real
estate. These properties are recorded on the date acquired at fair value. If
the fair value after deducting the estimated selling costs of the acquired
property is less than the recorded investment in the related loan, the
estimated loss is charged to the allowance for loan losses at that time. The
resulting carrying value established at the date of foreclosure becomes the new
cost basis for subsequent accounting. After foreclosure, if the fair value less
estimated selling costs of the property becomes less than its cost, the
deficiency is charged to the provision for losses on foreclosed real estate.
Costs relating to the developmental improvement of the property are
capitalized, whereas those relating to holding the property for sale are
charged as an expense.
NON-PERFORMING LOANS
The following table sets forth certain information regarding
nonaccrual loans, non-performing loans, and foreclosed real estate, including
the ratio of such loans and foreclosed real estate to total assets as of the
dates indicated, and certain other related information.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans:
Residential real estate loans........................................................................ $-- --
Commercial real estate............................................................................... -- 63
Commercial loans..................................................................................... -- 218
Consumer loans and other............................................................................. -- --
--- ---
Total nonaccrual loans........................................................................ -- 281
=== ===
Total nonperforming loans (1)................................................................. -- 281
=== ===
Total nonperforming loans to total assets..................................................... --% .39%
=== ===
Foreclosed real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure........................................................................ 63 --
=== ===
Total nonperforming loans and foreclosed real estate..................................................... $63 281
=== ===
Total nonperforming and foreclosed real estate to total assets........................................... .08% .39%
=== ===
</TABLE>
(1) Accruing loans which are contractually past due 90 days or more as to
principal or interest.
87
<PAGE> 92
The approximate amount of interest on non-accrual loans which would
have been recorded as income under the original terms of the loans was
approximately $-0- and $57,000 for the years ended December 31, 1996 and 1995,
respectively.
In originating loans, Citizens National recognizes that credit losses
will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan and, in the case of a collateralized loan, the quality of
the collateral for the loan as well as general economic conditions. It is
management's policy to maintain an adequate allowance for loan losses based on,
among other things, Citizens National's historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality.
The allowance for loan losses has been established through charges to
earnings in the form of a provision for possible loan losses. Increases and
decreased in the allowance due to changes in the measurement of the impaired
loans are included in the provision for possible loan losses. Loans continue to
be classified as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered probable. When a
loan or portion of a loan is determined to be uncollectible, the portion deemed
uncollectible is charged against the allowance.
Although management believes it uses the best information available to
make determinations with respect to the allowance for possible loan losses,
there can be no assurances that such allowance will be adequate if economic
conditions differ from the economic conditions in the assumptions used in
making the initial determinations.
The following table sets forth information with respect to activity in
Citizens National's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding, net....................................................................... $ 24,202 22,837
======== ======
Allowance at beginning of year....................................................................... 507 507
-------- ------
Charge-offs:
Commercial loans................................................................................. - -
Consumer loans................................................................................... - -
Residential real estate loans.................................................................... - (58)
-------- ------
Total loans charged-off.................................................................... - (58)
-------- ------
Recoveries........................................................................................... 20 58
-------- ------
Net recoveries............................................................................. 20 -
-------- ------
Credit for loan losses........................................................................... (100) -
-------- ------
Allowance at end of year......................................................................... $ 427 507
======== ======
Ratio of net charge-offs (recoveries) to average net loans outstanding........................... (.001) -
======== ======
Ratio of allowance to year-end loans............................................................. .016 .021
======== ======
Ratio of allowance to non-performing loans.......................................................
-------- ------
Year end total loans............................................................................. $ 25,925 23,911
======== ======
</TABLE>
88
<PAGE> 93
The following table presents information regarding Citizens National's
total allowance for losses as well as the allocation of such amounts to the
various categories of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995
------------------------- ---------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans............................................................. $ 36 8.7% $ 34 7.1%
Commercial real estate loans................................................. 216 36.3 217 30.1
Residential real estate loans................................................ 147 50.3 218 58.9
Consumer loans............................................................... 28 4.7 38 3.9
----- ----- ----- -----
Total allowance for loan losses.......................................... $ 427 100.0% $ 507 100.0%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
The operating results of Citizens National depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities,
consisting primarily of deposits. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. Citizens
National's interest-rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. In addition, Citizens National's net earnings are also affected by the
level of nonperforming loans and foreclosed real estate, as well as the level
of its noninterest income, and its noninterest expenses, such as salaries and
employee benefits, occupancy and equipment costs and provisions for losses on
foreclosed real estate and income taxes.
The following tables sets forth for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of
Citizens National from interest-earning assets and the resultant average
yields; (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost; (iii) net interest/dividend income;
(iv) interest-rate spread; (v) net interest margin and (vi) the ratio of
average interest-earning assets to average interest-bearing liabilities.
89
<PAGE> 94
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ---- ------- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 24,202 2,288 9.45% $ 22,837 2,101 9.20%
Securities 42,626 2,546 5.97% 43,814 2,625 5.99%
Other interest-earning assets (2) 2,745 156 5.68% 2,035 118 5.80%
-------- ------- -------- -------
Total interest-earning assets 69,573 4,990 7.17% 68,686 4,844 7.05%
------- -------
Noninterest-earning assets 3,133 2,745
-------- --------
Total assets $ 72,706 $ 71,431
======== ========
Interest-bearing liabilities:
Savings and NOW deposits 22,460 703 3.13% 23,185 733 3.16%
Time deposits 40,645 2,237 5.50% 40,174 2,190 5.45%
-------- ------- -------- -------
Total interest-bearing liabilities 63,105 2,940 4.66% 63,359 2,923 4.61%
------- -------
Demand deposits 1,682 1,341
Noninterest-bearing liabilities 1,111 831
Stockholders' equity 6,808 5,900
------ ------
Total liabilities and stockholders' equity $ 72,706 $ 71,431
======== ========
Net interest income $ 2,050 $ 1,921
======= =======
Interest rate spread (3) 2.51% 2.44%
==== ====
Net interest margin (4) 2.95% 2.80%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.10 1.08
==== ====
</TABLE>
- ----------------------------------------
(1) Includes nonaccrual loans and amortization of deferred loan fees and
direct underwriting costs.
(2) Includes Federal Funds sold and tax-exempt interest has not been
calculated on a tax-equivalent basis.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
90
<PAGE> 95
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes
in interest income and interest expense of Citizens National for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
rate (change in rate multiplied by prior volume), (2) changes in volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans .................................. $ 57 126 4 187
Securities .................................. (9) (71) 1 (79)
Other interest-earning assets.......................... (2) 41 (1) 38
-- --- - ---
Total...... 46 96 4 146
-- --- - ---
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits..................... (6) (22) (2) (30)
Time deposits................................ 20 26 1 47
-- --- - ---
Total........................................ 14 4 (1) 17
-- --- - ---
Net change in net interest income......................... $ 32 92 5 129
== === = ===
</TABLE>
91
<PAGE> 96
LIQUIDITY AND CAPITAL RESOURCES
A nationally chartered commercial bank is required to maintain a
liquidity reserve of at least 10% of its total transaction accounts. The
liquidity reserve may consist of cash on hand, cash on demand with other
correspondent banks and other investments and short-term marketable securities
as determined by the rules of the Federal Reserve Bank, such as federal funds
sold and United States securities or securities guaranteed by the United
States. As of June 30, 1997 and December 31, 1996, Citizens National has
liquidity of approximately $14.1 million and $17.7 million, respectively, or
approximately 22.0% and 26.5% of total deposits, respectively.
During the six months ended June 30, 1997, Citizens National's primary
sources of cash were from principal repayments and maturities of securities of
$3.8 million. Cash was used during this period to fund net loan disbursements
of $3.5 million, purchase securities of $3.5 million and fund net deposit
outflows of $2.2 million. This resulted in a net decrease in cash and cash
equivalents of $5.4 million from December 31, 1996 to June 30, 1997. At June
30, 1997, Citizens National had approved commitments to fund $300,000 in loans.
It is expected that these commitments will be funded from principal repayments
of loans and securities and maturities of securities.
During the year ended December 31, 1996, Citizens National's primary
sources of cash were from principal repayments and maturities of securities of
$16.2 million, net deposit inflows of $1.4 million, proceeds from the issuance
of common stock of $1.3 million and cash flow from operations of $.7 million.
Cash was used during 1996 to purchase securities of $14.6 million and fund net
loan disbursements of $2.1 million. This resulted in an increase of cash and
cash equivalents of $2.9 million from December 31, 1995 to December 31, 1996.
INVESTMENT ACTIVITIES
Securities that management has the intent and Citizens National has
the ability at the time of purchase to hold until maturity are classified
securities held to maturity. Securities in this category are carried at
amortized cost adjusted for accretion of discounts and amortization of premiums
using the effective interest method over the estimated life of the securities.
If a security has a decline in fair value below its amortized cost that is
other than temporary, then the security will be written down to its new cost
basis by recording a loss in statement of earnings. Securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale. Assets included in this category are those
assets that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes. Securities available for sale are recorded
at fair value. Both unrealized holding gains and losses on securities available
for sale, net of taxes, are included as a separate component of stockholders'
equity in the balance sheets until these gains or losses are realized. The cost
of investment securities sold is determined by the specific identification
method. If a security has a decline in fair value that is other than temporary,
then the securities will be written down to its fair value by recording a loss
in the statement of earnings. These securities are recorded at fair value. Both
unrealized gains and losses are included in the balance sheet.
At June 30, 1997, Citizens National had an unrealized loss net of
taxes, of $42,000. This unrealized loss was shown as a decrease of
stockholders' equity at June 30, 1997 as compared to a loss, net of taxes, of
$61,000 as of December 31, 1996.
At June 30, 1997, Citizens National's investment portfolio totaled
approximately $40.8 million, compared to $41.6 million at December 30, 1996.
The portfolio at June 30, 1997 primarily consisted of U.S. government agencies
and agency-backed securities.
92
<PAGE> 97
The following table sets forth the carrying value of Citizens
National's securities portfolio as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Securities available for sale:
U.S. government agencies and corporations......................... $ 8,527 9,173
U.S. Treasury securities.......................................... - 1,999
Mortgage-backed securities........................................ 2,208 2,570
-------- ------
Total available for sale........................................ $ 10,735 13,742
======== ======
Securities held to maturity:
U.S. government agencies and corporations......................... 14,848 9,631
U.S. Treasury securities.......................................... 995 1,495
Mortgage-backed securities........................................ 6,579 9,426
Tax-exempt securities............................................. 7,210 7,224
Corporate securities.............................................. 1,209 1,768
-------- ------
Total held to maturity.......................................... $ 30,841 29,544
======== ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities portfolio at December 31, 1996, as
follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
---------------------------------------------------------------------------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying AVERAGE
Value Yield Value Yield Value Yield Value Yield Value YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(dollars in thousands)
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE
FOR SALE:
U.S. government
agencies and
corporations... $ 549 5.52% $ 7,487 5.74% $ 491 6.44% $ -- - % $ 8,527 5.77%
Mortgage-backed
securities..... -- - - - - - 2,208 6.11 2,208 6.11
------ -------- ------- ------- --------
Total.......... $ 549 5.52% $ 7,487 5.74% $ 491 6.44% $ 2,208 6.11% $ 10,735 5.84%
====== ==== ======== ==== ======= ==== ======= ==== ======== ====
SECURITIES HELD TO
MATURITY:
U.S. government
agencies and
corporations... 2,998 6.88% 11,850 6.36% - - % - - % 14,848 6.46%
U.S. Treasury
securities..... 995 6.47 - - - - - - 995 6.47
Mortgage-backed
securities..... 159 4.92 768 6.56 4,315 6.34 1,337 6.23 6,579 6.31
Tax-exempt
securities (1). - - 1,567 4.01 1,939 5.57 3,704 5.80 7,210 5.35
Corporate
securities.... 809 5.69 400 6.44 - - - - 1,209 5.94
------ -------- ------- ------- --------
Total......... $4,961 6.54% $ 14,585 6.12% $ 6,254 6.10% $ 5,041 5.91% $ 30,841 6.15%
====== ==== ======== ==== ======= ==== ======= ==== ======== ====
</TABLE>
(1) The yields on tax-exempt securities are not presented on a tax
equivalent basis.
93
<PAGE> 98
REGULATORY CAPITAL REQUIREMENTS
Under OCC regulations, Citizens National is required to meet certain
minimum regulatory capital requirements. This is not a valuation allowance and
has not been created by charges against earnings. It represents a restriction
on stockholders' equity.
In accordance with risk based capital guidelines issued by the OCC,
all national banks are required to maintain a minimum standard of total capital
to weighted risk assets of at least 8% of total assets. In addition, national
banks must maintain "Core" or "Tier-I" capital of at least 4% of total assets.
Those national banks operating at or near the 4% Tier I capital level are
expected to have well diversified risk, including no undue interest risk rate
exposure, excellent control systems, good earnings, high asset quality, high
liquidity and well managed on and off balance sheet activities; and in general
be considered strong banking organization with a composite 1 rating under the
CAMEL rating for banks. For all but the most highly rated banks meeting the
above conditions, the minimum leverage requirement has been increased to 5% of
total assets. Management believes, as of June 30, 1997, that Citizens National
meets all capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the Federal
regulators categorized Citizens National as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, Citizens National must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed Citizens National's category.
The following table summarizes the current capital requirements for
Citizens National (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AT JUNE 30, 1997:
Total Capital
(to Risk Weighted Assets)............ $ 8,557 26.1% $2,626 8.0% $3,282 10.0%
Tier I Capital
(to Risk Weighted Assets)............ 8,599 26.2 1,313 4.0 1,969 6.0
Tier I Capital
(to Average Assets).................. 8,599 11.5 3,000 4.0 3,750 5.0
AT DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets)............ 9,255 29.5% 2,507 8.0% 3,134 10.0%
Tier I Capital
(to Risk-Weighted Assets)............ 8,863 28.3 1,254 4.0 1,880 6.0
Tier I Capital
(to Average Assets).................. 8,863 12.2 2,908 4.0 3,635 5.0
</TABLE>
94
<PAGE> 99
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, Citizens National has
emphasized establishing and implementing internal asset-liability decision
processes, as well as communications and control procedures to aid in managing
Citizens National's earnings. Management believes that these processes and
procedures provide Citizens National with better capital planning, asset mix
and volume controls, loan-pricing guidelines, and deposit interest-rate
guidelines which should result in tighter controls and less exposure to
interest-rate risk.
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest-rate sensitive"
and by monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest-rate
sensitivity gap is defined as the difference between interest-earning assets
and interest-bearing liabilities maturing or repricing within a given time
period. The gap ratio is computed by dividing rate-sensitive assets by
rate-sensitive liabilities. A gap ratio of 1.0% represents perfect matching. A
gap is considered positive when the amount of interest-rate sensitive assets
exceeds interest-rate sensitive liabilities. A gap is considered negative when
the amount of interest-rate sensitive liabilities exceeds interest-rate
sensitive assets. During a period of rising interest rates, a negative gap
would adversely affect net interest income, while a positive gap would result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would result in an increase in net interest income, while
a positive gap would adversely affect net interest income.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the results of operations, Citizens
National's management continues to monitor asset and liability management
policies to better match the maturities and repricing terms of its
interest-earning assets and interest-bearing liabilities. Such policies have
consisted primarily of: (i) emphasizing the origination of adjustable-rate
loans; (ii) maintaining a stable core deposit base; and (iii) maintaining a
significant portion of liquid assets (cash and short-term securities).
Citizens National has also maintained a relatively large portfolio of
liquid assets (cash and assets maturing or repricing in one year or less) in
order to reduce its vulnerability to shifts in market rates of interest. As of
December 31, 1996, Citizens National's liquidity ratio was 26.5%.
Citizens National also seeks to maintain a large stable core deposit
base by providing quality service to its customers without significantly
increasing its cost of funds or operating expenses. The success of Citizens
National's core deposit strategy is demonstrated by the stability of its demand
deposit accounts, savings accounts and NOW accounts, which totaled $25.6
million, representing 38.3% of total deposits at December 31, 1996. The
interest-bearing portion of these accounts bore a weighted average nominal rate
of 3.13% at December 31, 1996. Management anticipates that these accounts will
increase and in the future comprise a significant portion of its deposit base.
As of December 31, 1996, Citizens National's one-year negative
interest-rate sensitivity gap in dollars was $28.1 million. Although management
believes that the implementation of the foregoing strategies has reduced the
potential adverse effects of changes in interest rates on Citizens National's
results of operations, any substantial and prolonged increase in market rates
of interest could have an adverse impact on Citizens National's results of
operations. Management of Citizens National monitors Citizens National's
interest-rate sensitivity on a quarterly basis. Management believes that its
present gap position is appropriate for the current interest rate environment.
95
<PAGE> 100
The following table sets forth certain information relating to
Citizens National's interest-earning assets and interest-bearing liabilities at
December 31, 1996 that are estimated to mature or are scheduled to reprice
within the period shown.
<TABLE>
<CAPTION>
ONE MORE
YEAR THAN ONE
OR YEAR TO MORE THAN
LESS FIVE YEARS FIVE YEARS TOTAL
---- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans (1):
Adjustable rate.................................................. $ 3,188 4,626 - 7,814
Fixed rate....................................................... 2,255 4,205 10,433 16,893
Consumer and other loans......................................... 151 1,067 - 1,218
-------- ------- -------- ------
Total loans................................................. 5,594 9,898 10,433 25,925
Securities (2)(3).................................................... 15,020 20,523 11,083 46,626
-------- ------- -------- ------
Total rate-sensitive assets................................. 20,614 30,421 21,516 72,551
-------- ------- -------- ------
Deposit accounts:
Savings and NOW (4).............................................. 23,902 - - 23,902
Time deposits.................................................... 24,788 16,523 - 41,311
-------- ------- -------- ------
Total rate-sensitive liabilities............................ 48,690 16,523 - 65,213
-------- ------- -------- ------
Gap (repricing differences).......................................... (28,076) 13,898 21,516 7,338
-------- ------- -------- ======
Cumulative GAP....................................................... $(28,076) (14,178) 7,338
======== ======= ========
Cumulative Ratio of rate-sensitive assets to
rate-sensitive liabilities....................................... 0.42 0.78 1.11
Cumulative GAP/total assets.......................................... (36.95)% (18.66)% 9.66%
======== ======= ========
</TABLE>
(1) In preparing the table above, adjustable-rate loans are included in
the period in which the interest rates are next scheduled to adjust
rather than in the period in which the loans mature. Fixed rate loans
are scheduled, including repayment, according to their contractual
maturities.
(2) Securities are scheduled according to their respective repricing and
maturity dates.
(3) Includes federal funds sold and mortgage backed securities.
(4) NOW accounts, and savings accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according
to their respective maturity dates.
96
<PAGE> 101
The following table reflects the contractual principal repayments by
period of Citizens National's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL
YEARS ENDED COMMERCIAL REAL ESTATE REAL ESTATE CONSUMER
DECEMBER 31, LOANS LOANS LOANS LOANS TOTAL
------------ ----- ----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997........................... $ 1,870 1,122 748 520 4,260
1998........................... 164 778 527 257 1,726
1999........................... 57 1,993 540 191 2,781
2000-2001...................... 65 1,003 1,323 192 2,583
2002-2006...................... 104 1,555 4,937 58 6,654
Thereafter..................... - 2,970 4,951 - 7,921
------- ----- ------ ----- ------
Total........................ $ 2,260 9,421 13,026 1,218 25,925
======= ===== ====== ===== ======
</TABLE>
The following table displays loan origination by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Originations:
Commercial and commercial real estate loans............................................... $ 4,733 5,402
Residential real estate................................................................... 868 743
Consumer loans............................................................................ 741 625
------- ------
Total loans originated................................................................ 6,342 6,770
Principal reductions............................................................................... (4,328) (5,783)
------- ------
Increase in gross loans .............................................................. $ 2,014 987
======= ======
</TABLE>
97
<PAGE> 102
The following table sets forth information concerning Citizens
National's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
-------------------- -----------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans........................................................ $ 2,260 8.7% $ 1,699 7.1%
Commercial real estate loans............................................ 9,421 36.3 7,195 30.1
Residential real estate loans........................................... 13,026 50.3 14,094 58.9
Consumer loans.......................................................... 1,218 4.7 923 3.9
-------- ----- -------- -----
Total loans......................................................... 25,925 100.0% 23,911 100.0%
===== =====
Less:
Deferred loan fees.................................................... 6 7
Allowance for loan losses............................................. 427 507
-------- --------
Loans, net.......................................................... $ 25,492 $ 23,397
======== ========
</TABLE>
Deposits are the major source of Citizens National's funds for lending
and other investment purposes. In addition to deposits, Citizens National
derives funds from interest payments, loan principal payments, loan sales, and
funds provided from operations. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows are significantly influenced by
general interest rates and money market conditions. Citizens National may use
borrowings on a short-term basis if necessary to compensate for reductions in
the availability of other sources of funds. They also may be used on a
longer-term basis for general business purposes.
Deposits are attracted principally from within Citizens National's
market area through the offering of a broad variety of deposit instruments
including checking accounts, money market accounts, regular savings accounts,
term certificate accounts (including "jumbo" certificates in denominations of
$100,000 or more) and retirement savings plans. As of June 30, 1997, jumbo
certificates accounted for approximately $4.8 million of Citizens National's
deposits. Of this amount, $3.5 million had a term of one year or less.
Maturity terms, service fees and withdrawal penalties are established
by Citizens National on a periodic basis. The determination of rates and terms
is predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
Regulations promulgated by the FDIC pursuant to the FDICIA place
limitations on the ability of insured depository institutions to accept, renew,
or roll-over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in such
depository institution's normal market area. Under these regulations, "well
capitalized" depository institutions may accept, renew, or roll such deposits
over without restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC (subject
to certain restrictions on payments of rates), and "undercapitalized"
depository institutions may not accept, renew or roll such deposits over. The
regulations contemplate that the definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" will be the same as the definitions adopted
by the agencies to implement the corrective action provisions of the FDICIA. As
of June 30, 1997, Citizens National met the definition of a "well
capitalized" depository institution.
98
<PAGE> 103
The following table shows the distribution of, and certain other
information relating to Citizens National deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995
------------------ -----------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits.................................................... $ 1,700 2.54% $ 1,914 2.92%
Savings and NOW deposits........................................... 23,902 35.72 21,646 33.02
-------- ------ -------- ------
Subtotal........................................................... 25,602 38.26 23,560 35.94
-------- ------ -------- ------
Time deposits by rate:
5.00%- 5.99%....................................................... 34,979 52.28 37,130 56.64
6.00%- 6.99%....................................................... 6,332 9.46 4,864 7.42
-------- ------ -------- ------
Total time deposits................................................ 41,311 61.74 41,994 64.06
-------- ------ -------- ------
Total deposits..................................................... $ 66,913 100.00% $ 65,554 100.00%
======== ====== ======== ======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
(IN THOUSANDS)
<S> <C>
Due three months or less........................... $ 1,346
Due over three months to one year.................. 2,511
Due over one year.................................. 1,133
-------
$ 4,990
=======
</TABLE>
The following table sets forth the net deposit flows of Citizens
National during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net decrease before interest credited................ $(1,583) (3,214)
Net interest credited................................ 2,942 2,909
----- ------
Net deposit increase (decrease)................... $ 1,359 (305)
======= ======
</TABLE>
99
<PAGE> 104
The following table shows the average amount of and the average rate
paid on each of the following interest-bearing deposit account categories
during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
----------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and NOW deposits.......................................... $ 22,460 3.13% $ 23,185 3.16%
Time deposits..................................................... 40,645 5.50 40,174 5.45
-------- ---- -------- ----
Total interest-bearing deposits................................ $ 63,105 4.66% $ 63,359 4.61%
======== ==== ======== ====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
GENERAL
Net earnings for the six months ended June 30, 1997 were $119,000, or $0.20 per
share compared to net earnings of $371,000, or .70 per share, for the six
months ended June 30, 1996. This decrease in Citizens National's net earnings
was primarily due to an increase in noninterest expenses partially offset by an
increase in net interest income. The increase in noninterest expenses was
primarily due to additional expense of approximately $324,000 resulting from
the settlement of litigation with certain of Citizens National's original
executive officers during the first quarter of 1997.
INTEREST INCOME AND EXPENSE
Interest income increased by $166,000 from $2,460,000 for the six months ended
June 30, 1996 to $2,626,000 for the six months ended June 30, 1997. Interest
income on loans increased $159,000 primarily due to an increase in the average
loan portfolio balance from $23.7 million at June 30, 1996 to $27.1 million at
June 30, 1997. Interest on securities decreased $6,000 due to a decrease in the
average securities portfolio to $42.2 million in 1997 from $43.3 million in
1996 partially offset by an increase in the average yield earned from 5.92% in
1996 to 6.05% in 1997. Interest on other interest-earning assets increased
$13,000 primarily due to an increase from $2.0 million in average other
interest earning assets in 1996 to $2.4 million in 1997.
Interest expense increased to $1,479,000 for the six months ended June 30, 1997
from $1,453,000 for the six months ended June 30, 1996. Interest expense
increased primarily because of an increase in average deposits from $62.8
million during 1996 to $64.2 million during 1997.
PROVISION FOR LOAN LOSSES
A provision for loan losses is charged to earnings to bring the total allowance
to a level deemed appropriate by management and is based upon historical
experience, the volume and type of lending conducted by Citizens National,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Citizens National's market areas,
and other factors related to the collectibility of Citizens National's loan
portfolio. Citizens National did not record a provision for loan losses during
the six months ended June 30, 1997. Management believes that the allowance for
loan losses of $428,000 is adequate at June 30, 1997.
NONINTEREST EXPENSE
Total other expense increased $357,000 to $1,209,000 for the six months ended
June 30, 1997 from $852,000 for the six months ended June 30, 1996. This
increase was primarily due to additional expense of approximately $324,000
resulting from the settlement of litigation with certain of Citizens National's
original executive officers.
100
<PAGE> 105
INCOME TAXES
The income tax credit was $12,000 (an effective rate of (11.2%) for the six
months ended June 30, 1997 compared to $55,000 (an effective rate of 12.9%) for
the comparable period in 1996. The lower tax rate (compared to the statutory
tax rate) for both periods is due to the tax exempt interest on certain
securities.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net earnings for the year ended December 31, 1996 were $570,000 or $1.06 per
share compared to $500,000 or $.98 per share for the year ended December 31,
1995. This increase in Citizens National's net earnings was primarily due to an
increase in net interest income partially offset by an increase in noninterest
expenses.
INTEREST INCOME AND EXPENSE
Interest income increased by $146,000 from $4.8 million for the year ended
December 31, 1995 to $5.0 million for the year ended December 31, 1996.
Interest income on loans increased $187,000 due an increase in the average loan
portfolio balance from $22.8 million for the year ended December 31, 1995 to
$24.2 million for 1996, as well as an increase in the weighted average yield of
25 basis points. Interest on securities decreased $79,000 due to an decrease in
the average securities balance from $43.8 million in 1995 to $42.6 million in
1996, as well as a decrease in the average yield from 5.99% in 1995 to 5.97% in
1996. Interest on other interest-earning assets increased $38,000 primarily due
to an increase from $2.0 million in average other interest-earning assets in
1995 to $2.7 million in 1996.
Interest expense increased $17,000 in 1996 compared to 1995. Interest expense
increased due to an increase of 5 basis points in the average yield paid on
deposits for the year ended December 31, 1996 compared to 1995, partially
offset by a decrease in average deposits from $63.4 million to $63.1 million
from 1995 to 1996.
CREDIT FOR LOAN LOSSES
The credit for loan losses was added to earnings to bring the total allowance
to a level deemed appropriate by management and is based upon historical
experience, the volume and type of lending conducted by Citizens National,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Citizens National's market areas,
and other factors related to the collectibility of Citizens National's loan
portfolio. Management believes that the allowance for loan losses of $427,000
is adequate at December 31, 1996.
NONINTEREST EXPENSE
Total noninterest expense increased $209,000 for the year ended December 31,
1996 when compared to 1995, primarily due to an increase in employee
compensation and benefits of $181,000 and other operating expenses of $145,000,
partially offset by a decrease in federal deposit insurance premiums of
$108,000.
INCOME TAXES
The income tax provision was $60,000 (an effective rate of 9.5%) for 1996
compared to $115,000 (an effective rate of 18.6%) for 1995. The lower tax rate
(compared to the statutory tax rate) is due to the tax-exempt interest on
certain securities.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared
in accordance with GAAP, which requires the measurement of financial position
and operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to inflation.
The primary impact of inflation on the operations of Citizens National
101
<PAGE> 106
is reflected in increased operating costs. Unlike most industrial companies,
substantially all of the assets and liabilities of Citizens National are
monetary in nature. As a result, interest rates have a more significant impact
on Citizens National's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
FUTURE ACCOUNTING REQUIREMENTS
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). This statement specifies the computation,
presentation and disclosure requirements for net earnings per share for
entities with publicly-held common stock. SFAS 128 is effective for both
interim and annual periods ending after December 15, 1997 and upon adoption,
all prior period net earnings per share data presented will be restated to
conform with SFAS 128.
102
<PAGE> 107
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CITIZENS NATIONAL AND GULF WEST
At the Effective Time, the Stockholders of Citizens National, a
national bank, will become Stockholders of Gulf West, a Florida corporation and
bank holding company, and Florida law will govern Stockholder rights after the
Merger. Differences between the National Bank Act and the FBCA and between the
Citizens National Articles and the Citizens National Bylaws and the Gulf West
Articles and the Gulf West Bylaws will result in various changes in the rights
of Stockholders of Citizens National.
The following is a summary of the material differences between the
rights of Gulf West Stockholders under Florida law, compared with those of
Citizens National Stockholders under the National Bank Act, the Citizens
National Articles, and the Citizens National Bylaws. This summary does not
purport to be a complete description of the provisions discussed and is
qualified in its entirety by the National Bank Act, the FBCA, the Citizens
National Articles, the Citizens National Bylaws, the Gulf West Articles and the
Gulf West Bylaws, to which Citizens National Stockholders are referred.
CHARTER AND BYLAW PROVISIONS AFFECTING GULF WEST COMMON STOCK
The Gulf West Articles and Bylaws contain several provisions which may
make Gulf West a less attractive target for an acquisition of control by anyone
who does not have the support of Gulf West's Board of Directors and
stockholders. Such provisions include, among other things, (a) the requirement
of a supermajority vote of stockholders or directors to approve certain
business combinations and other corporate actions involving "Principal
Stockholders" (defined generally as any person who is the beneficial owner of
10% of the voting shares of Gulf West), (b) a minimum price provision, (c)
several special procedural rules, and (d) a staggered Board of Directors. The
Citizens National Articles and Bylaws do not contain similar restrictions on
the stockholders' ability to control Citizens National. However, federal law
does require the approval of the holders of two-thirds of the outstanding
shares for a merger of a national banking association.
STOCKHOLDER APPROVAL OF MERGERS
The National Bank Act (the "NBA") requires that two-thirds of the
stockholders of a national banking association approve the participation of a
national banking association in a merger, whether or not the association is the
surviving institution. However, the stockholders of the surviving institution
do not have dissenters' rights.
The FBCA generally permits a merger to become effective without the
approval of the surviving corporation's stockholders if the articles of
incorporation of the surviving corporation do not change following the merger
except for certain changes not materially altering the rights of existing
stockholders, and the board of directors of the surviving corporation adopts a
resolution approving the plan of merger.
Where stockholder approval is required under the FBCA, a merger which
does not involve an "Interested Person" can be approved by a majority vote of
the outstanding shares of capital stock of each class entitled to vote thereon,
unless provided otherwise by the Board of Directors. If the proposed merger or
other business combination were to involve an "Interested Stockholder," as
defined in the FBCA, however, the FBCA imposes supermajority approval
requirements with certain qualifications. The Gulf West Articles impose similar
and more restrictive supermajority approval requirements, as described
elsewhere in this Proxy Statement/Prospectus. SEE "RISK FACTORS," " MATERIAL
DIFFERENCES IN RIGHTS OF STOCKHOLDERS--Charter and Bylaw Provisions Affecting
Gulf West Common Stock" AND "MATERIAL DIFFERENCES IN RIGHTS OF
STOCKHOLDERS--Antitakeover Legislation."
DISSENTERS' RIGHTS
Federal law provides that a stockholder who votes against a merger or
gives notice of his or her dissent in writing prior to or at the meeting at
which the merger is approved generally has the right to dissent from any
merger. Any stockholder who exercises his or her right to dissent in the
prescribed manner will be entitled to receive the appraised value of his shares
in cash. SEE "THE MERGER--Dissenters' Rights."
103
<PAGE> 108
Under the FBCA, a stockholder is entitled to dissent and obtain
payment of the fair value of his shares in the event of, among other things,
(a) consummation of a plan of merger to which the corporation is a party, if
either (i) stockholder approval is required and the stockholder is entitled to
vote on the merger or (ii) the corporation is a subsidiary that is owned 80% by
and is merged into its parent; (b) consummation of a plan of share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, if the stockholder is entitled to vote on the plan; (c) consummation
of a sale or exchange of substantially all of the property of the corporation
other than in the usual and regular course of the business if stockholder
approval is required; (d) an amendment to the articles of incorporation that
adversely affects the rights in respect of the dissenter's shares in specified
ways; (e) in the event of a control share acquisition as discussed in Section
607.0902 of the FBCA; or (f) any corporate action pursuant to a stockholder
vote to the extent that the articles of incorporation provide that dissenters'
rights shall apply. Dissenters' rights are not available, however, if the class
of securities entitled to vote on those matters identified above are either
registered on a national securities exchange, designated for listing on Nasdaq
National Market, or are held by 2,000 or more stockholders. SEE "THE
MERGER--Dissenters' Rights" AND "MATERIAL DIFFERENCES IN RIGHTS OF
STOCKHOLDERS--Stockholder Approval of Mergers."
STOCKHOLDERS' MEETINGS AND VOTING
SPECIAL MEETINGS. Federal law does not set forth specific rules for
the calling of special meetings of stockholders of national banking
associations such as Citizens National. Federal law, however, does require that
a notice of all stockholder meetings notifying all stockholders of the time,
place, and purpose of the meeting be sent by first class mail postage prepaid
at least 10 days prior to the meeting. The association bylaws or articles may
require a longer period of notice. The Citizens National Articles and Bylaws
provide that the Board of Directors, or any fifteen or more stockholders
owning, in the aggregate, not less than 33 percent of the stock of Citizens
National, may call a special meeting of stockholders at any time. The period of
notice for a special meeting set forth in the Citizens National Articles is 10
days.
Under the FBCA, a special meeting of stockholders of a Florida
corporation may be called by the holders of shares entitled to cast not less
than 10% of all shares entitled to vote at the meeting, unless a different
percentage, not to exceed 50%, is provided in the articles of incorporation.
Although the Gulf West Bylaws provide that special meetings of stockholders may
be called only by the Board of Directors or by a committee of the Board of
Directors, because Gulf West's Articles do not provide for a different
percentage than the FBCA, the holders of 10% or more of Gulf West's shares may
call a special meeting.
ACTIONS WITHOUT A MEETING. Neither the Citizens National Articles, nor
the Bylaws of Citizens National, nor the NBA, nor the regulations enforcing and
interpreting the NBA addresses whether or not the stockholders of a national
banking association are entitled to take action without a meeting.
Under the FBCA, the stockholders may take action without a meeting if
a consent in writing to such action is signed by the stockholders having the
minimum number of votes that would be necessary to take such action at a
meeting, unless prohibited in the articles or certificate of incorporation.
Gulf West's Articles provide that stockholder action may be taken without a
meeting by the written consent of a majority of the outstanding shares entitled
to vote thereon. SEE "RISK FACTORS."
ELECTION AND REMOVAL OF DIRECTORS. Under the NBA, each stockholder has
the right in all elections of directors to cumulative voting, i.e., each
stockholder is entitled to vote the number of shares owned by him for as many
persons as there are directors to be elected, or to cumulate such shares and
give one candidate the number of votes equal to the number of directors
multiplied by the number of his shares, or to distribute his votes on the same
cumulative principle among as many candidates as he wishes. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected. Under cumulative voting, stockholders who own less than a
majority of a corporation's common stock can obtain representation on the board
of directors. If voting is not conducted by cumulative voting, each share is
entitled to one vote, and the holders of a majority of the shares voting at the
meeting can elect all of the directors if they choose to do so, leaving the
other stockholders unable to elect a director.
According to federal regulations, a director may be removed by
stockholders at a meeting called to remove him or her, when notice of the
meeting stating that the purpose or one of the purposes is to remove him or her
is provided, if there is a failure to fulfill one of the affirmative
requirements for qualification, or for cause; provided, however, that a
director may not be removed if the number of votes sufficient to elect him or
her under cumulative voting is voted against his or her removal.
104
<PAGE> 109
Under the FBCA, the directors of a corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of stockholders at which a quorum is
present, unless the articles of incorporation provide otherwise. Gulf West's
Articles do not provide for cumulative voting. SEE "DESCRIPTION OF CAPITAL
STOCK OF GULF WEST--Voting Rights."
Once elected, under the FBCA, unless the articles of incorporation
provide otherwise, in the case of a corporation whose board of directors is
staggered (as is Gulf West's), stockholders may effect a removal of a director
only for cause. The Gulf West Articles provide for a classified board, and any
such removal must be for cause after a supermajority vote (two-thirds) of the
stockholders.
VOTING ON OTHER MATTERS. Under the NBA, any action requiring the
approval of stockholders of a national banking association may be obtained by a
vote of the majority of stockholders, except where a law specifically mandates
a greater vote with respect to a particular issue. Amendments to the articles
of association require only a majority vote of stockholders. Liquidation of a
National Banking Association must be approved by two-thirds of its
stockholders.
Under the FBCA, an amendment to the articles of incorporation requires
the approval of the holders of at least a majority of the outstanding shares of
the corporation entitled to vote thereon, unless the articles of incorporation
requires a greater vote. The Gulf West Articles does require a greater vote
(two-thirds) of the stockholders to approve the amendment of certain, but not
all, of the provisions thereof.
Under the FBCA, a corporation may sell, lease, exchange or otherwise
dispose of all, or substantially all, of its property and assets (with or
without the goodwill), otherwise than in the usual and regular course of its
business, only with the approval of the holders of a majority of all of the
outstanding shares of the corporation entitled to vote thereon, unless the
articles of incorporation requires a greater vote. The Gulf West Articles do
not require a greater vote on this matter.
Under the FBCA, the dissolution of a corporation must be approved by
the holders of a majority of the corporation's stock entitled to vote thereon,
unless the articles of incorporation requires a greater vote. The Gulf West
Articles do not require a greater vote for approval of a dissolution.
DIVIDENDS
Under the NBA, the directors of a national banking association may
declare a dividend quarterly, semiannually, or annually equal to that amount of
the net profits of the association as they determine, except that no dividend
may be declared until the surplus fund of the association at least equals its
common capital stock, and there has been carried to the surplus fund not less
than 10% of the association's net profits for the appropriate time period
preceding the dividend. The OCC must approve all dividends declared by an
association where the total of those dividends exceeds the total of its net
profits of that year combined with its retained net profits (defined as the
remainder of all earnings from current operations plus actual recoveries on
loans and investments and other assets, after deducting current operating
expenses, losses, taxes, and accrued dividends on preferred stock) of the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.
The FBCA provides that a corporation may declare and pay a dividend to
its stockholders to the extent the corporation's total assets exceed the sum of
its total liabilities plus the amount that would be needed, in the case of
dissolution, to satisfy the preferential rights of stockholders whose
preferential rights are superior to those receiving the dividend (a surplus),
unless the corporation would not be able to pay its debts as they become due in
the usual course of business. In addition to these limitations, there are
various statutory limitations on the ability of Mercantile to pay dividends to
Gulf West, which is the primary source of funds from which Gulf West declares
dividends to the Gulf West Stockholders. SEE "SUPERVISION AND REGULATION."
Holders of Gulf West Common Stock are entitled to receive dividends
ratably when, as and if declared by Gulf West's Board of Directors from assets
legally available therefor, after payment of all dividends on preferred stock,
if any is outstanding.
105
<PAGE> 110
PREEMPTIVE RIGHTS
Federal regulations require that the articles of association of a
national bank grant or deny preemptive rights in the stockholders thereof. Any
amendment to a national bank's articles of association modifying such
preemptive rights must be approved by affirmative vote of two thirds of the
outstanding voting shares of Citizens National. Citizens National's articles of
association specifically deny preemptive rights.
Under the FBCA, stockholders do not possess preemptive rights as to
the issuance of additional securities by the corporation, unless the
corporation's articles of incorporation provide otherwise. The Gulf West
Articles do not provide for preemptive rights.
LIQUIDATION RIGHTS
Generally under the FBCA, stockholders are entitled to share ratably
in the distribution of assets upon the dissolution of their corporation.
Preferred stockholders typically do not participate in the distribution of
assets of a dissolved corporation beyond their established contractual
preferences. Once the rights of preferred stockholders have been fully
satisfied, common stockholders are entitled to the distribution of any
remaining assets.
Upon liquidation, dissolution or the winding up of the affairs of Gulf
West, holders of Gulf West Common Stock are entitled to receive their pro rata
portion of the remaining assets of Gulf West after the holders of Gulf West
Class A Preferred Stock have been paid in full any sums to which they may be
entitled. Although a series of Gulf West Class A Preferred Stock has been
designated with a liquidation value of $5.00 per share, plus accrued and unpaid
dividends, there are no shares of Gulf West Preferred Stock outstanding as of
the date hereof.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Federal laws pertaining to national banking associations do not
include specific provisions regarding the limitation of liability and
indemnification of directors of the association. Federal regulations provide
that a national bank may provide in its articles of association for the
indemnification of directors, officers, and employees for expenses reasonably
incurred in actions to which the directors, officers, or employees are parties
or potential parties by reason of the performance of their official standards
of law as evidenced by the law of the state in which Citizens National is
headquartered, or the relevant provisions of the Model Business Corporation Act
are presumed by the OCC to be within the corporate powers of a national bank.
However, the indemnification articles may not allow the indemnification against
expenses, penalties, or other payments incurred in an administrative proceeding
or action instituted by a bank regulatory agency which results in a final order
assessing civil money penalties or requiring affirmative action by an
individual or individuals in the form of payments to Citizens National.
The Citizens National Articles provide that any person, his/her heirs,
executors, or administrators may be indemnified or reimbursed by the
association for reasonable expenses actually incurred in defending law suits
brought against the them by reason of the performance of their official duties.
The Citizens National Articles provide that Citizens National will pay all
premiums for insurance covering such indemnification of officers, directors,
and other employees. However, no indemnification is permitted where the
director, officer, or employee is judged guilty of, or liable for, willful
misconduct, gross neglect of duty, or criminal acts.
It is mandatory for a Florida corporation to indemnify a director,
officer, employee or agent against expenses actually and reasonably incurred in
successfully defending an action, provided the person acted in good faith and
in a manner reasonably believed to be in, or not opposed to, the best interests
of the corporation. The Gulf West Articles authorize the indemnification of
Gulf West's directors, officers and others to the fullest extent permitted by
law.
ANTITAKEOVER PROVISIONS
Neither the NBA nor the federal regulations interpreting the NBA
specifically permit anti-takeover provisions in the articles of association or
bylaws of a national bank.
106
<PAGE> 111
The FBCA requires that any affiliated transaction, which term includes
a merger, sale of significant assets of the corporation and similar
extraordinary corporate transactions, between the corporation and an interested
stockholder (generally defined as any person who is the beneficial owner of
more than 10% of the outstanding voting shares of the corporation) be approved
by the affirmative vote of the holders of two-thirds of the voting shares of
the corporation other than the shares beneficially owned by the interested
stockholder. The voting requirements of the FBCA will not apply, however, to an
affiliated transaction if: (a) the affiliated transaction has been approved by
a majority of the corporation's disinterested directors; (b) the corporation
has not had more than 300 stockholders at any time during the preceding three
years; (c) the interested stockholder has been the beneficial owner of at least
80% of the corporation's outstanding voting shares for at least five years; (d)
the interested stockholder is the beneficial owner of at least 90% of the
outstanding voting shares of the corporation; or (e) certain fair price
requirements have been met. The statute also provides that the restrictions
contained therein shall not apply to any corporation whose certificate of
incorporation contains a provision expressly electing not to be governed
thereby. The Gulf West Articles do not contain such a provision.
The Gulf West Articles contain additional provisions affecting
control-share acquisitions. Under the Gulf West Articles, no merger,
reorganization or consolidation of Gulf West may be effected with any
interested stockholder who beneficially owns 10% or more of the outstanding
voting shares of the corporation unless certain conditions are met. Those
conditions include requirements that (i) the ratio of (a) the aggregate amount
of the consideration received in the business combination to (b) the market
price of the Common Stock of Gulf West immediately prior to the announcement of
the business combination must meet or exceed a certain ratio set forth therein,
(ii) the aggregate amount of the consideration received by the stockholders of
Gulf West in the business combination shall not be less than the highest price
per share previously paid by the interested stockholder, and (iii) the
consideration received by the stockholders of Gulf West in the business
combination shall be in the same form and kind as the consideration paid by the
interested stockholder in acquiring the majority of the shares of Gulf West
Common Stock already owned by the interested stockholder.
Unless the articles of incorporation provide otherwise (which the Gulf
West Articles do not), the FBCA restricts the voting rights of a person who
acquires "control shares" in an "issuing public corporation." "Control shares"
are defined under the FBCA as those shares that, when added to all other shares
of the issuing public corporation owned by a person or in respect to which that
person may exercise or direct the exercise of voting power, would entitle that
person to exercise the voting power of the corporation in the election of
directors within any of the following ranges of voting power: (a) one-fifth or
more but less than one-third of all voting power; (b) one-third or more but
less than a majority of all voting power; or (c) a majority or more of all
voting power. An "issuing public corporation" is a corporation that has: (a)
100 or more stockholders; (b) its principal place of business, its principal
office or substantial assets within Florida; and (c) either (i) more than 10%
of its stockholders resident in Florida, (ii) more than 10% of its shares owned
by Florida residents, or (iii) 1,000 stockholders resident in Florida.
If a control-share acquisition has been made, the control shares have
no voting rights unless the holders of a majority of shares (other than those
held by the acquiror and the corporation's officers and directors if such
directors are employees) grant voting rights to those shares by resolution. Any
person who proposes to make or has made a control share acquisition (an
"Acquiror") may, at his or her election, deliver an acquiring person statement
to the issuing public corporation setting forth certain information concerning
the Acquiror and the acquisition of his shares, together with a request for a
stockholders' meeting to determine his voting rights, which meeting must be
held within 50 days of the date of the request. The Acquiror must pay the
expenses of the stockholders' meeting.
If an Acquiror acquires a majority of the outstanding shares of the
corporation and is granted full voting rights pursuant to the procedure
outlined above, the other stockholders of the corporation have dissenters'
rights to require the corporation to purchase their shares for a "fair value."
The term "fair value" is defined as a value not less than the highest price
paid per share by the acquiror in the control share acquisition.
Although certain of the specific differences between the voting and
other rights of Citizens National Stockholders and Gulf West stockholders are
discussed above, the foregoing summary is not intended to be a complete
statement of the comparative rights of such stockholders under Florida and
applicable federal law, or the rights of such persons under the respective
articles and bylaws of Gulf West and Citizens National. Nor is the
identification of certain specific differences meant to indicate that other
differences do not exist. The foregoing summary is qualified in its entirety by
reference to the particular requirements of the NBA and the FBCA, and the
specific provisions of the Gulf West Articles and Bylaws, and the Citizens
National Articles and Bylaws.
107
<PAGE> 112
LEGAL MATTERS
The validity of the shares of Gulf West Common Stock offered hereby
and certain tax consequences of the Merger offering will be passed upon for
Gulf West by Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
EXPERTS
The consolidated financial statements of Gulf West as of December 31,
1996, and for each of the years in the two-year period then ended, included
herein have been included in reliance on the report of Hacker, Johnson, Cohen &
Grieb PA, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing and
Hacker, Johnson, Cohen & Grieb PA's express consent to such use.
The financial statements of Citizens National as of December 31, 1996
and for each of the years in the two-year period then ended, included herein
have been included in reliance on the report of Hacker, Johnson, Cohen & Grieb
PA, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing and
Hacker, Johnson, Cohen & Grieb PA's express consent to such use.
OTHER MATTERS
The Board of Directors of Citizens National does not intend to bring
any matter before the Special Meeting other than as specifically set forth in
the Notice of Special Meeting, nor does it know of any other matters to be
presented at the Special Meeting by others. If any other matter does properly
come before the Special Meeting, the appointees named in the proxy will vote
the proxies in accordance with their best judgment.
108
<PAGE> 113
INDEX TO FINANCIAL STATEMENTS
GULF WEST BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................................................................ F-2
Consolidated Balance Sheet, December 31, 1996............................................................... F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1996 and 1995.......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996 and 1995.............................................................. F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995.................................................................... F-6
Notes to Consolidated Financial Statements at December 31, 1996 and for each
of the years in the Two-Year Period Ended December 31, 1996..................................... F-7-F-21
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet, June 30, 1997 (unaudited)............................................. F-22
Condensed Consolidated Statements of Earnings for the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................................................ F-23
Condensed Consolidated Statement of Stockholders' Equity for the Six
Months Ended June 30, 1997 (unaudited).............................................................. F-24
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................................................ F-25
Notes to Condensed Consolidated Financial Statements for the Six
Months Ended June 30, 1997 and 1996 (unaudited)..................................................... F-26
All schedules are omitted because of the absence of the conditions under which they are required or because the required
information is included in thefinancial statements and related notes.
CITIZENS NATIONAL BANK AND TRUST COMPANY
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................................................................ F-27
Balance Sheet, December 31, 1996............................................................................ F-28
Statements of Earnings for the Years Ended
December 31, 1996 and 1995.......................................................................... F-29
Statements of Stockholders' Equity for the
Years Ended December 31, 1996 and 1995.............................................................. F-30
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995.................................................................... F-31
Notes to Financial Statements at December 31, 1996
and for each of the years in the two-
year period then ended.............................................................................. F-32-F-43
Unaudited Condensed Financial Statements
Condensed Balance Sheet, June 30, 1997 (unaudited).......................................................... F-44
Condensed Statements of Earnings for the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................................................ F-45
Condensed Statement of Stockholders' Equity for the Six
Months Ended June 30, 1997 (unaudited).............................................................. F-46
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (unaudited)............................................................ F-47
Notes to Condensed Financial Statements for the Six
Months Ended June 30, 1997 and 1996 (unaudited)..................................................... F-48,F-49
All schedules are omitted because of the absence of the conditions under which they are required or because the required
information is included in the financial statements and related notes.
</TABLE>
F-1
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheet of Gulf West
Banks, Inc. and Subsidiaries (the "Company") at December 31, 1996 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the two-year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period then ended, in conformity with
generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 4, 1997
F-2
<PAGE> 115
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996
<S> <C>
ASSETS
Cash and due from banks................................................................................ $ 8,631
Federal funds sold and securities purchased under agreements to resell................................. 3,356
----------
Total cash and cash equivalents............................................................. 11,987
Securities available for sale.......................................................................... 40,231
Loans receivable, net of allowance for loan losses of $1,184........................................... 112,660
Loans held for sale, at cost which approximates market................................................. 319
Premises and equipment, net............................................................................ 6,515
Accrued interest receivable............................................................................ 906
Deferred tax asset..................................................................................... 215
Other assets .......................................................................................... 1,981
----------
Total....................................................................................... $ 174,814
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits................................................................................ 29,601
Savings and NOW deposits....................................................................... 33,733
Money market deposits.......................................................................... 13,976
Time deposits.................................................................................. 72,025
----------
Total deposits.............................................................................. 149,335
Other borrowings............................................................................... 12,047
Other liabilities.............................................................................. 332
----------
Total liabilities........................................................................... 161,714
----------
Commitments and Contingency (Notes 5, 10 and 14)
Stockholders' equity:
Class A preferred stock, $5 par value, authorized
1,000,000 shares, none issued or outstanding.................................................. -
Common stock, $1 par value; 10,000,000 shares
authorized, 3,326,030 issued and outstanding.................................................. 3,326
Additional paid-in capital..................................................................... 9,254
Retained earnings.............................................................................. 450
Unrealized gain on securities available for sale,
net of tax of $42............................................................................. 70
----------
Total stockholders' equity.................................................................. 13,100
----------
Total....................................................................................... $ 174,814
==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 116
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Interest income:
Loans receivable........................................................ $ 8,272 6,326
Securities available for sale........................................... 2,086 1,842
Other interest-earning assets........................................... 486 279
--------- ---------
Total interest income................................................ 10,844 8,447
--------- ---------
Interest expense:
Deposits................................................................ 4,389 3,618
Other borrowings........................................................ 270 118
--------- ---------
Total interest expense............................................... 4,659 3,736
--------- ---------
Net interest income................................................................ 6,185 4,711
Provision for loan losses............................................ 401 240
--------- ---------
Net interest income after provision for loan losses................................ 5,784 4,471
--------- ---------
Noninterest income:
Service fees on deposit accounts........................................ 566 446
Loan servicing fees, net................................................ 44 61
(Loss) gain from sale of securities available for sale.................. (10) 97
Income from mortgage banking activity................................... 39 71
Leasing fees and commissions............................................ 131 -
Other income............................................................ 261 174
--------- ---------
Total noninterest income............................................. 1,031 849
--------- ---------
Noninterest expenses:
Salaries and employee benefits.......................................... 3,230 2,305
Occupancy expense....................................................... 968 664
Data processing......................................................... 224 159
Federal insurance premium............................................... 181 208
Advertising............................................................. 186 124
Stationary, printing and supplies....................................... 195 104
SAIF special assessment................................................. 470 -
General insurance....................................................... 95 96
Other expense........................................................... 775 521
--------- ---------
Total noninterest expenses........................................... 6,324 4,181
--------- ---------
Earnings before income taxes ...................................................... 491 1,139
Income taxes......................................................... 177 431
--------- ---------
Net earnings....................................................................... $ 314 708
========= =========
Earnings per share................................................................. $ .10 .25
========= =========
Weighted-average number of shares outstanding...................................... 3,298,405 2,830,265
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 117
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK (LOSS) ON
------------------------ ADDITIONAL SECURITIES TOTAL
NUMBER OF PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
---------- ---------- ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at december 31, 1994 .......... 2,344,572 $2,345 5,812 343 (573) 7,927
Shares issued under employee stock
purchase plan .................. 4,748 5 11 -- -- 16
Shares sold ........................... 772,351 772 2,639 -- -- 3,411
Decrease in unrealized loss on
securities available for sale... -- -- -- -- 577 577
Cash dividends of $.04 Per share ...... -- -- -- (125) -- (125)
Net earnings .......................... -- -- -- 708 -- 708
--------- ------ ----- ---- ---- -------
Balance at december 31, 1995 .......... 3,121,671 3,122 8,462 926 4 12,514
Shares issued under employee stock
purchase plan .................. 7,270 7 19 -- -- 26
Shares issued in exchange for
liberty leasing corporation..... 30,000 30 120 -- -- 150
Shares issued under stock option
plan ........................... 9,000 9 21 -- -- 30
Stock dividend ........................ 158,089 158 632 (790) -- --
Increase in unrealized gain on
securities available for sale... -- -- -- -- 66 66
Net earnings .......................... -- -- -- 314 -- 314
--------- ------ ----- ---- ---- -------
Balance at december 31, 1996 .......... 3,326,030 $3,326 9,254 450 70 13,100
========= ====== ===== ==== ==== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 118
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................................... $ 314 708
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation ......................................................................... 463 333
Increase in other assets ............................................................. (139) (309)
Provision for loan losses ............................................................ 401 240
Deferred income tax (credit) provision ............................................... (119) 114
Income from mortgage banking activity ................................................ (39) (71)
(Decrease) increase in other liabilities ............................................. (99) 251
Increase in accrued interest receivable .............................................. (109) (195)
Net amortization of fees, premiums and discounts ..................................... (61) (69)
Write-down on foreclosed real estate ................................................. 106 --
Losses (gains) on securities available for sale ...................................... 10 (97)
Loss on other real estate ............................................................ 17 1
(Gain) loss on disposal of premises and equipment .................................... (1) 3
Proceeds from sales of loans held for sale ........................................... 5,225 5,421
Originations of loans held for sale .................................................. (5,247) (5,184)
-------- -------
Net cash flow provided by operating activities ................................ 722 1,146
-------- -------
Cash flows from investing activities:
Purchase of securities available for sale .............................................. (27,384) (23,155)
Proceeds from sale and maturity of securities available for sale ....................... 9,478 12,336
Principal repayments on securities available for sale .................................. 11,321 2,322
Proceeds from sale of foreclosed real estate ........................................... 272 82
Additions to foreclosed real estate .................................................... (3) (8)
Purchase of premises and equipment ..................................................... (2,807) (1,286)
Proceeds from sale of premises and equipment ........................................... 51 1
Net increase in loans .................................................................. (39,265) (11,385)
-------- -------
Net cash used in investing activities ......................................... (48,337) (21,093)
-------- -------
Cash flows from financing activities:
Net increase in time deposits .......................................................... 20,223 1,921
Net increase in noninterest-bearing demand, savings and
NOW deposit accounts ................................................................. 19,920 10,899
Net increase of other borrowings ....................................................... 8,248 3,799
Issuance of common stock ............................................................... 56 3,427
Dividends paid ......................................................................... -- (125)
-------- -------
Net cash provided by financing activities ..................................... 48,447 19,921
-------- -------
Net increase (decrease) in cash and cash equivalents .......................... 832 (26)
Cash and cash equivalents at beginning of year ............................................. 11,155 11,181
-------- -------
Cash and cash equivalents at end of year................................................... $ 11,987 11,155
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................................................. $ 4,635 3,745
======== =======
Income taxes......................................................................... $ 427 274
======== =======
Noncash transactions:
Reclassification of loans to foreclosed real estate.................................. $ -- 613
======== =======
Reclassification of foreclosed real estate to loans.................................. $ 106 --
======== =======
Reclassification of securities to available for sale................................. $ -- 10,139
======== =======
Issuance of common stock for acquisition of Liberty Leasing.......................... $ 150 --
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 119
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND FOR EACH OF THE YEARS
IN THE TWO-YEAR PERIOD THEN ENDED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding
company and owns 100% of the outstanding stock of Mercantile (the
"Bank"). The Bank is a State (Florida) chartered commercial bank. The
Bank, through eight banking offices, provides a wide range of banking
services to individuals and businesses located primarily in Pinellas and
Hillsborough Counties, Florida. During 1996, the Holding Company acquired
all the outstanding common shares of Liberty Leasing Corporation
("Liberty") in exchange of 30,000 shares of the Company's common stock.
Liberty is an equipment leasing company that arranges financing for a
variety of equipment for all types of businesses and is headquartered in
Tampa. The acquisition has been accounted for using the purchase method
of accounting. Liberty had nominal assets and liabilities and goodwill of
$157,000 resulted. The goodwill is being amortized over ten years and is
included in other assets. The Holding Company's only business activities
are the operations of the Bank and Liberty. An inactive subsidiary of the
Bank, Portfolio Recoveries Inc., was dissolved in 1995. Collectively the
entities are referred to as the "Company".
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of the Holding Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accounting and reporting practices
of the Company conform to generally accepted accounting principles and to
general practice within the banking industry. The following summarize the
more significant of the policies and practices:
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS. For purposes of reporting cash flows, cash and
cash equivalents include cash, due from banks, federal funds sold and
securities purchased under agreements to resell.
SECURITIES. The Bank may classify its securities as either trading, held to
maturity or available for sale. Trading securities are held principally
for resale and recorded at their fair values. Unrealized gains and losses
on trading securities are included immediately in earnings.
Held-to-maturity securities are those which the Bank has the positive
intent and ability to hold to maturity and are reported at amortized
cost. Available-for-sale securities consist of securities not classified
as trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities
are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method.
Premiums and discounts on securities available for sale and held to
maturity are recognized in interest income using the interest method over
the period to maturity.
LOANS HELD FOR SALE. Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market
value in the aggregate.
(continued)
F-7
<PAGE> 120
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on
originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
FORECLOSED REAL ESTATE. Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations are included in the
statements of earnings.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation of premises and equipment is
provided on the straight-line basis over the estimated useful life of the
related asset.
ADVERTISING. The Company expenses all media advertising as incurred.
INCOME TAXES. Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of nontaxable income
such as interest on state and municipal securities) 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 financial statements. Deferred tax assets
and liabilities are included in the 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 as
prescribed in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Statement 123 establishes a "fair value" based method of accounting for
stock-based compensation plans and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (Opinion 25). The Company has elected to follow Opinion 25 and
related interpretations in accounting for its employee stock options.
Statement 123 requires the disclosure of pro forma net earnings and
earnings per share determined as if the Company accounted for its
employee stock options under the fair value method of that Statement.
(continued)
F-8
<PAGE> 121
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments disclosed herein:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES AVAILABLE FOR SALE. Fair values for securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four
family residential), commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS. Rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate fair
value of existing debt.
ACCRUED INTEREST. The carrying amounts of accrued interest approximate
their fair values.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing.
EARNINGS PER SHARE. Earnings per share are computed by dividing net earnings
by the weighted-average number of common shares outstanding. Earnings per
share would not be materially diluted by the exercise of outstanding
stock options. Because of limited trading activity in the Company's
common stock, the book value was used for the purposes of determining the
materiality of dilution.
RECLASSIFICATIONS. Certain amounts in the 1995 financial statements have
been reclassified to conform to the 1996 presentation.
FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets as well as extinguishments of liabilities. This
Statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring in
1997. Management does not anticipate SFAS 125 will have a material impact
on the Company.
(continued)
F-9
<PAGE> 122
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
TheBank enters into purchases of securities under agreements to resell
substantially identical securities. At December 31, 1996, these
agreements matured daily. The agreements were with a major bank.
Securities purchased under agreements to resell averaged approximately
$3,320,000 during 1996, and the maximum amounts outstanding at any
month-end during 1996 was $3,206,000. There were no such agreements
during 1995.
(3) SECURITIES AVAILABLE FOR SALE
Debt securities have been classified according to management's intent. The
carrying amounts and approximate fair values are as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1996:
U.S. agency obligations................... $ 1,000 8 - 1,008
Municipal obligations..................... 700 - 1 699
U.S. Treasury securities.................. 15,970 - 3 15,967
Mortgage-backed securities................ 22,449 108 - 22,557
-------- --- --- ------
$ 40,119 116 4 40,231
======== === === ======
</TABLE>
The scheduled maturities of securities available for sale at December 31, 1996,
were as follows (in thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------- ------
<S> <C> <C>
Due in one year or less................................................... $ 5,304 5,319
Due after one year through five years..................................... 24,104 24,171
Due in five years to ten years............................................ 4,825 4,838
Due after ten years....................................................... 5,886 5,903
-------- ------
$ 40,119 40,231
======== ======
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities may mature earlier
than their weighted-average contractual maturities because of principal
prepayments.
Proceeds from sales of securities available for sale were $9,478,000 and
$9,312,000 in 1996 and 1995, respectively. Gross gains (losses) of
$(10,000) and $97,000 were realized on those sales during 1996 and 1995,
respectively.
At December 31, 1996 the Company had pledged securities in the amount of
approximately $2,951,000 book value to secure public deposits. Also, at
December 31, 1996 securities in the amount of $197,000 have been pledged
to secure treasury tax deposits.
(continued)
F-10
<PAGE> 123
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS
The components of loans in the consolidated balance sheet was as follows (in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Commercial.............................................................................. $ 18,169
Commercial real estate.................................................................. 63,207
Residential real estate................................................................. 22,095
Consumer................................................................................ 10,594
-----------
Subtotal............................................................................. 114,065
Net deferred loan fees, premiums and discounts.......................................... (221)
Allowance for loan losses............................................................... (1,184)
-----------
$ 112,660
===========
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Balance at January 1........................................................ $ 830 663
------- ---
Loans charged off........................................................... (54) (98)
Recoveries.................................................................. 7 25
------- ---
Net loans charged off.................................................... (47) (73)
Provision for loan losses................................................... 401 240
------- ---
Balance at December 31...................................................... $ 1,184 830
======= ===
</TABLE>
Impaired loans having recorded investments of $494,000 at December 31, 1996
have been recognized in conformity with FASB Statement No. 114, as
amended by FASB Statement No. 118. The average recorded investment in
impaired loans during 1996 and 1995 was $501,000 and $563,000,
respectively. The total allowance for loan losses related to these loans
was $100,000 on December 31, 1996. Interest income on impaired loans of
$52,000 and $50,000 were recognized for cash payments received in 1996
and 1995, respectively.
CREDIT RISK AND CREDIT LOSSES. A credit risk concentration results when the
Company has a significant credit exposure to an individual or a group
engaged in similar activities or having similar economic characteristics
that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions.
Most of the Company's business activity is with customers located within
Pinellas and Hillsborough Counties, Florida. The loan portfolio is
diversified among individuals and types of industries. Loans are expected
to be repaid from cash flow or proceeds from the sale of selected assets
of the borrowers. The amount of collateral obtained upon extension of
credit is based on the Company's credit evaluation of the customer.
Collateral primarily includes accounts receivable, inventory, property
and equipment, income-producing commercial properties and residential
homes.
(continued)
F-11
<PAGE> 124
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS, CONTINUED
LOANS TO RELATED PARTIES. The aggregate amount of loans owed to the Company
by its executive and senior officers, directors, and their related
entities at December 31, 1996 was approximately $697,000. The loans
outstanding as of December 31, 1996 were made up of $482,000 of mortgage
loans and $215,000 of various other types of loans. These loans have been
made on substantially the same terms, including collateral, as those
prevailing at the time for comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Land.................................................................................... $ 1,413
Building and leasehold improvements..................................................... 3,925
Furniture, fixtures and equipment....................................................... 3,108
-------
Total, at cost...................................................................... 8,446
Less accumulated depreciation........................................................... (1,931)
-------
$ 6,515
=======
</TABLE>
The Company leases facilities and certain equipment under operating leases
with noncancellable terms. Rent expense amounted to approximately
$248,000 and $158,000 for the years ended December 31, 1996 and 1995,
respectively. A summary of the operating lease commitments at December
31, 1996 follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ---------
<S> <C>
1997.............................................................. $ 364
1998.............................................................. 326
1999.............................................................. 256
2000.............................................................. 261
2001.............................................................. 239
Thereafter........................................................ 1,177
--------
$ 2,623
========
</TABLE>
(continued)
F-12
<PAGE> 125
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of these loans are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
-----
<S> <C>
Loan portfolios serviced for:
FNMA............................................................................. $ 17,161
FHLMC............................................................................ 4,682
Other investors.................................................................. 7,685
--------
$ 29,528
========
Custodial escrow balances maintained in connection
with loan servicing.............................................................. $ 80
========
</TABLE>
(7) DEPOSITS
A schedule of maturities for certificate accounts follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING AT DECEMBER 31,
DECEMBER 31, 1996
------------ ---------------
<S> <C>
1997....................................................................... $ 53,170
1998....................................................................... 15,305
1999....................................................................... 1,391
2000....................................................................... 587
2001 and thereafter........................................................ 1,572
--------
$ 72,025
========
</TABLE>
(8) OTHER BORROWINGS
Securities sold under reverse repurchase agreements were delivered to the
broker-dealers who arranged the transactions. Securities
collateralizing customer reverse repurchase agreements are held in
safekeeping by a third party. The agreements at December 31, 1996
mature within six months. Information concerning securities sold under
agreements to repurchase is summarized as follows ($ in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996
----
<S> <C>
Average balance during the year................................. $ 5,447
Average interest rate during the year........................... 4.88%
Maximum month-end balance during the year....................... $ 12,547
</TABLE>
(continued)
F-13
<PAGE> 126
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) OTHER BORROWINGS, CONTINUED
The average rate was determined by dividing the total interest paid by the
average outstanding borrowings.
Securities underlying the agreements are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Carrying value................................................. $ 17,090
========
Estimated fair value........................................... $ 17,079
========
</TABLE>
At December 31, 1996, the Company had five variable-rate lines of credit
from other financial institutions, totaling $9,500,000. At December 31,
1996, there were no borrowings against these lines.
(9) Income Taxes
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Currently payable:
Federal..................................................... $ 278 263
State....................................................... 18 54
----- ---
Total currently payable 296 317
----- ---
Deferred:
Federal..................................................... (102) 97
State....................................................... (17) 17
----- ---
Total deferred......................................... (119) 114
----- ---
Total income taxes.......................................................... $ 177 431
===== ===
</TABLE>
(continued)
F-14
<PAGE> 127
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) INCOME TAXES, CONTINUED
The provision for income taxes is different from that computed by applying
the federal statutory rate of 34% as indicated in the following
analysis (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995
------------------- ---------------------
% OF % OF
PRETAX PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS
------ -------- ------ --------
<S> <C> <C> <C> <C>
Tax provision at statutory rate................................ $ 167 34.0% $ 387 34.0%
Increase (reduction) in taxes
resulting from:
State taxes, net of federal income
tax benefit........................................... 18 3.7 47 4.1
Tax-exempt income........................................ (17) (3.5) - -
Other, net............................................... 9 1.8 (3) (.2)
----- ---- ----- ----
Income tax provision..................................... $ 177 36.0% $ 431 37.9%
===== ==== ===== ====
</TABLE>
The tax effects of each type of item that gives rise to deferred taxes are
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Deferred tax assets:
Allowance for loan losses........................................................ $ 346
Interest income from loans on nonaccrual status.................................. 2
Deferred compensation............................................................ 66
-----
Total gross deferred tax assets.............................................. 414
-----
Deferred tax liabilities:
Net unrealized gain on securities available for sale............................. 42
Accumulated depreciation......................................................... 129
Excess servicing................................................................. 2
Deferred loan fees and costs..................................................... -
Prepaid expenses................................................................. 26
-----
Total gross deferred tax liabilities......................................... 199
-----
Net deferred tax asset....................................................... $ 215
=====
</TABLE>
(continued)
F-15
<PAGE> 128
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are commitments to extend
credit and standby letters of credit and may involve, to varying
degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed-expiration dates or other termination
clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Standby letters of
credit and conditional commitments are issued by the Company to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that included in extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Financial assets:
Cash and cash equivalents...................................................... $ 11,987 11,987
Securities available for sale.................................................. 40,231 40,231
Loans receivable............................................................... 112,660 112,868
Accrued interest receivable................................................... 906 906
Financial liabilities:
Deposit liabilities............................................................ 149,335 149,433
Short-term borrowings.......................................................... 12,047 12,047
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off- balance-sheet risk at December 31, 1996,
follows (in thousands):
<TABLE>
<S> <C>
Unfunded loan commitments at variable rates.................................. $ 7,573
Available lines of credit.................................................... $ 10,582
Standby letters of credit.................................................... $ 904
</TABLE>
(continued)
F-16
<PAGE> 129
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLAN
Certain key employees and directors of the Company have options to purchase
shares of the Company's common stock under its stock option plan. Under
the plan, the total number of shares which may be issued shall not
exceed 12% (currently 399,124 shares) of the Company's total
outstanding shares. At December 31, 1996, 67,061 remain available for
grant. A summary of stock options transactions for the years ended
December 31, 1995 and 1996 follows ($ in thousands, except per share
amounts):
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
PER SHARE NUMBER OF OPTION
PRICE SHARES PRICE
--------- ---------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1994...................... 3.11 291,375 $ 908
Options granted....................................... 4.29 53,813 230
Options forfeited..................................... 3.79 (6,890) (26)
------- -------
Outstanding at December 31, 1995...................... 3.29 338,298 1,112
Options granted....................................... 4.28 10,500 45
Options exercised..................................... 3.23 (9,187) (30)
Options forfeited..................................... 4.08 (7,548) (29)
------- -------
Outstanding at December 31, 1996...................... 3.31 332,063 $ 1,098
==== ======= =======
</TABLE>
These options are exercisable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
------------
<S> <C>
1997............................................................. 299,907
1998............................................................. 17,061
1999............................................................. 12,469
2000............................................................. 2,626
-------
332,063
=======
</TABLE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which
establishes financial accounting and reporting standards for stock-based
employee compensation plans. As permitted by this Statement, the Company
has elected to continue utilizing the intrinsic value method of
accounting defined in APB Opinion No. 25. Due to the exercise price of
the options approximating the market value of the common stock at the
date of grant, no compensation expense has been recognized in the
consolidated statements of earnings.
(continued)
F-17
<PAGE> 130
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLAN, CONTINUED
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, there would be no dividends paid by the
Company over the exercise period, the expected life of the options would
be the entire exercise period and stock volatility would be zero due to
the lack of an active market for the stock. The following information
pertains to the fair value of the options granted to purchase common
stock in 1995 and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Weighted-average grant-date fair value of options
issued during the year........................................... $ 24 102
===== ===
Pro forma net earnings................................................. $ 280 708
===== ===
Pro forma earnings per share........................................... $ .08 .25
===== ===
</TABLE>
(12) STOCK DIVIDEND
The Board of Directors declared a 5% stock dividend payable during 1996. All
per share amounts have been presented to reflect this stock dividend.
(13) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the various banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1996, that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notification from the State and
Federal regulators categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
(continued)
F-18
<PAGE> 131
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
--------------------- PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------------ --------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to Risk
Weighted Assets).......... $ 13,719 11.36% $ 9,664 8.00% $ 12,079 10.00%
Tier I Capital (to Risk
Weighted Assets).......... 12,535 10.38 4,832 4.00 7,248 6.00
Tier I Capital
(to Average Assets)....... 12,535 7.72 6,495 4.00 8,118 5.00
</TABLE>
(14) PROFIT SHARING PLAN
The Company sponsors a Section 401(k) profit sharing plan. The profit
sharing plan is available to all employees electing to participate
after meeting certain length-of-service requirements. The Company's
contributions to the profit sharing plan are comprised of two
components: a guaranteed match and a discretionary match. Expense
relating to the Company's contributions to the profit sharing plan
included in the accompanying consolidated financial statements was
$49,000 and $26,000 for the years ended December 31, 1996 and 1995,
respectively.
(15) DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with certain officers. The
terms of the agreements provide for the payments of specified benefits
to these participants upon severance or retirement or their
beneficiaries in the event of death of the participant while employed
by the Company or while receiving benefits. The Company is accruing the
present value of the future benefits over the terms of the agreements.
The expense of the deferred compensation plans was approximately
$76,000 and $66,000 for the years ended December 31, 1996 and 1995,
respectively.
(continued)
F-19
<PAGE> 132
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
The Holding Company commenced business in January 1995.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996
----
<S> <C>
ASSETS
Cash and cash equivalents with subsidiary...................................................... $ 276
Investment in wholly-owned subsidiaries........................................................ 12,655
Other assets................................................................................... 169
--------
Total...................................................................................... $ 13,100
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities.............................................................................. -
Stockholders' equity........................................................................... 13,100
--------
Total...................................................................................... $ 13,100
========
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Revenues ......................................... $ -- 3
Expenses ......................................... 25 14
----- ----
Loss before earnings of subsidiaries ......... (25) (11)
Earnings of subsidiaries ..................... 339 719
----- ----
Net earnings ................................. $ 314 708
===== ====
</TABLE>
(continued)
F-20
<PAGE> 133
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................. $ 314 708
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in undistributed earnings of subsidiaries.......................... (339) (719)
Net (increase) decrease in other assets................................... 12 5
Decrease in other liabilities............................................. - (31)
------- -----
Net cash used in operating activities................................. (13) (37)
------- -----
Cash flows from investing activities:
Investment in subsidiaries.................................................... (3,082) -
Dividends received from subsidiary............................................ - 50
------- -----
Net cash provided by (used in) investing activities.................... (3,082) 50
------- -----
Cash flows from financing activities:
Net proceeds from issuance of common stock.................................... 56 3,427
Cash dividends................................................................ - (125)
------- -----
Net cash provided by financing activities............................. 56 3,302
------- -----
Net (decrease) increase in cash and cash equivalents.............................. (3,039) 3,315
Cash and cash equivalents at beginning of the year................................ 3,315 -
------ -----
Cash and cash equivalents at end of year.......................................... $ 276 3,315
====== =====
</TABLE>
F-21
<PAGE> 134
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------
ASSETS 1997
----
(UNAUDITED)
<S> <C>
Cash and due from banks................................................................................. $ 3,539
Federal funds sold and securities purchased
under agreements to resell........................................................................... 6,579
--------
Total cash and cash equivalents..................................................................... 10,118
Securities available for sale........................................................................... 47,923
Loans receivable, net of allowance for loan losses of $1,415............................................ 112,332
Loans held for sale, at cost which approximates market.................................................. 559
Foreclosed real estate.................................................................................. 179
Premises and equipment, net............................................................................. 6,820
Accrued interest receivable............................................................................. 1,106
Deferred tax asset...................................................................................... 246
Other assets............................................................................................ 2,311
--------
Total............................................................................................... $181,594
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits..................................................................................... 36,470
Savings and NOW deposits............................................................................ 40,876
Money market deposits............................................................................... 11,189
Other time deposits................................................................................. 71,758
--------
Total deposits...................................................................................... 160,293
Other borrowings.................................................................................... 7,149
Other liabilities................................................................................... 530
--------
Total liabilities................................................................................... 167,972
=======
Stockholders' equity:
Class A preferred stock............................................................................. -
Common stock........................................................................................ 3,337
Additional paid-in capital.......................................................................... 9,296
Retained earnings................................................................................... 906
Unrealized gain on securities available for sale.................................................... 83
--------
Total stockholders' equity.......................................................................... 13,622
--------
Total............................................................................................... $181,594
========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-22
<PAGE> 135
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable ....................................... $ 5,220 3,812
Securities available for sale .......................... 1,430 817
Other interest-earning assets .......................... 199 239
---------- ----------
Total interest income ............................... 6,849 4,868
---------- ----------
Interest expense:
Deposits ............................................... 2,735 1,921
Other borrowings ....................................... 286 96
---------- ----------
Total interest expense .............................. 3,021 2,017
---------- ----------
Net interest income ........................................ 3,828 2,851
Provision for loan losses ........................... 240 91
---------- ----------
Net interest income after provision for loan losses ........ 3,588 2,760
---------- ----------
Noninterest income:
Service fees on deposit accounts ....................... 373 259
Loan servicing fees, net ............................... 11 23
Loss from sale of securities available for sale ........ -- (10)
Income from mortgage banking activity .................. 21 25
Leasing fees and commissions ........................... 254 53
Other income ........................................... 219 155
---------- ----------
Total noninterest income ............................ 878 505
---------- ----------
Noninterest expenses:
Salaries and employee benefits ......................... 2,063 1,478
Occupancy expense ...................................... 799 459
Data processing ........................................ 176 100
Federal insurance premium .............................. 45 119
Advertising ............................................ 106 100
Stationary, printing and supplies ...................... 110 86
General insurance ...................................... 59 48
Other expense .......................................... 418 399
---------- ----------
Total noninterest expenses .......................... 3,776 2,789
---------- ----------
Earnings before income taxes ............................... 690 476
Income taxes ............................................... 234 182
---------- ----------
Net earnings ............................................... $ 456 294
========== ==========
Earnings per share ......................................... $ .14 .09
========== ==========
Weighted-average number of shares outstanding .............. 3,334,281 3,285,388
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-23
<PAGE> 136
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES TOTAL
NUMBER OF COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS FOR SALE EQUITY
--------- --------- ---------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .......... 3,326,030 $3,326 9,254 450 70 13,100
Shares issued (unaudited) ............. 11,051 11 42 -- -- 53
Increase in unrealized gain on
securities available
for sale (unaudited) ........... -- -- -- -- 13 13
Net earnings (unaudited) .............. -- -- -- 456 -- 456
--------- ------ ----- --- -- ------
Balance at June 30, 1997
(unaudited) .................... 3,337,081 $3,337 9,296 906 83 13,622
========= ====== ===== === == ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-24
<PAGE> 137
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ........................................................................... $ 456 294
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation ......................................................................... 361 203
Increase in other assets ............................................................. (330) (246)
Provision for loan losses ............................................................ 240 91
Deferred income tax (credit) provision ............................................... (39) 30
Income from mortgage banking activity ................................................ (21) (22)
Increase (decrease) in other liabilities ............................................. 198 (35)
(Increase) decrease in accrued interest receivable ................................... (200) 12
Net amortization of fees, premiums and discounts ..................................... (46) (33)
Write-down on foreclosed real estate ................................................. -- 106
Losses on securities available for sale .............................................. -- 10
Proceeds from sales of loans held for sale ........................................... 2,199 3,818
Originations of loans held for sale .................................................. (1,942) (3,477)
-------- -------
Net cash flow provided by operating activities .................................. 876 751
-------- -------
Cash flows from investing activities:
Purchase of securities available for sale .............................................. (9,970) (11,860)
Proceeds from sale and maturity of securities available for sale ....................... 1,000 9,427
Principal repayments on securities available for sale .................................. 1,283 9,384
Net purchase of premises and equipment ................................................. (666) (755)
Proceeds from sale of premises and equipment ........................................... -- 2
Net increase in loans .................................................................. (505) (14,042)
-------- -------
Net cash used in investing activities ........................................... (8,858) (7,844)
-------- -------
Cash flows from financing activities:
Net (decrease) increase in time deposits ............................................... (267) 5,599
Net increase in noninterest-bearing demand, savings and
NOW deposit accounts ................................................................. 11,225 7,381
Net (decrease) increase of other borrowings ............................................ (4,898) 7,332
Issuance of common stock ............................................................... 53 26
-------- -------
Net cash provided by financing activities ....................................... 6,113 20,338
-------- -------
Net (decrease) increase in cash and cash equivalents ............................ (1,869) 13,245
Cash and cash equivalents at beginning of period ........................................... 11,987 11,155
-------- -------
Cash and cash equivalents at end of period ................................................. $ 10,118 24,400
======== =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest ............................................................................. $ 2,867 1,896
======== =======
Income taxes ......................................................................... $ 273 213
======== =======
Noncash transactions:
Reclassification of loans to foreclosed real estate .................................. $ 179 --
======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE> 138
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION. In the opinion of the management of Gulf West
Banks, Inc., the accompanying condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at June 30, 1997 and
the results of operations and cash flows for the six-month periods ended
June 30, 1997 and 1996. The results of operations and cash flows for the
six months ended June 30, 1997, are not necessarily indicative of results
that may be expected for the year ending December 31, 1997.
The condensed consolidated financial statements include the accounts of
Gulf West Banks, Inc. (the "Holding Company"), its wholly-owned
subsidiaries, Mercantile (the "Bank") and Liberty Leasing Corporation
(together, the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. LOAN IMPAIRMENT AND LOAN LOSSES. The Company prepares a quarterly review
of the adequacy of the allowance for loan losses to also identify and
value impaired loans in accordance with guidance in the Statements of
Financial Accounting Standards No. 114 and 118. Impaired loans identified
by the Company at June 30, 1997 and 1996 were $479,000 and $495,000, net
of loan loss allowance of $100,000 and $100,000, respectively.
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Beginning balance..................................................................... $ 1,184 830
Provision for loan losses ............................................................ 240 91
Loans charged-off, net of recoveries ................................................. (9) (35)
--------- -------
Ending balance........................................................................ $ 1,415 886
========= =======
</TABLE>
3. IMPACT OF NEW ACCOUNTING ISSUES. In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). That Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. That Statement also
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS No.
125 is effective for transfers and servicing of financial assets as well
as extinguishments of liabilities occurring in 1997. The adoption of SFAS
No. 125 had no significant effect on the Company's financial position at
June 30, 1997 or results of operations for the six months then ended.
4. FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The
statement specifies the computation, presentation and disclosure
requirements for net earnings per share for entities with publicly-held
common stock. SFAS 128 is effective for both interim and annual periods
ending after December 15, 1997 and upon adoption, all prior period net
earnings per share data presented will be restated to conform with SFAS
128.
5. PENDING ACQUISITION. On July 31, 1997, the Company entered into an
agreement to acquire Citizens National Bank and Trust Company, Port
Richey, Florida ("Citizens"). Citizens will exchange 1.95 million shares
of its common stock all the outstanding shares of the Citizens. This
transaction is subject to the approval of Citizens stockholders and
various regulatory authorities. The Company expects to account for this
transaction using the purchase method of accounting.
F-26
<PAGE> 139
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Citizens National Bank and Trust Company
Port Richey, Florida:
We have audited the accompanying balance sheet of Citizens National Bank and
Trust Company (the "Bank") as of December 31, 1996 and the related statements of
earnings, stockholders' equity and cash flows for each of the years in the
two-year period then ended. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Bank as of December 31,
1996 and the results of its operations and its cash flows for each of the years
in the two-year period then ended, in conformity with generally accepted
accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 10, 1997
F-27
<PAGE> 140
CITIZENS NATIONAL BANK AND TRUST COMPANY
BALANCE SHEET
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996
----
ASSETS
<S> <C>
Cash and due from banks ......................................... $ 1,896
Federal funds sold .............................................. 5,050
--------
Cash and cash equivalents ......................... 6,946
Securities available for sale ................................... 10,735
Securities held to maturity (market value of $31,078) ........... 30,841
Restricted securities:
Federal Reserve stock ...................................... 141
Federal Home Loan Bank stock ............................... 239
Loans receivable, net of allowance for loan losses of $427 ...... 25,492
Accrued interest receivable ..................................... 711
Premises and equipment, net ..................................... 603
Deferred income taxes ........................................... 158
Other assets .................................................... 53
Foreclosed real estate .......................................... 63
--------
Total ............................................. $ 75,982
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits ........................................ 1,700
Savings and NOW deposits ............................... 23,902
Time deposits .......................................... 41,311
--------
Total deposits .................................... 66,913
Accrued expenses and other liabilities ..................... 597
--------
Total liabilities ................................. 67,510
--------
Commitments and Contingency (Notes 4, 11, 13 and 14)
Stockholders' Equity:
Common stock, $5 par value, 750,000 shares authorized,
603,030 shares issued and outstanding .................. 3,015
Additional paid-in capital ................................. 2,996
Retained earnings .......................................... 2,522
Net unrealized depreciation on available-for-sale
securities, net of tax of $32 .......................... (61)
--------
Total stockholders' equity ........................ 8,472
--------
Total ............................................. $ 75,982
========
</TABLE>
See Accompanying Notes to Financial Statements.
F-28
<PAGE> 141
CITIZENS NATIONAL BANK AND TRUST COMPANY
STATEMENTS OF EARNINGS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Interest income:
Loans receivable ...................................................................... $ 2,288 2,101
Securities held to maturity ........................................................... 1,847 1,822
Securities available for sale ......................................................... 699 803
Federal funds sold .................................................................... 156 118
-------- -------
Total interest income ............................................................. 4,990 4,844
-------- -------
Interest expense-
Deposits .............................................................................. 2,940 2,923
-------- -------
Net interest income ............................................................... 2,050 1,921
Credit for loan losses ..................................................................... (100) --
-------- -------
Net interest income after credit for loan losses .................................. 2,150 1,921
-------- -------
Noninterest income:
Service charges on deposit accounts ................................................... 47 47
Income from fiduciary activities ...................................................... 255 250
Other income .......................................................................... 35 45
-------- -------
Total noninterest income .......................................................... 337 342
-------- -------
Noninterest expenses:
Salaries and employee benefits ........................................................ 972 791
Occupancy and equipment expense ....................................................... 290 299
Professional fees ..................................................................... 130 133
Data processing ....................................................................... 103 100
Federal deposit insurance premiums .................................................... 1 109
Other operating expense ............................................................... 361 216
-------- -------
Total noninterest expenses ........................................................ 1,857 1,648
-------- -------
Earnings before income taxes ............................................................... 630 615
Income taxes ............................................................................... 60 115
-------- -------
Net earnings ...................................................................... $ 570 500
======== =======
Earnings per share ......................................................................... $ 1.06 .98
======== =======
Dividends per share ........................................................................ $ -- --
======== =======
Weighted-average number of shares outstanding .............................................. 537,723 509,256
======== =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-29
<PAGE> 142
CITIZENS NATIONAL BANK AND TRUST COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ON
ADDITIONAL AVAILABLE TOTAL
COMMON PAID-IN RETAINED FOR-SALE STOCKHOLDERS'
STOCK CAPITAL EARNINGS SECURITIES EQUITY
------ --------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994 ...................... $2,363 2,343 1,452 (590) 5,568
Net earnings ................... -- -- 500 -- 500
Net changes in unrealized
depreciation on available
for-sale securities, net of
taxes of $294 ............. -- -- -- 571 571
------ ----- ----- ---- ------
Balance, December 31,
1995 ...................... 2,363 2,343 1,952 (19) 6,639
Net earnings ................... -- -- 570 -- 570
Issuance of 130,500
shares of common stock
in connection with
stock option plan ......... 652 653 -- -- 1,305
Net changes in unrealized
depreciation on available-
for-sale securities, net of
taxes of $22 .............. -- -- -- (42) (42)
------ ----- ----- ---- ------
Balance, December 31,
1996 ...................... $3,015 2,996 2,522 (61) 8,472
====== ===== ===== ==== ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-30
<PAGE> 143
CITIZENS NATIONAL BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings .......................................................................... $ 570 500
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ..................................................... 64 64
Credit for loan losses ............................................................ (100) --
(Increase) decrease in accrued interest receivable ................................ (19) 26
Decrease (increase) in other assets ............................................... 46 (44)
Increase (decrease) in accrued expenses and other liabilities ..................... 133 (38)
(Credit) provision for deferred income taxes ...................................... (25) 23
-------- -------
Net cash provided by operating activities .................................... 669 531
-------- -------
Cash flows from investing activities:
Purchases of securities available for sale ............................................ (2,984) (2,510)
Purchases of securities held to maturity .............................................. (11,600) (4,343)
Proceeds from sales of securities available for sale .................................. -- 101
Proceeds from principal repayments and
maturities of securities held to maturity ......................................... 10,302 5,388
Proceeds from principal repayments and maturities
of securities available for sale .................................................. 5,928 3,228
Purchase of restricted securities ..................................................... (17) --
Net increase in loans ................................................................. (2,088) (988)
Net purchases of premises and equipment ............................................... (5) (37)
Proceeds from sale of foreclosed real estate .......................................... 30 41
-------- -------
Net cash (used in) provided by investing activities .......................... (434) 880
-------- -------
Cash flows from financing activities:
Net increase (decrease) in demand, savings and NOW deposit accounts ................... 2,041 (3,760)
Net (decrease) increase in time deposits .............................................. (682) 3,455
Proceeds from issuance of common stock ................................................ 1,305 --
-------- -------
Net cash provided by (used in) financing activities .......................... 2,664 (305)
-------- -------
Increase in cash and cash equivalents ...................................................... 2,899 1,106
Cash and cash equivalents at beginning of year ............................................. 4,047 2,941
-------- -------
Cash and cash equivalents at end of year ................................................... $ 6,946 4,047
======== =======
Supplemental cash flows information:
Cash paid for interest ................................................................ $ 2,942 2,909
======== =======
Cash paid for income taxes ............................................................ $ 68 119
======== =======
Noncash transactions:
Net change in unrealized depreciation on available-
for-sale securities, net of taxes ............................................ $ (42) 571
======== =======
Loans receivable reclassified to foreclosed real estate ........................... $ 94 --
======== =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-31
<PAGE> 144
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND FOR EACH OF THE YEARS
IN THE TWO-YEAR PERIOD THEN ENDED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Citizens National Bank and Trust Company (the "Bank") is a
nationally-chartered Bank. The Bank provides a wide range of banking
services to small and middle-market businesses and individuals through
its one office in Pasco County, Florida. The accounting and reporting
practices of the Bank conform to generally accepted accounting
principles and to general practices within the banking industry. The
following summarizes the more significant of these policies and
practices.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
SECURITIES AVAILABLE FOR SALE. Available-for-sale securities consist of
U.S. Government agencies and corporations and mortgage-backed
securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in a
separate component of stockholders' equity until realized. Gains and
losses on the sale of available-for-sale securities are determined
using the specific identification method. Premiums and discounts are
recognized in interest income using the interest method over the period
to maturity.
SECURITIES HELD TO MATURITY. Securities for which the Bank has the positive
intent and ability to hold to maturity are reported at cost, adjusted
for amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the period
to maturity.
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
(continued)
F-32
<PAGE> 145
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED.
LOANS RECEIVABLE, CONTINUED. The allowance for loan losses is increased by
charges to earnings and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions.
TRUST FEES. Trust fees are recorded on the accrual basis. Securities and
other property held by the trust department in a fiduciary or agency
capacity are not included in the balance sheet since such items are not
assets of the Bank.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation expense is
computed using the straight-line method over the estimated useful life
of each type of asset. Leasehold improvements are amortized on the
straight-line method over the shorter of their estimated useful life or
the lease term.
FORECLOSED REAL ESTATE. Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in the statements of
earnings.
INCOME TAXES. Deferred income tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
ADVERTISING. The Bank expenses all media advertising as incurred.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of
business, the Bank has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY. Fair values for
securities are based on quoted market prices.
RESTRICTED SECURITIES. Book value of these securities approximates
fair value.
(continued)
F-33
<PAGE> 146
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED. LOANS
RECEIVABLE.
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair
values for fixed-rate residential mortgage loans, fixed-rate
commercial real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
ACCRUED INTEREST. The carrying amounts of accrued interest
approximates their fair value.
DEPOSIT ACCOUNTS. The fair values disclosed for demand, savings and NOW
deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregate expected monthly
maturities on time deposits.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
EARNINGS PER SHARE. Earnings per share has been computed by dividing net
earnings for the period by the weighted average number of shares
outstanding. Stock options are regarded as common stock equivalents and
are therefore considered in both primary and fully diluted earnings per
share calculations. Common stock equivalents are computed using the
treasury stock method. The following table presents the calculation of
earnings per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average shares of common stock issued and
outstanding before adjustment for common stock
options ................................................................................ 492,864 472,530
Shares assumed outstanding to reflect the dilutive
effect of common stock options ......................................................... 44,859 36,726
-------- -------
Weighted average shares, including common stock
equivalents for primary earnings per share ............................................. 537,723 509,256
======== =======
Primary earnings per share ................................................................. $ 1.06 .98
======== =======
Total weighted average common shares and
equivalents outstanding for primary earnings
per share computation .................................................................. 537,723 509,256
Additional dilutive shares using the higher of the end of period
market value versus average market value for the period
utilizing the
treasury stock method regarding stock options .......................................... -- 10,116
-------- -------
Weighted average common shares and equivalents
outstanding for fully diluted earnings per share ....................................... 537,723 519,372
======== =======
Fully diluted earnings per share ........................................................... $ 1.06 .96
======== =======
</TABLE>
(continued)
F-34
<PAGE> 147
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
RECLASSIFICATIONS. Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. This Statement also
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring in 1997. Management does not
anticipate SFAS 125 will have a material impact on the Bank.
(2) DEBT SECURITIES
Debt securities have been classified in the balance sheet according to
management's intent. The carrying amounts of securities and their
approximate fair values are summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
SECURITIES AVAILABLE FOR SALE:
U.S. government agencies
and corporations ...... $ 8,589 9 (71) 8,527
Mortgage-backed securities.. 2,240 -- (32) 2,208
------- ---- ------- ------
$10,829 9 (103) 10,735
======= ==== ======= ======
SECURITIES HELD TO MATURITY:
U.S. Treasury securities . 995 8 -- 1,003
U.S. government agencies
and corporations ...... 14,848 26 (59) 14,815
Mortgage-backed securities.. 6,579 37 (57) 6,559
Tax-exempt securities .... 7,210 284 -- 7,494
Corporate securities ..... 1,209 -- (2) 1,207
------- ---- ------- ------
$30,841 355 (118) 31,078
======= ==== ======= ======
</TABLE>
Securities with a book value of approximately $1,242,000 (market value of
$1,294,000) are pledged as security for certain public deposits and
that portion of Trust Department customer deposit accounts which
exceeded the FDIC insurance coverage at December 31, 1996. At December
31, 1996, public deposits were $2,184,048.
The Bank realized gross proceeds from sales of securities available for
sale of $101,394 in 1995. There were no gross gains or losses in 1995.
There were no securities sold in 1996.
(continued)
F-35
<PAGE> 148
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(2) DEBT SECURITIES, CONTINUED
The scheduled maturities of securities available for sale and securities
held to maturity at December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ----- --------- ------
<S> <C> <C> <C> <C>
Due in one year or less............... $ 549 549 4,961 4,994
Due after one year to five years...... 7,540 7,487 14,585 14,562
Due after five years to ten years..... 500 491 6,254 6,340
Due after ten years................... 2,240 2,208 5,041 5,182
------ ------ ------ ------
$ 10,829 10,735 30,841 31,078
====== ====== ====== ======
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of the
underlying collateral. The mortgage-backed securities may mature
earlier than their weighted-average contractual maturities because of
principal prepayments.
At December 31, 1996, the Bank had mortgage-backed derivatives classified
as held-to-maturity with a book and market value of approximately $1.4
million. The Bank had purchased these securities between 1992 and 1994
due to their higher than market interest rates. The Bank intends to
hold these securities until maturity and does not intend to purchase
these types of securities in the future. Due to the past performance of
these securities, management does not expect these securities to have
any significant adverse effect on the financial condition of the Bank.
(3) LOANS RECEIVABLE
The components of loans receivable in the balance sheet is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Commercial and commercial real estate ...................... $ 11,681
Mortgage ................................................... 13,026
Consumer ................................................... 1,218
--------
25,925
Less deferred loan fees, net ............................... (6)
--------
Loans before allowance for loan losses ..................... 25,919
Less allowance for loan losses ............................. (427)
--------
Loans receivable, net ...................................... $ 25,492
========
</TABLE>
(continued)
F-36
<PAGE> 149
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE, CONTINUED
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year.................................................. $ 507 507
Credit for loan losses........................................................ (100) -
Charge-offs................................................................... - (58)
Recoveries.................................................................... 20 58
----- ---
Balance at end of year........................................................ $ 427 507
===== ===
</TABLE>
There were no loans identified as being impaired in accordance with FASB
Statement No. 114, as amended by FASB Statement No. 118 at December 31,
1996. The average net investment in impaired loans and interest income
recognized and received on impaired loans is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Average investment in impaired loans.......................................... $ 47 91
===== =====
Interest income recognized on impaired loans.................................. $ - 4
===== =====
Interest income received on impaired loans.................................... $ - 4
===== =====
</TABLE>
(4) PREMISES AND EQUIPMENT
Components of premises and equipment included in the balance sheet were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Furniture and equipment.................................................................. $ 391
Leasehold improvements................................................................... 323
Electronic data processing equipment..................................................... 171
Vehicles................................................................................. 54
Signs.................................................................................... 11
---
Total cost........................................................................... 950
Less accumulated depreciation and amortization........................................... (347)
---
Premises and equipment, net.......................................................... $ 603
===
</TABLE>
(continued)
F-37
<PAGE> 150
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(4) PREMISES AND EQUIPMENT, CONTINUED
The Bank leases its office facility under two leases. These leases had
initial lease terms of six to ten years and contain renewal options.
Rent expense was $142,727 and $158,993 in 1996 and 1995, respectively.
The office lease agreements contain escalation clauses based upon the
consumer price index and provide for annual adjustments. Estimated
future rentals over the remaining noncancelable lease terms are
approximately as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997.................................................................... $ 148
1998.................................................................... 19
---
$ 167
===
</TABLE>
(5) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was $4,989,714 at December 31,
1996.
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997.................................................................. $ 24,788
1998.................................................................. 9,684
1999.................................................................. 3,031
2000.................................................................. 2,667
2001.................................................................. 1,141
------
$ 41,311
======
</TABLE>
(6) OTHER BORROWINGS
The Bank has established lines of credit with three correspondent banks for
a aggregate total of $4,000,000 at December 31, 1996. There were no
amounts outstanding under these lines of credit at December 31, 1996.
The Bank has established a borrowing relationship with the Federal Home
Loan Bank of Atlanta and at December 31, 1996 had a credit availability
of $8,000,000. Borrowings will be collateralized with qualifying loans
and Federal Home Loan Bank of Atlanta stock. At December 31, 1996, the
Bank had no borrowings outstanding from the Federal Home Loan Bank of
Atlanta.
(continued)
F-38
<PAGE> 151
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(7) INCOME TAXES
The components of the provision for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Current:
Federal.................................................................... $ 74 81
State...................................................................... 11 11
-- ---
Total current......................................................... 85 92
-- ---
Deferred:
Federal.................................................................... (19) 20
State...................................................................... (6) 3
-- ---
Total deferred........................................................ (25) 23
-- ---
Total................................................................. $ 60 115
== ===
</TABLE>
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% as indicated in the
following analysis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Statutory rate................................................................ 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income............................................... (21.0) (21.5)
State taxes, net of federal tax benefit................................... 1.1 1.6
Other..................................................................... (4.6) 4.5
---- ----
9.5% 18.6%
==== ====
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Net unrealized depreciation on securities
available for sale................................................................... $ 32
Depreciation............................................................................. (106)
Deferred loan fees....................................................................... 2
Allowance for loan losses................................................................ 103
Deferred compensation.................................................................... 127
---
Net deferred tax asset............................................................... $ 158
===
</TABLE>
(continued)
F-39
<PAGE> 152
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(8) REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
it may pay.
The Bank is also subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from The Office of
the Comptroller of the Currency categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately or well capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed
the Bank's category. The Bank's actual capital amounts and ratios are
also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
----------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk-
Weighted Assets)........... $ 9,255 29.5% 2,507 8.0% 3,134 10.0%
Tier I Capital (to Risk-
Weighted Assets)........... 8,863 28.3% 1,254 4.0% 1,880 6.0%
Tier I Capital
(to Average Assets)........ 8,863 12.2% 2,908 4.0% 3,635 5.0%
</TABLE>
(continued)
F-40
<PAGE> 153
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(9) STOCK OPTIONS
The Bank has a nonqualified Stock Option Plan (the "Plan") whereby options
to purchase eighty thousand (80,000) shares of the Bank's common stock
had been granted to executive officers of the Bank. In addition,
options to purchase ninety-eight thousand five hundred (98,500) shares
of common stock were granted to certain members of the Board of
Directors.
The stock options were exercisable at $10 per share and expired in 1996.
Activity in the executive officer and director stock option plans is
summarized as follows:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS DIRECTORS TOTAL
---------- --------- ---------
<S> <C> <C> <C>
Balance at December 31,
1994 and 1995 ................................ 64,000 98,500 162,500
Options expired .................................. (32,000) -- (32,000)
Options exercised ................................ (32,000) (98,500) (130,500)
------- ------- --------
Balance at December 31, 1996 ..................... -- -- --
======= ======= ========
</TABLE>
Also an incentive stock option plan was adopted by the Board of Directors
and, as of December 31, 1996, no options were granted.
(10) RETIREMENT PLAN
In 1995 the Bank implemented a Section 401(k) Employee Savings Plan (the
"Plan"). Under the Plan, employees become eligible after completion of
1,000 hours of employment service. The Bank paid matching contributions
of $18,962 and $13,876 in 1996 and 1995, respectively, representing 50%
of the employee contributions to the Plan, not to exceed 6% of the
salaries of the participants.
(11) CONTINGENCY
On April 28, 1988, the Bank entered into employment contracts
("contracts") with the Bank's original executive officers. The terms of
the contracts were for ten years and included yearly salary, a deferred
compensation program as discussed below as well as certain post
retirement health care and life insurance benefits and stock options.
Terms of the executive officer nonqualified deferred compensation program,
which was effective on February 25, 1988, call for the accrual of
deferred compensation at the rate of $1,000 per month of employment up
to a maximum of 120 months with interest at 5 1/2% per year compounded
daily. On September 2, 1993, the Board suspended this program and froze
the balance of the deferred compensation liability. Also, for the
former executive officers of the Bank, salary has not been paid and no
liability has been recorded after their employment ceased with the
Bank.
(continued)
F-41
<PAGE> 154
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(11) CONTINGENCY, CONTINUED
The Bank is currently involved in litigation with respect to two of these
contracts. Two of the former executive officers have filed suits
against the Bank to receive full compensation under their employment
contracts. The Bank moved to dismiss the complaint and in July 1994,
the court granted the Bank's motion to dismiss. In August 1994, the
plaintiff filed an appeal with the Second District Court of Appeals.
The appellate court reversed in part the Bank's motion to dismiss the
lawsuit. The Bank appealed this decision to the Florida Supreme Court.
The case was heard on January 5, 1996. On June 13, 1996, the Florida
Supreme Court upheld the ruling of the Second District Court of
Appeals. The Bank has accrued $136,844 representing the amount of
deferred compensation accrued for the two former employees at the date
the deferred compensation program was suspended. The Bank intends to
defend the case vigorously and does not believe the ultimate
disposition of this matter will have a material adverse effect on the
financial statements or results of operations of the Bank.
(12) RELATED PARTIES
The aggregate amount of loans owed to the Bank by its executive and senior
officers, directors, and their related entities at December 31, 1996
was approximately $896,000. These loans have been made on substantially
the same terms, including collateral, as those prevailing at the time
for comparable transactions with unrelated persons and do not involve
more than normal risk of collectibility.
(13) FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to extend
credit. Those instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amount recognized in the
balance sheet. The contract or notional amounts of those instruments
reflect the extent of the Bank's involvement in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of
credit is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial
properties.
(continued)
F-42
<PAGE> 155
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Financial Statements, Continued
(13) FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
------------------------
CARRYING FAIR
VALUE VALUE
-------- -------
<S> <C> <C>
Financial assets:
Cash and cash equivalents................................................ $ 6,946 6,946
======== ======
Securities available for sale............................................ $ 10,735 10,735
======== ======
Securities held to maturity.............................................. $ 30,841 31,078
======== ======
Loans receivable......................................................... $ 25,492 25,947
======== ======
Restricted securities.................................................... $ 380 380
======== ======
Accrued interest receivable.............................................. $ 711 711
======== ======
Financial liabilities:
Deposit accounts......................................................... $ 66,913 66,664
======== ======
A summary of the notional amounts, which approximate fair value, of
the Bank's financial instruments with off-balance-sheet risk at
December 31, 1996, follows (in thousands):
Commitments to extend credit............................................... $ 2,444
=======
</TABLE>
(14) CREDIT RISK
Most of the Bank's business activity is with customers located within
West Pasco County, Florida. In accordance with its policy, the
primary trade area which is being served by the Bank's lending
function can be defined as all of Western Pasco County, Florida
with a specific emphasis on the market area within a five-mile
radius of the Bank's location. A significant portion of the
business located within this geographic area is associated with
the medical industry. Loans are expected to be repaid from cash
flow or proceeds from the sale of selected assets of the
borrowers. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. The
contractual amounts of credit-related financial instruments such
as commitments to extend credit represent the amounts of
potential accounting loss should the contract be fully drawn
upon, the customer default and the value of any existing
collateral become worthless.
F-43
<PAGE> 156
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------
1997
----
ASSETS (UNAUDITED)
<S> <C>
Cash and due from banks................................................................................... $ 1,385
Federal funds sold........................................................................................ 200
---------
Cash and cash equivalents................................................................... 1,585
Securities available for sale............................................................................. 12,504
Securities held to maturity (market value of $28,549)..................................................... 28,342
Restricted securities:
Federal Reserve stock................................................................................ 180
Federal Home Loan Bank stock......................................................................... 228
Loans receivable, net of allowance for loan losses of $428................................................ 28,994
Accrued interest receivable............................................................................... 780
Premises and equipment, net............................................................................... 595
Deferred income taxes..................................................................................... 171
Other assets.............................................................................................. 69
Foreclosed real estate.................................................................................... 63
---------
Total....................................................................................... $ 73,511
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits.................................................................................. 1,940
Savings and NOW deposits......................................................................... 22,172
Time deposits.................................................................................... 40,600
---------
Total deposits.............................................................................. 64,712
Accrued expenses and other liabilities............................................................... 249
---------
Total liabilities........................................................................... 64,961
---------
Stockholders' equity:
Common stock......................................................................................... 3,015
Additional paid-in capital........................................................................... 2,996
Retained earnings.................................................................................... 2,581
Net unrealized depreciation on available-for-sale securities,
net of tax of $22................................................................................ (42)
---------
Total stockholders' equity.................................................................. 8,550
---------
Total....................................................................................... $ 73,511
=========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-44
<PAGE> 157
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENTS OF EARNINGS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable ...................................................................... $ 1,280 1,121
Securities held to maturity ........................................................... 915 897
Securities available for sale ......................................................... 361 385
Federal funds sold .................................................................... 70 57
-------- -------
Total interest income ............................................................. 2,626 2,460
-------- -------
Interest expense-
Deposits .............................................................................. 1,479 1,453
-------- -------
Net interest income ............................................................... 1,147 1,007
Credit for loan losses ..................................................................... -- (100)
-------- -------
Net interest income after credit for loan losses .................................. 1,147 1,107
-------- -------
Noninterest income:
Service charges on deposit accounts ................................................... 40 34
Income from fiduciary activities ...................................................... 129 130
Other income .......................................................................... -- 7
-------- -------
Total noninterest income .......................................................... 169 171
-------- -------
Noninterest expenses:
Salaries and employee benefits ........................................................ 478 419
Occupancy and equipment expense ....................................................... 141 141
Professional fees ..................................................................... 52 72
Data processing ....................................................................... 51 51
Litigation Settlement ................................................................. 324 --
Other operating expense ............................................................... 163 169
-------- -------
Total noninterest expenses ........................................................ 1,209 852
-------- -------
Earnings before income taxes ............................................................... 107 426
Income taxes (credit) ...................................................................... (12) 55
-------- -------
Net earnings ...................................................................... $ 119 371
======== =======
Earnings per share ......................................................................... $ .20 .70
======== =======
Dividends per share ........................................................................ $ .10 --
======== =======
Weighted average number of shares outstanding .............................................. 603,030 533,614
======== =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-45
<PAGE> 158
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ON
ADDITIONAL AVAILABLE- TOTAL
COMMON PAID-IN RETAINED FOR-SALE STOCKHOLDERS'
STOCK CAPITAL EARNINGS SECURITIES EQUITY
-------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1996............................. $ 3,015 2,996 2,522 (61) 8,472
Cash dividends........................ - - (60) - (60)
Net earnings.......................... - - 119 - 119
Net changes in unrealized
depreciation on available-
for-sale securities, net of
taxes............................ - - - 19 19
----- ----- ----- -- -----
Balance, June 30, 1997................ $ 3,015 2,996 2,581 (42) 8,550
===== ===== ===== == =====
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-46
<PAGE> 159
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings .......................................................................... $ 119 371
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization ..................................................... 32 33
Credit for loan losses ............................................................ -- (100)
Increase in accrued interest receivable ........................................... (69) (38)
(Increase) decrease in other assets ............................................... (16) 40
Loss on sale of securities available for sale ..................................... 2 --
Decrease in accrued expenses and other liabilities ................................ (348) (38)
Credit for deferred income taxes .................................................. (24) (23)
-------- -------
Net cash (used in) provided by operating activities .......................... (304) 245
-------- -------
Cash flows from investing activities:
Purchases of securities available for sale ............................................ (2,500) (1,000)
Purchases of securities held to maturity .............................................. (1,000) (5,600)
Proceeds from sales of securities available for sale .................................. 471 --
Proceeds from principal repayments and
maturities of securities held to maturity ......................................... 3,099 4,730
Proceeds from principal repayments and maturities
of securities available for sale .................................................. 688 2,746
Purchase of restricted securities ..................................................... (28) (18)
Net increase in loans ................................................................. (3,502) (474)
Net purchases of premises and equipment ............................................... (24) --
-------- -------
Net cash (used in) provided by investing activities .......................... (2,796) 384
-------- -------
Cash flows from financing activities:
Net (decrease) increase in demand, savings and NOW
deposit accounts .................................................................. (1,490) 676
Net decrease in time deposits ......................................................... (711) (2,849)
Cash dividends ........................................................................ (60) --
Proceeds from issuance of common stock ................................................ -- 200
-------- -------
Net cash used in financing activities ........................................ (2,261) (1,973)
-------- -------
Decrease in cash and cash equivalents ...................................................... (5,361) (1,344)
Cash and cash equivalents at beginning of period ........................................... 6,946 4,047
-------- -------
Cash and cash equivalents at end of period ................................................. $ 1,585 2,703
======== =======
Supplemental cash flows information:
Cash paid for interest ................................................................ $ 1,495 1,501
======== =======
Cash paid for income taxes ............................................................ $ 57 14
======== =======
Noncash transactions:
Net change in unrealized depreciation on available-
for-sale securities, net of taxes ............................................ $ 19 (119)
======== =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-47
<PAGE> 160
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1. BASIS OF PRESENTATION. In the opinion of the management of Citizens
National Bank and Trust Company (the "Bank"), the accompanying
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position at June 30, 1997 and the results of operations and cash flows
for the six-month periods ended June 30, 1997 and 1996 and changes in
stockholders' equity for the six months ended June 30, 1997. The
results of operations and other data for the six months ended June 30,
1997 are not necessarily indicative of results that may be expected for
the year ending December 31, 1997.
2. LOAN IMPAIRMENT AND LOAN LOSSES. No impaired loans were identified by the
Bank during the six months ended June 30, 1997.
An analysis of the change in the allowance for loan losses was as
follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
<S> <C> <C>
Balance at beginning of period.................................................... $ 427 507
Credit for loan losses............................................................ - (100)
Recoveries........................................................................ 1 2
--- ---
Balance at end of period.......................................................... $ 428 409
=== ===
</TABLE>
3. IMPACT OF NEW ACCOUNTING ISSUES. In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"). That
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. That
Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and
servicing of financial assets as well as extinguishments of liabilities
occurring in 1997. The adoption of SFAS No. 125 had no effect on the
Bank's financial position at June 30, 1997 or results of operations for
the six months then ended.
4. FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). This Statement specifies the computation, presentation and
disclosure requirements for net earnings per share for entities with
publicly-held common stock. SFAS 128 is effective for both interim and
annual periods ending after December 15, 1997 and upon adoption, all
prior period net earnings per share data presented will be restated to
conform with SFAS 128.
(continued)
F-48
<PAGE> 161
CITIZENS NATIONAL BANK AND TRUST COMPANY
Notes to Condensed Financial Statements (Unaudited), Continued
5. EARNINGS PER SHARE. Earnings per share has been computed by dividing net
earnings for the period by the weighted average number of shares
outstanding. Stock options are regarded as common stock equivalents and
are therefore considered in both primary and fully diluted earnings per
share calculations. Common stock equivalents are computed using the
treasury stock method. The following table presents the calculation of
earnings per share.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
1997 1996
-------- -------
<S> <C> <C>
Weighted average shares of common stock issued and
outstanding before adjustment for common stock
options ................................................................................ 603,030 490,762
Shares assumed outstanding to reflect the dilutive
effect of common stock options ......................................................... -- 42,852
-------- -------
Weighted average shares, including common stock
equivalents for primary earnings per share ............................................. 603,030 533,614
======== =======
Primary earnings per share.................................................................. $ .20 .70
======== =======
Total weighted average common shares and
equivalents outstanding for primary earnings
per share computation .................................................................. 603,030 533,614
Additional dilutive shares using the higher of the end of period
market value versus average market value for the period
utilizing the
treasury stock method regarding stock options .......................................... -- 1,196
-------- -------
Weighted average common shares and equivalents
outstanding for fully diluted earnings per share ....................................... 603,030 534,810
======== =======
Fully diluted earnings per share............................................................ $ .20 .69
======== =======
</TABLE>
6. LITIGATION SETTLEMENT. As of December 31, 1996, the Bank was involved
in litigation with respect to employment contracts with certain of the
Bank's original executive officers. At December 31, 1996, the Bank had
accrued $136,844 which management believed would be adequate to cover
any potential loss in connection with this litigation. In February,
1997, this litigation was settled and resulted in an additional expense
to the Bank of approximately $324,000.
7. PROPOSED ACQUISITION OF BANK. On July 31, 1997, the Board of Directors
of the Bank signed a definitive agreement for the merger of the Bank
into another financial institution (Gulf West Banks, Inc.). Under the
terms of the agreement, the Bank's stockholders will collectively
receive 1.95 million shares of Gulf West Banks, Inc. common stock, an
exchange ratio of 3.23 shares, for each share of the Bank's common
stock. The merger is expected to be completed in late 1997 or early
1998 and is subject to various regulatory approvals as well as the
approval of the stockholders of the Bank.
F-49
<PAGE> 162
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 607.0850 of the Florida Business Corporation Act and Article
XII of the Gulf West's Articles of Incorporation, the Gulf West's directors,
officers employees and agents may be indemnified against certain liabilities
which they may incur in their capacity as such, including indemnification for
liabilities arising under the Securities Act. Such indemnification is generally
available if the person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of Gulf West, and with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. Indemnification may also be available unless a court
of competent jurisdiction establishes by judgment or other final adjudication
that the actions or omissions of the executive were material to the cause of
action so adjudicated and constituted: (a) a violation of the criminal law
unless the executive had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(b) a transaction from which the executive derived an improper personal benefit;
or (c) willful misconduct or conscious disregard for the best interest of Gulf
West in a proceeding by or in the right of Gulf West to procure a judgment in
its favor or in a proceeding by or in the right of a stockholder. In addition,
the Registration Rights Agreement (SEE "MANAGEMENT REGISTRATION RIGHTS
AGREEMENT") includes provisions under which the individual parties thereto could
be indemnified against violations of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and persons controlling Gulf West
pursuant to the foregoing provisions, or otherwise, Gulf West has been advised
that in the opinion of the Securities Exchange 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 registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
2 Amended and Restated Agreement and Plan of Merger by and among Citizens
National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile
Bank (incorporated by reference to Annex A to the accompanying Proxy
Statement/Prospectus)
3.1 Articles of Incorporation of Gulf West Banks, Inc.
3.2 Bylaws of Gulf West Banks, Inc.
5 Opinion of Fowler, White, Gillen, Boggs, Villareal & Banker, P.A. (1)
8 Opinion of Fowler, White, Gillen, Boggs, Villareal & Banker, P.A. relating to tax
matters (1)
10.1 Form of Registration Rights Agreement with Gordon W. Campbell and John Wm.
Galbraith
10.2 Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and
Robert A. Blakley
10.3 Employment Contract with Gordon W. Campbell
10.4 Stock Option Plan
21 Subsidiaries of Registrant
23.1(a) Consent of Hacker, Johnson, Cohen & Grieb PA, Independent Accountants to Gulf West Banks, Inc.
23.1(b) Consent of Hacker, Johnson, Cohen & Grieb PA, Independent Accountants for Citizens National Bank and
Trust Compnay, Inc.
23.2 Consent of Fowler, White, Gillen Boggs, Villareal & Banker, P.A. (Contained in
Exhibit 5.1)
24 Powers of Attorney (contained on the signature page)
27 Financial Data Schedule (for SEC use only)
99.1 Form of Proxy
--------------
(1) -- To be provided by amendment.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes as follows:
II-1
<PAGE> 163
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
(A) to include any prospectus required by Section
10(a)(3) of the Securities Act;
(B) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement for the most
recent post-effective amendment thereof which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(C) to include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) For determining liability under the Securities Act, treat
each such post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) To file post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 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.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
Citizens National being involved therein, that was not the subject of and
included in the registration statement when being involved therein became
effective.
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Gulf West pursuant to the foregoing provisions, or otherwise, Gulf West has
been advised that in the opinion of the SEC 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 Gulf West of expenses incurred or paid by
a director, officer or controlling person of Gulf West in the successful defense
of any action, suite or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Gulf West
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.
II-2
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of St. Petersburg, State of
Florida, as of the 6th day of October, 1997.
GULF WEST BANKS, INC.
By: /s/ Gordon W. Campbell
-----------------------------
Gordon W. Campbell, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names are marked with
an asterisk (*) below hereby designate Gordon W. Campbell or Barry K. Miller to
sign all amendments, including post-effective amendments to this Registration
Statement as well as any related Registration Statement, or amendment thereto,
filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gordon W. Campbell
- ----------------------------- President, Chairman of the Board October 6, 1997
Gordon W. Campbell
/s/ Barry K. Miller
- ----------------------------- Executive Vice President/Secretary/ October 6, 1997
Barry K. Miller Treasurer (principal financial
officer and principal accounting
officer)
- ----------------------------- Director October 6, 1997
*John Wm. Galbraith
- ----------------------------- Director October 6, 1997
*Thomas M. Harris
- ----------------------------- Director October 6, 1997
*Algis Koncius
- ----------------------------- Director October 6, 1997
*Louis P. Ortiz
- ----------------------------- Director October 6, 1997
*John C. Petagna, Jr.
- ----------------------------- Director October 6, 1997
*P. N. Risser, III
- ----------------------------- Director October 6, 1997
*Ross E. Roeder
</TABLE>
II - 3
<PAGE> 165
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GULF WEST BANKS, INC.
MERCANTILE BANK
AND
CITIZENS NATIONAL BANK & TRUST COMPANY
DATED AS OF OCTOBER, ____, 1997
AMENDING AND RESTATING
AGREEMENT DATED JULY 31, 1987
<PAGE> 166
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I ........................................................................................................1
THE MERGER ..............................................................................................1
SECTION 1.1 The Merger .......................................................................1
SECTION 1.2 Effective Time ...................................................................1
SECTION 1.3 Certain Effects of the Merger ....................................................2
SECTION 1.4 Articles of Incorporation and Bylaws .............................................2
SECTION 1.5 Directors and Officers ...........................................................2
SECTION 1.6 Conversion of Shares .............................................................2
SECTION 1.7 Shareholders' Meeting ............................................................3
SECTION 1.8 Registration of the Gulf West
Common Stock .........................................................4
SECTION 1.9 Closing ..........................................................................4
ARTICLE II .......................................................................................................5
DISSENTING SHARES; EXCHANGE OF SHARES....................................................................5
SECTION 2.1 Dissenting Shares ................................................................5
SECTION 2.2 Exchange of Shares ...............................................................5
ARTICLE III.......................................................................................................7
REPRESENTATIONS AND WARRANTIES OF THE BANK...............................................................7
SECTION 3.1 Organization and Qualification ...................................................7
SECTION 3.2 Bank Capitalization ..............................................................8
SECTION 3.3 Other Securities .................................................................8
SECTION 3.4 Authority Relative to the Agreement ..............................................8
SECTION 3.5 No Violation .....................................................................9
SECTION 3.6 Consents and Approvals ...........................................................9
SECTION 3.7 Regulatory Reports ...............................................................9
SECTION 3.8 Securities Issuances ............................................................10
SECTION 3.9 Financial Statements ............................................................10
SECTION 3.10 Absence of Certain Changes ......................................................10
SECTION 3.11 Bank Indebtedness ...............................................................11
SECTION 3.12 Litigation ......................................................................11
SECTION 3.13 Tax Matters .....................................................................13
SECTION 3.14 Employee Benefit Plans ..........................................................13
SECTION 3.15 Labor Matters ...................................................................16
SECTION 3.16 Leases, Contracts and Agreements ................................................16
SECTION 3.17 Related Bank Transactions .......................................................17
SECTION 3.18 Compliance with Laws ............................................................17
SECTION 3.19 Insurance .......................................................................18
SECTION 3.20 Loans ...........................................................................18
SECTION 3.21 Fiduciary Responsibilities ......................................................18
SECTION 3.22 Patents, Trademarks and Copyrights ..............................................18
SECTION 3.23 Environmental Compliance ........................................................18
SECTION 3.24 Regulatory Actions ..............................................................20
SECTION 3.25 Title to Properties; Encumbrances ...............................................21
</TABLE>
i
<PAGE> 167
<TABLE>
<S> <C> <C>
SECTION 3.26 Shareholder List ................................................................21
SECTION 3.27 Proxy Statement .................................................................21
SECTION 3.28 Dissenting Shareholders .........................................................22
SECTION 3.29 Section 368 Representations .....................................................22
SECTION 3.30 Accounting Matters ..............................................................23
SECTION 3.31 Representations Not Misleading ..................................................23
SECTION 3.32 Opinion of Investment Bankers ...................................................23
ARTICLE IV.......................................................................................................24
REPRESENTATIONS AND WARRANTIES OF GULF WEST
AND MERCANTILE.........................................................................................24
SECTION 4.1 Organization and Qualification ..................................................24
SECTION 4.2 Gulf West Capitalization ........................................................24
SECTION 4.3 Authority Relative to the Agreement .............................................25
SECTION 4.4 No Violation ....................................................................25
SECTION 4.5 Consents and Approvals ..........................................................26
SECTION 4.6 Regulatory Reports ..............................................................26
SECTION 4.7 Securities Issuances ............................................................26
SECTION 4.8 Financial Statements ............................................................26
SECTION 4.9 Absence of Certain Changes ......................................................27
SECTION 4.10 Gulf West Indebtedness ..........................................................28
SECTION 4.11 Litigation ......................................................................28
SECTION 4.12 Tax Matters .....................................................................28
SECTION 4.13 Employee Benefit Plans ..........................................................29
SECTION 4.14 Labor Matters ...................................................................31
SECTION 4.15 Leases, Contracts and Agreements ................................................31
SECTION 4.16 Related Gulf West and Mercantile
Transactions ........................................................32
SECTION 4.17 Compliance with Laws ............................................................32
SECTION 4.18 Insurance .......................................................................33
SECTION 4.19 Loans ...........................................................................33
SECTION 4.20 Fiduciary Responsibilities ......................................................33
SECTION 4.21 Patents, Trademarks and Copyrights ..............................................33
SECTION 4.22 Environmental Compliance ........................................................34
SECTION 4.23 Regulatory Actions ..............................................................35
SECTION 4.24 Title to Properties; Encumbrances ...............................................36
SECTION 4.25 Proxy Statement .................................................................36
SECTION 4.26 Accounting Matters ..............................................................37
SECTION 4.27 Representations Not Misleading ..................................................37
ARTICLE V .......................................................................................................37
CONDUCT OF BUSINESS PENDING CLOSING ....................................................................37
SECTION 5.1 Affirmative Covenants of the Bank ...............................................37
SECTION 5.2 Negative Covenants of the Bank ..................................................39
SECTION 5.3 Covenants of Gulf West...........................................................42
ARTICLE VI ......................................................................................................43
ADDITIONAL AGREEMENTS ..................................................................................43
SECTION 6.1 Access To, Information Concerning,
Properties and Records ..............................................43
SECTION 6.2 Filings with Regulatory Agencies ................................................43
SECTION 6.3 Miscellaneous Agreements and Consents ...........................................44
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 6.4 Bank Indebtedness ...............................................................44
SECTION 6.5 Best Good Faith Efforts .........................................................44
SECTION 6.6 Acquisition Proposals ...........................................................44
SECTION 6.7 Public Announcement .............................................................45
SECTION 6.8 Employees and Employee Benefit Plans ............................................45
SECTION 6.9 Environmental Investigation: Right to
Terminate Agreement .................................................46
SECTION 6.10 Florida Takeover Law.............................................................50
SECTION 6.11 Exchange Agreement ..............................................................50
SECTION 6.12 Bank's Designees.................................................................50
Section 6.13 Indemnification and Insurance....................................................51
ARTICLE VII. ....................................................................................................52
CONDITIONS TO CONSUMMATION OF THE MERGER. ..............................................................52
SECTION 7.1 Conditions to Each Party's Obligation
to Effect the Merger ................................................52
SECTION 7.2 Conditions to the Obligations of Gulf
West and Mercantile to Effect
the Merger ..........................................................53
SECTION 7.3 Conditions to the Obligations of the
Bank to Effect the Merger ...........................................55
ARTICLE VIII. ...................................................................................................56
TERMINATION;AMENDMENT; WAIVER. .........................................................................56
SECTION 8.1 Termination .....................................................................56
SECTION 8.2 Effect of Termination ...........................................................57
SECTION 8.3 Amendment .......................................................................57
SECTION 8.4 Extension; Waiver ...............................................................58
SECTION 8.5 Termination Fee .................................................................58
ARTICLE IX. .....................................................................................................58
SURVIVAL OF REPRESENTATIONS AND WARRANTIES..............................................................58
ARTICLE X. ......................................................................................................58
MISCELLANEOUS. .........................................................................................58
SECTION 10.1 Expenses ........................................................................58
SECTION 10.2 Brokers and Finders .............................................................59
SECTION 10.3 Entire Agreement; Assignment ....................................................59
SECTION 10.4 Further Assurances ..............................................................59
SECTION 10.5 Enforcement of the Agreement ....................................................59
SECTION 10.6 Severability ....................................................................60
SECTION 10.7 Notices .........................................................................60
SECTION 10.8 Governing Law ...................................................................61
SECTION 10.9 Descriptive Headings ............................................................61
SECTION 10.10 Parties in Interest .............................................................61
SECTION 10.11 Counterparts ....................................................................61
SECTION 10.12 Incorporation by References .....................................................61
SECTION 10.13 Obligations of Gulf West.........................................................61
SECTION 10.14 Fiduciary Duty...................................................................61
SECTION 10.15 Certain Definitions ........................................................... 61
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of July
_____, 1997, is by and among Gulf West Banks, Inc., a Florida corporation
("Gulf West"), its wholly owned subsidiary, Mercantile Bank, a Florida banking
corporation ("Mercantile"), and Citizens National Bank & Trust Company, a
national banking association (the "Bank"). Gulf West, Mercantile, and the Bank
are sometimes referred to collectively herein as the "Parties."
WHEREAS, Gulf West desires to affiliate with the Bank and the Bank
desires to affiliate with Gulf West in the manner provided in this Agreement;
WHEREAS, Gulf West and the Bank believe that the Merger (as defined
herein) of the Bank with Mercantile in the manner provided by, and subject to
the terms and conditions set forth in, this Agreement and all exhibits,
schedules and supplements hereto, is desirable and in the best interests of
their respective institutions and shareholders; and
WHEREAS, the respective boards of directors of Gulf West, Mercantile
and the Bank have approved this Agreement and the proposed transactions
substantially on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2 of this Agreement) in
accordance with the provisions of the Florida Financial Institution's Code
(which includes those Florida laws specified in Section 655.005(j) of the
Florida Statutes and referred to collectively herein as "FFIC") and the
National Banking Act (12 U.S.C. ss.1 ET SEQ.), the Bank shall be merged with
and into Mercantile (the "Merger"). Following the Merger, Mercantile shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of the Bank shall cease.
SECTION 1.2 Effective Time. The Merger shall become effective on the
date and at the time on which the Articles and Plan of Merger are accepted for
filing by the Florida Department of Banking and Finance (the "Department"), in
substantially the form of Exhibit A attached hereto or at such later date as is
agreed upon by the Parties and specified in the Articles and Plan of Merger
(the
<PAGE> 170
"Effective Time"). Unless the Parties otherwise mutually agree in writing, the
Parties shall cause the Articles and Plan of Merger to be filed on the Closing
Date (as defined in Section 1.9 of this Agreement) and shall use their best
efforts to cause the Effective Time to occur on the Closing Date, but in no
event shall the Effective Time occur more than one business day after the
Closing Date.
SECTION 1.3 Certain Effects of the Merger. From and after the
Effective Time, the Merger shall have the effects set forth in the FFIC and 12
U.S.C. Section 214b.
SECTION 1.4 Articles of Incorporation and Bylaws. Pursuant to the
Merger and without further action by the Surviving Corporation or the
stockholders, the Articles of Incorporation and the Bylaws of Mercantile in
each case as in effect at the Effective Time, shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation.
SECTION 1.5 Directors and Officers. The directors and officers of
Mercantile immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, each to hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Articles of Incorporation and Bylaws of
the Surviving Corporation, or as otherwise provided by law.
SECTION 1.6 Conversion of Shares.
(a) Each share of the Bank's common stock, par value $5.00 per share
("Bank Common Stock"), issued and outstanding immediately prior to the
Effective Time (the Bank Common Stock is sometimes called the "Shares"), other
than Dissenting Shares (as defined in Section 2.1), shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and represent the right to receive the consideration payable as set forth
in this Section 1.6(a) and Section 1.6(d), as may be adjusted pursuant to
Section 1.6(e) (the "Merger Consideration") to the holder of record thereof,
without interest thereon subject to the terms and conditions hereof. For the
purposes of determining the number of Shares issued and outstanding at the
Effective Time, the number of Shares issued and outstanding at the Effective
Time shall be increased by the number and class of Shares that may be acquired
upon exercise or conversion of any warrant, option, convertible debenture or
other security entitling the holder thereof to acquire Shares. Each holder of
Bank Common Stock shall receive Merger Consideration for each share of Bank
Common Stock so held equal to 3.2337 (the "Exchange Ratio") shares of Gulf West
common stock, $1.00 par value per share ("Gulf West Common Stock"), which is
derived by dividing 1,950,000 shares of Gulf West Common Stock by 603,030, the
number of Shares of Bank Common Stock outstanding immediately prior to the
Effective Time.
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(b) Each of the shares of the Mercantile Common Stock, $4.00 par value
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and entirely issued to Gulf West at and after the Effective Time
without any change therein and shall continue as a share of common stock of the
Surviving Corporation (the "Surviving Corporation Common Stock").
(c) Each share of Gulf West Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(d) Notwithstanding any other provision of this Agreement, Gulf West
will not issue any fractional shares of Gulf West Common Stock and each holder
of Bank Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Gulf West Common Stock (after
taking into account all certificates delivered by such holder) shall receive,
in lieu thereof, cash in an amount equal to such fractional part of a share of
Gulf West Common Stock multiplied by $5.87. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
(e) In the event Gulf West changes the number of shares of Gulf West
Common Stock issued and outstanding prior to the Effective Time as a result of
a stock split, stock dividend, recapitalization, reclassification, or similar
transaction, or through any issuance of authorized and previously unissued
shares (whether by option, exchange, sale, or otherwise) other than those
shares issued upon the exercise of options outstanding as of the date of this
Agreement or pursuant to purchases under Gulf West's employee stock purchase
plan and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split, recapitalization, or
similar transaction to which a record date is not established) or the date on
which Gulf West agrees contractually or otherwise to issue such shares (in the
case of previously unissued shares) shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted to prevent the dilutive effect
of such transactions on the number of shares of Gulf West Common Stock to be
issued in connection with the Merger as of the date of this Agreement.
SECTION 1.7 Shareholders' Meeting. The Bank, acting through its Board
of Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting (the
"Shareholders' Meeting") of its shareholders as soon as practicable after the
Registration Statement (as defined in Section 1.8(a) hereof is declared
effective by the Securities and Exchange Commission ("SEC") for the purpose of
considering and taking action on the approval of the Merger and adoption of
this Agreement and taking such other actions as may be required to consummate
the transactions contemplated thereby;
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<PAGE> 172
(b) require no greater than the minimum vote required by applicable
law of each class of shares in order to approve the Merger;
(c) use its reasonable best efforts (i) to obtain and furnish the
information required to be included by it in the Proxy Statement, as defined
below, and cause the Proxy Statement to be mailed to its shareholders at the
earliest practicable time following the effective date of the Registration
Statement, and (ii) subject to compliance with its fiduciary duties under
applicable law as advised by counsel, to obtain the approval and adoption of
the Merger by shareholders holding the minimum vote required by applicable law
for each class of shares in order to approve the Merger of the shares of each
class entitled to vote at the Shareholders' Meeting to approve the Merger under
applicable law. The Bank's letter to shareholders, notice of meeting, proxy
statement and form of proxy to be distributed to shareholders in connection
with the Merger shall be in form and substance reasonably satisfactory to Gulf
West, and are collectively referred to herein as the "Proxy Statement;" and
(d) include in the Proxy Statement the unanimous recommendation of its
Board of Directors (subject to compliance with their fiduciary duties under
applicable law as advised by counsel) that the shareholders of the Bank vote in
favor of the approval of the Merger and adoption of this Agreement.
SECTION 1.8 Registration of the Gulf West Common Stock.
(a) After the execution of this Agreement, Gulf West will use its
reasonable best efforts to file a registration statement (the "Registration
Statement"), including the Proxy Statement, with the SEC under the Securities
Act of 1933, as amended ("Securities Act") within the later of thirty (30) days
from the date hereof or fifteen (15) days after the Bank provides to Gulf West
all information required to be included therein by the Bank and its Affiliates
(as defined in Section 10.15(a)) in form and content substantially complying
with the requirements of the Securities Act and the rules and regulations of
the SEC and shall use its reasonable best efforts to cause the Registration
Statement to become effective under the Securities Act and take any action
required to be taken under the applicable blue sky or state securities laws in
connection with the issuance of the shares of Gulf West Common Stock to be
issued to Bank shareholders in the Merger.
(b) The Bank has identified in Section 1.8(b) of the Bank Disclosure
Letter (as defined in the preamble to Article III of this Agreement) all
persons whom it reasonably believes are "affiliates" of the Bank for purposes
of Rule 145 under the Securities Act and shall use its reasonable best efforts
to cause such persons to deliver to Gulf West an Affiliate Letter in
substantially the form of Exhibit B attached hereto.
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SECTION 1.9 Closing. Upon the terms and subject to the conditions
hereof, as soon as practicable after the vote of the shareholders of the Bank
in favor of the approval and adoption of this Agreement has been obtained, and
the satisfaction or waiver, if permissible, of the conditions set forth in
Article VII hereof, the Bank and Mercantile shall execute and file the Plan of
Merger, as described in Section 1.2, and the Parties hereto shall take all such
other and further actions as may be required by law to make the Merger
effective. Prior to the filing referred to in this Section, a closing (the
"Closing") will be held at the office of Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A. (or such other place as the Parties may agree) for
the purpose of confirming all of the foregoing. The date such Closing will be
held is herein defined as the "Closing Date." The Parties shall use their
reasonable best efforts to cause the Closing to occur within five (5) business
days following the last to occur of: (i) the effective date of the receipt of
all Required Bank Governmental Approvals (as defined in Section 3.5 of this
Agreement), (ii) the date on which the shareholders of the Bank approve the
Merger and adopt this Agreement to the extent required by applicable law, and
(iii) the effective date of the Registration Statement to be filed with the SEC
pursuant to Section 1.8 of this Agreement; provided that nothing contained
herein shall be deemed to require either Party hereto to waive any condition to
Closing if it is not satisfied on such date.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders who have voted
such shares against the Merger or who have given notice to the Bank in writing
at or prior to the Bank's Shareholders Meeting that such shareholders dissent
from the Merger and who shall have delivered a written request for payment of
the value of such Shares within the time and in the manner provided in 12
U.S.C. Section 214(b) (the "Dissenting Shares") shall be entitled only to the
rights of appraisal granted under 12 U.S.C. ss.214(b) (the "Dissent
Provisions") and shall not be converted into or be exchangeable for the right
to receive the Merger Consideration provided in Section 1.6 of this Agreement,
unless and until such holder fails to perfect or effectively withdraws or
otherwise loses his right to appraisal and payment under the Dissent
Provisions. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right to appraisal, such holder's Shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration without any interest thereon. Each holder of Dissenting Shares (a
"Dissenting Shareholder") that becomes entitled, pursuant to the Dissent
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<PAGE> 174
Provisions, to payment for any shares of Bank Common Stock held by such
Dissenting Shareholder shall receive payment therefor from Gulf West (but only
after the amounts thereof shall have been agreed upon or at the time and in the
amounts required by the Dissent Provisions) and all of such Dissenting
Shareholder's shares of Bank Common Stock shall be canceled.
SECTION 2.2 Exchange of Shares.
(a) At the Effective Time, Gulf West shall deposit or shall cause to
be deposited in trust with the trust department of SunTrust, N.A. (the
"Exchange Agent"), pursuant to an exchange agent agreement in substantially the
form attached hereto as Exhibit C (the "Exchange Agent Agreement"),
certificates evidencing shares of Gulf West Common Stock and cash in such
amounts necessary to provide all the consideration required to be exchanged by
Gulf West for the Bank Common Stock pursuant to the terms of this Agreement
(such certificates for Gulf West Common Stock, together with any cash to be
paid in lieu of fractional shares, and any unpaid dividends or other
distributions, referred to herein as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions jointly given by the Bank and Gulf
West, promptly issue the certificates representing the Gulf West Common Stock
and make the payments in lieu of fractional shares out of the Exchange Fund
upon surrender of Shares in accordance with Section 2.2(b). The Exchange Fund
shall not be used for any other purpose, except as provided in this Agreement.
(b) Promptly after the Effective Time, Gulf West shall cause the
Exchange Agent to mail to each former shareholder of the Bank as of the
Effective Time, a form letter of transmittal approved by the Bank and Gulf West
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the certificates representing the Shares, or proof of loss
thereof, (the "Certificates"). After the Effective Time, each holder of the
Bank Common Stock shall surrender the Certificate or Certificates, together
with such transmittal letters properly executed, to the Exchange Agent and
promptly upon surrender shall receive in exchange therefor the Merger
Consideration together with all declared but unpaid dividends or other
distributions in respect of such shares. The Certificate or Certificates so
surrendered shall be duly endorsed as the Exchange Agent may require and such
Certificate shall forthwith be canceled. To the extent provided by Section
1.6(d) of this Agreement, each holder of the Bank Common Stock issued and
outstanding at the Effective Time also shall receive upon surrender of the
Certificate or Certificates any cash distributed in lieu of any fractional
shares of Gulf West Common Stock to which such holder would be otherwise
entitled. No interest will be paid or accrued on any cash payable upon
surrender of the Certificate and no dividend will be disbursed with respect to
the shares of Gulf
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<PAGE> 175
West Common Stock until the holder's Certificates are surrendered in exchange
therefor as provided in this Section 2.2(b). If payment or delivery of Gulf
West Common Stock is to be made to a person other than the person in whose name
the Certificate surrendered for exchange is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay any transfer or other taxes required by reason of the
payment and delivery of Gulf West Common Stock to a person other than the
registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.2, each Certificate (other than Certificates representing Dissenting Shares)
shall represent for all purposes only the right to receive the Merger
Consideration without any interest thereon which is composed of the
consideration provided under Section 1.6(a), together with any payment under
Section 1.6(d) (without any interest thereon).
(c) At the Effective Time, the stock transfer books of the Bank shall
be closed and there shall be no transfers on the stock transfer books of the
Bank of the Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be promptly presented to the Exchange Agent and
exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) which have been made available to the Exchange Agent
pursuant to Section 2.2(a) of this Agreement that remains unclaimed by the
shareholders of the Bank for six months after the Effective Time shall be paid
to Gulf West. Any holders of Shares not theretofore presented to the Exchange
Agent shall look to Gulf West only, and not the Exchange Agent, for the payment
of any Merger Consideration in respect of such shares.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby makes the representations and warranties set forth in
this Article III to Gulf West and Mercantile. The Bank has delivered to Gulf
West and Mercantile the disclosure letter (the "Bank Disclosure Letter")
referred to in this Article III on the date hereof. Except for those
representations and warranties which are made as of a specific date or time
specified herein, the Bank agrees at the Closing to provide Gulf West with a
supplement reflecting any changes thereto between the date of such Bank
Disclosure Letter and the date of the Closing.
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<PAGE> 176
SECTION 3.1 Organization and Qualification. The Bank is a national
banking association, duly organized, validly existing and in good standing
under the laws of the United States and is a member of the Federal Reserve
System. The Bank has the requisite corporate power and authority to carry on
its business as now being conducted and to own, lease and operate its
properties and assets as now owned, leased or operated. The Bank does not have
any Subsidiaries (as defined in Section 10.15(g)). True and correct copies of
the Articles of Incorporation and Bylaws of the Bank, with all amendments
thereto through the date of this Agreement, have been delivered by the Bank to
Gulf West. The Bank is duly qualified or licensed to do business and is in
active status in the State of Florida. The Bank and its activities, as
currently conducted, do not require it to be qualified to do business in any
jurisdiction other than the State of Florida.
SECTION 3.2 Bank Capitalization. The authorized capital stock of the
Bank consists of 750,000 shares of Bank Common Stock par value $5.00 per share,
of which 603,030 shares are issued and outstanding, and none of which are held
in treasury. There are no outstanding subscriptions, options, convertible
securities, rights, warrants, calls, or other agreements or commitments
("Rights") of any kind issued or granted by, or binding upon, the Bank giving
any person the right to purchase or otherwise acquire any security of or equity
interest in the Bank. There are no outstanding Rights obligating the Bank to
issue any shares of the Bank, or to the Knowledge of the Bank, irrevocable
proxies or any agreements restricting the transfer of or otherwise relating to
shares of its capital stock of any class. All of the Shares that have been
issued have been duly authorized, validly issued and are fully paid and
non-assessable (except for the right of assessments provided in 12 U.S.C.
Section 55), and are free of preemptive rights. The Bank has never declared or
paid a cash or stock dividend on the Shares other than a cash dividend of $0.10
per share declared in March 1997, which dividend has been paid as of the date
hereof.
SECTION 3.3 Other Securities. Section 3.3 of the Bank Disclosure
Letter sets forth a list of all equity ownership by the Bank for the account of
the Bank in any other person (excluding any pledges of securities held by the
Bank in the ordinary course of its lending activities (the "Other Securities").
The Bank owns each Other Security free and clear of any lien, encumbrance,
security interest or charge.
SECTION 3.4 Authority Relative to the Agreement. The Bank has
requisite corporate power and authority to execute and deliver this Agreement
and, subject to the approval and adoption of this Agreement by the shareholders
of the Bank and receipt of all necessary governmental and regulatory approvals
and consents to consummate the transactions to be consummated by it as
contemplated hereby. The execution and delivery of this Agreement has been duly
and validly authorized by the Bank's Board of Directors. This
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<PAGE> 177
Agreement has been duly executed and delivered by the Bank and, subject to the
requisite shareholder approval and receipt of all necessary governmental and
regulatory approvals and consents (and assuming the due authorization,
execution, and delivery by Gulf West and Mercantile of this Agreement and that
this Agreement constitutes the valid and binding obligations of Gulf West and
Mercantile), constitutes a valid and legally binding obligation of the Bank,
enforceable against the Bank (except in all cases to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and the general
principles governing specific performance, injunctive relief, and other
equitable remedies). The execution, delivery and performance of this Agreement,
and the consummation of the transactions to be consummated by the Bank as
contemplated hereby, will not conflict with, or result in any violation or
breach of or default under the Articles of Incorporation or Bylaws of the Bank.
The Bank is not currently in violation of any material provisions of its
Articles of Incorporation or Bylaws.
SECTION 3.5 No Violation. Except as set forth in Section 3.5 of the
Bank Disclosure Letter, neither the execution, delivery nor performance of this
Agreement in its entirety, nor the consummation of all of the transactions to
be consummated by the Bank as contemplated hereby, following the receipt of
such approvals as may be required from the Bank's shareholders (the "Required
Stockholder Approval"), the Federal Deposit Insurance Corporation ("FDIC"), the
Board of Governors of the Federal Reserve System ("FRB"), the Office of the
Comptroller of the Currency ("OCC"), the Department of Justice ("DOJ"), and the
Department (and the expiration of any statutorily required waiting periods)
(the "Required Bank Governmental Approvals") will (i) violate (with or without
the giving of notice or the passage of time), any law, order, writ, judgment,
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Bank other than those which do not, or are not reasonably likely to have a
Material Adverse Effect on the Bank, prevent the consummation of the Merger or
deprive Gulf West of the benefits contemplated hereby, or (ii) be in material
conflict with, result in a material breach or termination of any provision of,
cause the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any security interest, lien,
charge or other encumbrance upon any property or assets of the Bank pursuant
to, any terms, conditions or provisions of any material note, license,
instrument, indenture, mortgage, deed of trust or other agreement or
understanding or any other material restriction of any kind or character, to
which the Bank is a Party or by which any of its assets or properties are
subject or bound.
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SECTION 3.6 Consents and Approvals. The Bank's Board of Directors has
unanimously determined that the Merger is fair to the Bank's shareholders and
has unanimously resolved to recommend approval and adoption of this Agreement
by the Bank's shareholders. Except as described in Section 3.6 of the Bank
Disclosure Letter, no prior consent, approval or authorization of, or
declaration, filing or registration with any person, domestic or foreign, is
required of the Bank in connection with the execution, delivery and performance
by the Bank of this Agreement and the transactions contemplated hereby or the
resulting change of control of the Bank, other than (i) the filing of the
Articles of Merger under the FFIC, (ii) receipt of the Required Stockholder
Approval and Required Bank Governmental Approvals, and (iii) notices to or
filings with the IRS or the Pension Benefit Guaranty Corporation with respect
to any employee benefit plans.
SECTION 3.7 Regulatory Reports. Since January 1996, except as set
forth in Section 3.7 of the Bank Disclosure Letter, the Bank has filed all
reports, registrations and statements, together with any amendments required to
be made thereto, that it was, or is required to file with the OCC, the FRB, the
FDIC, or applicable state banking authorities.
SECTION 3.8 Securities Issuances. The Bank is not required to register
any of its securities under, and has not registered its securities under, the
provisions of Section 12 of the Exchange Act of 1934, as amended ("Exchange
Act"). All issuances of securities by the Bank were exempt from registration
under the Securities Act and the Florida Securities Investor Protection Act,
and all other applicable securities laws.
SECTION 3.9 Financial Statements. The Bank has provided Gulf West true
and complete copies of the audited balance sheets of the Bank as of December
31, 1996 and 1995 and the related statements of income, shareholders' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994 and its
unaudited interim financial statements as of April 30, 1997 (such balance
sheets and the related statements of income, shareholders' equity and cash
flows are collectively referred to herein as the "Bank Financial Statements").
The Bank Financial Statements (including the related notes thereto) fairly
present in all material respects the financial position of the Bank as of their
respective dates and the results of operations and cash flows of the Bank for
the periods indicated and were prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") applied on a basis consistent with prior periods
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and the fact that they do not contain all of the footnote
disclosures required by GAAP), except as otherwise noted therein or in the
notes to the financial statements. The accounting records underlying the Bank
Financial Statements fairly reflect in all material respects the transactions
of the Bank. As of their dates, the Bank Financial Statements conformed, or
will
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<PAGE> 179
conform when delivered, in all material respects with all applicable rules and
regulations promulgated by the OCC and the FDIC. The Bank does not have
material liabilities or obligations of a type which should be included in or
reflected on the Bank Financial Statements or in the notes thereto if prepared
in accordance with GAAP, whether related to tax or non-tax matters, accrued or
contingent, due or not yet due, liquidated or unliquidated, or otherwise,
except as and to the extent disclosed or reflected in the Bank Financial
Statements for the periods indicated. Except as set forth in Section 3.9 of the
Bank Disclosure Letter, the Bank does not have any financial derivative
products.
SECTION 3.10 Absence of Certain Changes. Except as and to the extent
set forth in Section 3.10 of the Bank Disclosure Letter, and except to the
extent permitted by Gulf West in accordance with Section 5.2 of this Agreement,
since December 31, 1996 (the "Balance Sheet Date") the Bank has not:
(a) made any amendment to its Articles of Incorporation or Bylaws or
changed the character of its business in any material manner other than as may
be caused by the filing of the Articles of Merger;
(b) through the date of this Agreement, suffered any Material
Adverse Effect (as defined in Section 10.15(d));
(c) except in the ordinary course of business and consistent with
prudent banking practices, entered into any agreement, commitment or
transaction;
(d) except in the ordinary course of business and consistent with
prudent banking practices, incurred, assumed or become subject to, whether
directly or by way of any guarantee or otherwise, any obligations or
liabilities (absolute, accrued, contingent or otherwise);
(e) except in the ordinary course of business and consistent with
prudent banking practices, permitted or allowed any of its property or assets
to be subject to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind (other than statutory liens not yet
delinquent);
(f) except in the ordinary course of business and consistent with
prudent banking practices, canceled any debts, waived any claims or rights, or
sold, transferred, or otherwise disposed of any of its properties or assets;
(g) disposed of or permitted to lapse any rights to the use of any
material registered trademark, service mark, trade name or copyright, or
disposed of or disclosed to any person other than its employees or agents, any
material trade secret not theretofore a matter of public knowledge;
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(h) except as set forth in Section 3.10 of the Bank Disclosure Letter
and except for regular salary increases granted in the ordinary course of
business within the Bank's 1997 budget approved by the Bank's Board of
Directors in March 1997 and consistent with prior practices, or required by
applicable law, granted any increase in compensation or paid or agreed to pay
or accrue any bonus, percentage compensation, service award, severance payment
or like benefit to or for the credit of any director, officer, employee or
agent, or entered into any employment, consulting or severance agreement or
other agreement with any director, officer or employee or adopted, amended or
terminated any pension, employee welfare, retirement, stock purchase, stock
option, stock appreciation rights, termination, severance, income protection,
golden parachute, savings or profit-sharing plan (including trust agreements
and insurance contracts embodying such plans), any deferred compensation, or
collective bargaining agreement, any group insurance contract or any other
incentive, welfare or employee benefit plan program or agreement maintained by
the Bank, for the directors, employees or former employees of the Bank
("Employee Benefit Plan") other than any such change required by law or that,
in the opinion of counsel, is necessary to maintain the tax-qualified status of
such plan;
(i) directly or indirectly declared, set aside or paid any dividend or
made any distribution or payment in respect of shares of its capital stock or
redeemed, purchased or otherwise acquired, or arranged for the redemption,
purchase or acquisition of, any shares of its capital stock or other of its
securities;
(j) organized or acquired any capital stock or other equity securities
or acquired any equity or ownership interest in any person (except through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, the ownership of which does not expose the Bank to any
liability from the business, operations or liabilities of such person);
(k) issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or Rights of any kind relating to
the issuance or sale of or conversion into shares of its capital stock;
(l) except as required by GAAP, applicable law or regulation made any
or acquiesced with any change in any accounting methods, principles or
practices used in preparing the Bank Financial Statements or in keeping the
Bank's books;
(m) experienced any Material Adverse Change in relations with
customers and clients of the Bank other than as caused by the pending Merger;
(n) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment,
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other than in the ordinary course of business and consistent with prudent
banking practices; or
(o) agreed, whether in writing or otherwise, to take any action the
performance of which would adversely change the representations contained in
this Section 3.10 so that any such representation would not be true in all
material respects as of the Closing.
SECTION 3.11 Bank Indebtedness. The Bank has delivered to Gulf West
true and complete copies of all loan documents ("Bank Loan Documents") related
to indebtedness of the Bank, other than leases described in Section 3.16,
deposits, purchases of federal funds, fully secured repurchase agreements,
Federal Home Loan Bank Board advances, banker's acceptances, letters of credit
issued in the ordinary course of business, and trade payables less than 30 days
past due ("Bank Indebtedness"), and made available to Gulf West all material
correspondence concerning the status of Bank Indebtedness.
SECTION 3.12 Litigation. Except as set forth in Section 3.12 of the
Bank Disclosure Letter, there are no actions, suits, claims, investigations,
reviews or other proceedings pending or, to the Knowledge of the Bank,
threatened against the Bank or involving any of its properties or assets, at
law or in equity or before or by any foreign, federal, state, municipal, or
other governmental court, department, commission, board, bureau, agency, or
other instrumentality or person or any board of arbitration or similar entity
("Proceeding"). The Bank will notify Gulf West immediately in writing of any
Proceedings against the Bank of which it receives notice.
SECTION 3.13 Tax Matters. The Bank has filed all tax returns required
to be filed by it (the "Filed Returns") or requests for extensions have been
filed and granted and have not expired and, except as set forth in Section 3.13
of the Bank Disclosure Letter, the Bank has paid or discharged, or has
established adequate reserves for the payment of, all federal income taxes and
all state and local income taxes and all franchise, property, sales,
employment, foreign or other taxes required to be paid with respect to the
periods covered by the Filed Returns. With respect to the periods for which
returns have not yet been filed or where taxes are being contested in good
faith, except as set forth in Section 3.13 of the Bank Disclosure Letter, the
Bank has established adequate reserves determined in accordance with GAAP for
the payment of all federal, state and local income taxes and all franchise,
property, sales, employment, foreign or other taxes. Except as described in
Section 3.13 of the Bank Disclosure Letter, the Bank has no direct or indirect
liability for the payment of federal, state or local income taxes, or
franchise, property, sales, employment or other taxes in excess of amounts paid
or reserves established. The Bank has not filed any Internal Revenue Service
("IRS") Forms 1139 (Application for Tentative Refund). Except as set forth in
Section
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3.13 of the Bank Disclosure Letter, there are no pending questions raised in
writing by the IRS or other taxing authority for taxes or assessments of the
Bank, nor are there any outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Bank for any
period. Except as set forth in Section 3.13 of the Bank Disclosure Letter, the
Bank has withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over. For the
purposes of this Agreement, the term "tax" shall include all federal, state and
local taxes and related governmental charges and any interest or penalties
payable in connection with the payment of taxes.
SECTION 3.14 Employee Benefit Plans.
(a) The Bank has delivered or made available prior to the execution of
this Agreement true and complete copies (or, in the case of unwritten bonus or
other unwritten incentive plans, summaries thereof and financial data with
respect thereto) of all material pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other material incentive plans, all other material employee programs,
arrangements or agreements, whether arrived at through collective bargaining or
otherwise, all material medical, vision, dental or other health plans, all life
insurance plans and all other employee benefit plans or fringe benefit plans,
including, without limitation, all "employee benefit plans" as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), currently adopted by, maintained by, sponsored in whole
or in part by, or contributed to by the Bank or any affiliate thereof for the
benefit of any employee or under which any employee is eligible to participate
and under which the Bank could have any liability contingent or otherwise
(collectively, the "Bank Benefit Plans"). Any of the Bank 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 "Bank ERISA Plan." Any of the Bank Benefit
Plans pursuant to which the Bank is or may become obligated to, or obligated to
cause any other person to, issue, deliver or sell shares of capital stock of
the Bank, or grant, extent or enter into any option, warrant, call, right,
commitment or agreement to issue, deliver or sell shares, or any other interest
in respect of capital stock of the Bank, is referred to herein as a "Bank Stock
Plan." No Bank Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA. The Bank has set forth in Section 3.14 of
the Bank Disclosure Letter (i) a list of all of the Bank Benefit Plans, (ii) a
list of Bank Benefit Plans that are Bank ERISA Plans, (iii) a list of Bank
Benefit Plans that are Bank Stock Plans and (iv) a list of the number of shares
covered by, exercise prices for, and holders of, all stock options granted and
available for grant under the Bank Stock Plans.
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(b) All Bank Benefit Plans are in substantial compliance with the
applicable terms of ERISA and the Internal Revenue Code of 1986, as amended
(the "Code") and any other applicable laws, rules and regulations.
(c) All liabilities under any Bank Benefit Plan are fully accrued or
reserved against in the Bank Financial Statements in accordance with GAAP. No
Bank ERISA Plan which is a defined benefit pension plan has any "unfunded
current liability," as that term is defined in Section 302(d)(8)(A) of ERISA,
and the present 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.
(d) The Bank does not have any obligations for retiree health and life
benefits under any Bank Benefit Plan or otherwise, except as set forth in
Section 3.14 of the Bank Disclosure Letter. There are no restrictions on the
rights of the Bank to amend or terminate any such Bank Benefit Plan without
incurring any material liability thereunder.
(e) Except as set forth in the Bank Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, golden parachute or otherwise)
becoming due to any employees under any Bank Benefit Plan or (ii) result in any
acceleration of the time of payment or vesting of any such benefits.
SECTION 3.15 Labor Matters. Except as disclosed in the Bank Disclosure
Letter in Section 3.14 (a), (d) or (e) or 3.15 thereof, (i) the Bank is not a
Party to any oral or written contracts or agreements granting benefits or
rights to employees or any collective bargaining agreement or to any
conciliation agreement with the Department of Labor, the Equal Employment
Opportunity Commission or any federal, state or local agency which requires
equal employment opportunities or affirmative action in employment, (ii) there
are no unfair labor practice complaints pending against the Bank before the
National Labor Relations Board or any similar claims pending before any similar
state, local or foreign agency; and (iii) to the Knowledge of the Bank, there
is no activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any employees of the Bank, nor of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any such employees. To the Knowledge of the Bank, the Bank is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and the Bank is not engaged in any unfair labor practice.
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SECTION 3.16 Leases, Contracts and Agreements. Except as set forth in
Section 3.16 of the Bank Disclosure Letter and except for Bank Indebtedness,
there are no leases, subleases, licenses, contracts and agreements (other than
Excepted Contracts as defined below) to which the Bank is a party or by which
the Bank is bound which obligate or may obligate the Bank in the aggregate for
an amount in excess of $25,000 over the entire term of any such agreement or
any series of related contracts of a similar nature to one or more related
parties which in the aggregate obligate or may obligate the Bank in the
aggregate for an amount in excess of $25,000 over the entire term of such
related contracts (the "Contracts"). The Bank has made available to Gulf West
true and correct copies of all such Contracts. For the purposes of this
Agreement, the Contracts shall be deemed not to include loans made by,
repurchase agreements made by, spot foreign exchange transactions of, bankers
acceptances of, agreements with Bank customers for trust services, trade
payables due within 30 days made in the ordinary course of business, or
deposits by the Bank (collectively the "Excepted Contracts"). The Bank has
provided Gulf West with a list of all unfunded loan commitments in excess of
$25,000 and letters of credit issued by the Bank in excess of $25,000 as of the
end of the most recent preceding month. Except as set forth in Section 3.16 of
the Bank Disclosure Letter, no participations or loans have been sold which
have buy back, recourse or guaranty provisions which create contingent or
direct liabilities of the Bank. Except as disclosed in Section 3.16 of the Bank
Disclosure Letter, all of the Contracts are legal, valid and binding
obligations of the Bank, and to the Knowledge of the Bank, the other party to
the Contracts, to the Knowledge of the Bank, each such Contract is in full
force and effect and is enforceable by the Bank in accordance with its terms,
except in all cases to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and the general principles governing specific
performance, injunctive relief, and other equitable remedies. Except as
described in Section 3.16 of the Bank Disclosure Letter, all rent and other
payments by the Bank under the Contracts are current, there are no existing
defaults by the Bank under the Contracts, and to the Knowledge of the Bank, no
termination, condition or other event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default.
SECTION 3.17 Related Bank Transactions. Except as set forth in Section
3.17 of the Bank Disclosure Letter, there are no agreements, instruments,
commitments, extensions of credit, or other contractual agreements of any kind
between or among the Bank, whether on its own behalf or in its capacity as
trustee or custodian for the funds of any employee benefit plan (as defined in
ERISA), and any of its Affiliates (as defined in Section 10.15(a)).
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SECTION 3.18 Compliance with Laws. Except as set forth in Section 3.18
of the Bank Disclosure Letter, the Bank is not in default with respect to or in
violation of (i) any judgment, order, writ, injunction or decree of any court
or (ii) to the Bank's Knowledge, any statute, law, ordinance, rule, order or
regulation of any federal, state or local governmental department, commission,
board, bureau, agency or instrumentality. The Bank has all material permits,
licenses, and franchises from governmental agencies required to conduct its
business as it is now being conducted.
SECTION 3.19 Insurance. The Bank has in effect the insurance coverage
(including fidelity bonds) described in Section 3.19 of the Bank Disclosure
Letter and has had similar insurance in force for the last 3 years. Except as
identified in Section 3.19 of the Bank Disclosure Letter, there have been no
claims under such policies of insurance within the last 3 years and the Bank is
not aware of any facts which would form the basis of a claim under such
policies of insurance. The Bank has no reason to believe that the existing
fidelity coverage will not be renewed by its carrier on substantially the same
terms.
SECTION 3.20 Loans. Each loan reflected as an asset in the Bank
Financial Statements as of December 31, 1996, and each loan entered into by the
Bank subsequent thereto, (i) is evidenced in all material respects by notes,
agreements or other evidences of indebtedness which are true, genuine and what
they purport to be, and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable by the Bank in accordance with its terms,
except in all cases to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws, now or hereafter in effect, affecting creditors'
rights generally, and the general principles governing specific performance,
injunctive relief, and other equitable remedies. Except as disclosed in Section
3.20 of the Bank Disclosure Letter, the Bank is not a Party to any loan,
including any loan guaranty, with any director, executive officer or 5%
shareholder of the Bank or any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing. Except as
disclosed in Section 3.20 of the Bank Disclosure Letter, the Bank does not have
(i) any loan in its portfolio exceeding the Bank's legal lending limit, and
(ii) any known significant delinquent (30 days past due), substandard,
doubtful, loss, nonperforming or problem loans as classified by the OCC or the
Bank pursuant to its written policies.
SECTION 3.21 Fiduciary Responsibilities. The Bank has performed in all
material respects all of its duties as a trustee, custodian, guardian or as an
escrow agent in a manner which complies in all respects with all applicable
laws, regulations, orders, agreements, instruments and common law standards.
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SECTION 3.22 Patents, Trademarks and Copyrights. Except as set forth
in Section 3.22 of the Bank Disclosure Letter, the Bank does not require the
use of any material patent, patent application, invention, process, trademark
(whether registered or unregistered), trademark application, trade name,
service mark, copyright, or any material trade secret for the business or
operations of the Bank. The Bank owns or is licensed or otherwise has the right
to use any items listed in Section 3.22 of the Bank Disclosure Letter and the
Bank is not infringing on the patent, trademark or copyright of any other
person.
SECTION 3.23 Environmental Compliance. Except as set forth in Section
3.23 of the Bank Disclosure Letter:
(a) To the Knowledge of the Bank, any property owned or operated by it
is in compliance in all material respects with all applicable Environmental
Laws (as defined in Section 10.15(b)) and has obtained and is in compliance
with all permits, licenses and other authorizations (individually a "Permit,"
and collectively "Permits") required under any Environmental Law. To the
Knowledge of the Bank, there is no past or present event, condition or
circumstance that could reasonably be expected to (1) interfere with the
conduct of the business of the Bank in the manner now conducted relating to
such entity's compliance with Environmental Laws, or (2) constitute a material
violation of any Environmental Law, which in either event is reasonably likely
to have a Material Adverse Effect upon the Bank;
(b) To the Knowledge of the Bank, the Bank does not currently lease,
operate, own, or exercise managerial functions at, nor has it formerly leased,
operated, owned, or exercised managerial functions at, any facility or real
property that, to its Knowledge, is the subject of any actual, or, to the
Knowledge of the Bank, threatened or potential Proceeding under any
Environmental Law;
(c) To the Knowledge of the Bank, the Bank has not received notice of
any Proceeding pending or, threatened against the Bank under any Environmental
Law or relating to the release, threatened release, management, treatment,
storage, or disposal of, or exposure to Polluting Substances (as defined in
Section 10.15(e)) seeking to impose, or that could result in the imposition on
the Bank of any material liability under any Environmental Laws, and the Bank
has not received any notice (whether from any regulatory body or private
person) of any claim under or violation of, or potential or threatened
violation of, any Environmental Law;
(d) To the Knowledge of the Bank, the Bank has not received notice of
any action or Proceeding pending or, threatened under any Environmental Law
involving the release or threat of release of any Polluting Substances at or on
any property where Polluting Substances generated by the Bank have been
disposed, treated or
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stored seeking to impose, or that could result in the imposition on the Bank of
any material liability under any Environmental Laws;
(e) The Bank has not generated any Polluting Substances for which it
was required under an Environmental Law to execute any waste disposal manifest
or receipt;
(f) To the Knowledge of the Bank, there has been no release of
Polluting Substances in or on any Property (as defined below) in violation of
any Environmental Laws or which would require remediation or any report or
notification (other than routine, non-incident specific, annual reporting under
applicable Environmental Laws) to any governmental or regulatory authority;
(g) To the Knowledge of the Bank, there are no underground or above
ground storage tanks on or under any Property which are not in compliance with
Environmental Laws and any Property previously containing such tanks has been
remediated in compliance with all Environmental Laws;
(h) To the Knowledge of the Bank, there is no asbestos containing
material on any Current Controlled Property (as defined below) or any
Collateral Property (as defined below); and
(i) The Bank has fully complied in all material respects with the
guidelines issued by the FDIC on February 25, 1993, and the rules and
regulations of any other governmental authority with jurisdiction over the
Bank, that direct banks to implement programs to reduce the potential for banks
to incur liability under, or to assess the compliance of borrowers or
Collateral Property with, Environmental Laws.
(j) For purposes of this Section 3.23 and Section 6.9, "Property"
includes (1) any real property which the Bank currently or in the past has
leased, operated or owned or managed in any manner including without limitation
any property acquired by foreclosure or deed in lieu thereof (respectively,
"Current Controlled Property" and "Former Controlled Property," and
collectively "Controlled Property") and (2) property now held as security for a
loan or other indebtedness to the Bank or property currently proposed as
security for loans or other credit the Bank is currently evaluating whether to
extend or has committed to extend a loan ("Collateral Property").
SECTION 3.24 Regulatory Actions. Except as set forth in Section 3.24
of the Bank Disclosure Letter, there are no actions or proceedings pending or,
to the Knowledge of the Bank, threatened against the Bank by or before any
agency or department of any federal, state or local government or regulatory
authorities, including but limited to the FRB, the FDIC or the OCC asserting
that the Bank is not in compliance with any of the statutes, rules, or
regulations which such agency or authority enforces. Except as set
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forth in Section 3.24 of the Bank Disclosure Letter, the Bank is not subject to
a formal or informal agreement, memorandum of understanding, enforcement action
with or in receipt of any type of financial assistance by any regulatory
authority having jurisdiction over such entity. The Bank has not taken or
agreed to take any action which would materially impede or delay receipt of any
regulatory approval required in order to consummate the transactions
contemplated hereby. Except as set forth in Section 3.24 of the Bank Disclosure
Letter, the Bank has not received or been made aware of any complaints or
inquiries under the Community Reinvestment Act, the Fair Housing Act, the Equal
Credit Opportunity Act or any other state or federal anti-discrimination fair
lending law and the Bank is not aware of any such complaint or inquiry.
SECTION 3.25 Title to Properties; Encumbrances. Except as set forth in
Section 3.25 of the Bank Disclosure Letter, the Bank has good and marketable
title to all its material properties and assets, real and personal (including,
without limitation, all the properties and assets reflected in the Bank
Financial Statements, except for those properties and assets disposed of for
fair market value in the ordinary course of business and consistent with
prudent banking practice since the date of the Bank Financial Statements), free
and clear of all mortgages, liens, pledges, charges and other encumbrances
other than those (i) for current property taxes not yet due and payable or
being contested in good faith, (ii) pledges to secure deposits, or (iii)
imperfections of title and encumbrances as do not materially interfere with the
present use of such property or asset. Any real property or other material
assets of the Bank held under lease are held under valid leases enforceable in
accordance with their terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws, now or hereafter in effect, affecting creditors'
rights generally, and the general principles governing specific performance,
injunctive relief, and other equitable remedies). Except as set forth in
Section 3.25 of the Bank Disclosure Letter, the Bank has a title policy in full
force and effect from a title insurance company which, to the best of Bank's
Knowledge, is solvent, insuring good and marketable title to all real property
owned by the Bank (other than real property held as "Other Real Estate Owned"
acquired through foreclosure) in favor of the Bank. The Bank has made available
to Gulf West all of the files and information in the possession of the Bank
concerning such properties, including any title exceptions which might affect
marketable title or value of such property. Except as set forth in Section 3.25
of the Bank Disclosure Letter, the Bank owns all furniture, equipment, art and
other property used to transact business presently located on its premises.
SECTION 3.26 Shareholder List. The Bank has provided to Gulf West
prior to the date of this Agreement a list of the record holders of Shares as
of July _______, 1997 containing the names, addresses and number of Shares or
such other securities held of
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record, which is accurate in all respects as of such date, and the Bank will
promptly, and in any event prior to the mailing of the Proxy Statement, advise
Gulf West of any changes thereto.
SECTION 3.27 Proxy Statement. None of the information supplied or to
be supplied by the Bank, or, to the Knowledge of the Bank, any of their
respective directors, officers, employees, agents or Affiliates thereof for
inclusion in the Registration Statement to be filed by Gulf West, the Proxy
Statement, or any other document to be filed with any regulatory or
governmental agency or authority in connection with the transactions
contemplated hereby will, in the case of the Proxy Statement, when it is first
mailed to the shareholders of the Bank contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which such
statements are made, not misleading, or, in the case of the Registration
Statement, when it becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading, or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Shareholders' Meeting of the Bank, including any adjournments thereof, be false
or misleading with respect to any material fact or omit to state any material
fact necessary to correct any statement or remedy any omission in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting.
All documents that the Bank is responsible for filing with any regulatory or
governmental agency in connection with the Merger will comply in all material
respects with the provisions of applicable law.
SECTION 3.28 Dissenting Shareholders. The Bank, and its directors,
have no Knowledge of any plan or intention on the part of any Bank shareholders
to make written demand for payment of the fair value of such Shares in the
manner provided in 12 U.S.C. Section 214(b).
SECTION 3.29 General Representations.
(a) To the Knowledge of the Bank, except as set forth in Section 3.29
of the Bank Disclosure Letter, there have not been any sales or redemptions of
the Bank's capital stock in contemplation of the Merger. Section 3.29 of the
Bank Disclosure Letter sets forth all transactions in the capital stock of the
Bank since December 31, 1996 of which the Bank has Knowledge.
(b) The Bank has not disposed of any assets (either as a dividend or
otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
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(c) The Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(d) The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.30 Accounting Matters. To the knowledge of the Bank, neither
the Bank nor any of its Affiliates has taken or agreed to take any action that
would prevent the Merger from qualifying as reorganization within the meaning
of Section 368(a) of the Code.
SECTION 3.31 Representations Not Misleading. No representation or
warranty by the Bank in this Agreement, nor any information or item required to
be furnished to Gulf West or Mercantile by the Bank under and pursuant to, this
Agreement including but not limited to the Bank Disclosure Letter,
intentionally contains or intentionally will contain any untrue statement of a
material fact or intentionally omits to state a material fact necessary to make
the statements contained herein or therein not misleading. The Bank does not
make and hereby expressly disclaims any representations or warranties to Gulf
West or Mercantile with respect to any projections or budgets heretofore
delivered to or made available to Gulf West or Mercantile regarding the future
revenues, expenses, or expenditures or future results of operations of the
Bank.
SECTION 3.32 Opinion of Investment Bankers. The Bank has received the
written opinion of Alex Sheshunoff & Co. Investment Banking that the Merger
Consideration is fair, from a financial point of view, to the shareholders of
the Bank as of the date of such opinion.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF GULF WEST AND MERCANTILE
Gulf West and Mercantile hereby make the representations and
warranties set forth in this Article IV to the Bank. Gulf West and Mercantile
have delivered to the Bank the disclosure letter (the "Gulf West Disclosure
Letter") referred to in this Article IV on the date hereof. Gulf West and
Mercantile agree at the Closing to provide the Bank with a supplement
reflecting any changes thereto between the date of such Gulf West Disclosure
Letter and the date of the Closing
SECTION 4.1 Organization and Qualification. Gulf West and Mercantile
are duly organized and validly existing under the laws of the State of Florida,
and Mercantile is a state chartered banking institution. Gulf West and
Mercantile each have the requisite corporate power and authority to carry on
their respective businesses as they are now being conducted and to own, lease
and
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operate their respective properties and assets as now owned, leased or
operated. Gulf West and Mercantile do not have any Subsidiaries (as defined in
Section 10.15(g)) except as set forth in Section 4.1 of the Gulf West
Disclosure Letter. True and correct copies of the Articles of Incorporation and
Bylaws of Gulf West and Mercantile, with all amendments thereto through the
date of this Agreement, have been delivered by Gulf West and Mercantile to the
Bank. Gulf West and Mercantile are duly qualified or licensed to do business
and are in active status in the State of Florida. Gulf West and Mercantile and
their activities, as currently conducted, do not require them to be qualified
to do business in any jurisdiction other than the State of Florida.
SECTION 4.2 Gulf West Capitalization. The authorized capital stock of
Gulf West consists of (i) 10,000,000 shares of Gulf West Common Stock par value
$1.00 per share, of which 3,337,081 shares are issued and outstanding, and none
of which are held in treasury and 1,000,000 shares of Preferred Stock, par
value $5.00 per share, none of which has been issued as of the date hereof.
There are no Rights outstanding of any kind issued or granted by, or binding
upon, Gulf West or Mercantile giving any person the right to purchase or
otherwise acquire any security of or equity interest in Gulf West or Mercantile
except that Gulf West's 1995 Nonstatutory Stock Option Plan provides for up to
twelve (12%) percent of Gulf West's total outstanding Common Stock to be issued
pursuant to its terms, and options covering 357,001 shares of such reserved
common stock have been granted to employees and directors thereunder and remain
unexercised as of the date hereof. To the Knowledge of Gulf West and
Mercantile, there are no irrevocable proxies or any agreements restricting the
transfer of or otherwise relating to shares of the capital stock of either Gulf
West or Mercantile. All of the issued and outstanding shares of capital stock
of each of Gulf West and Mercantile are, and all of the shares to be issued in
exchange for the Bank Common Stock upon consummation of the Merger will be
authorized and reserved for issuance prior to the Closing Date and, when issued
in accordance with the terms of this Agreement, will be duly authorized,
validly issued and outstanding and fully paid and non-assessable. None of the
outstanding shares has been, and none of the shares to be issued upon
consummation of the Merger will be, issued in violation of any preemptive
rights of current or past shareholders of Gulf West. Gulf West has never
declared or paid a cash dividend on its common shares except for $0.04 cash
dividends declared in 1994 and 1995, which dividends have been paid as of the
date hereof. Except as noted in the Gulf West Disclosure Letter in Section 4.2,
Gulf West has never paid a dividend in stock or other securities on the Gulf
West Common Stock.
SECTION 4.3 Gulf West Subsidiaries. A true and complete list of all of
the Subsidiaries of Gulf West are set forth in Section 4.3 of the Gulf West
Disclosure Letter. Except as disclosed in the Gulf West Disclosure Letter, Gulf
West owns all of the issued and outstanding shares of capital stock of each
Gulf West Subsidiary,
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including Mercantile. Each of Gulf West's Subsidiaries that is a depository
institution are insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund. No capital stock or other equity or voting
securities of any Gulf West Subsidiary are or may become required to be issued
by reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of any Gulf
West Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any Gulf West Subsidiary is bound to issue additional
shares of its capital stock or options, warrants, or rights to purchase or
acquire any additional shares of its capital stock. All of the shares of
capital stock of each Gulf West Subsidiary held by Gulf West are fully paid and
nonassessable (except, in the case of Subsidiaries that are national banks, for
the assessment contemplated by 12 U.S.C. ss.55) and are owned by Gulf West free
and clear of any lien, claim, hypothecation, pledge, charge, security interest,
or arrangement, contingencies, or encumbrances of any kind whatsoever. Each
Gulf West Subsidiary (i) is either a banking association 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,
(ii) is duly qualified or licensed to do business and in good standing in all
jurisdictions (whether federal, state, local) where the character of its
properties and assets owned, operated, or leased by it, or the nature of its
activities make such qualification or license necessary, except for such
jurisdictions where the failure to be so qualified is not reasonably likely to
have a Material Adverse Effect on Gulf West, and (iii) has the requisite
corporate power and authority to own, lease, and operate its properties and
assets and to carry on its business as now conducted.
SECTION 4.4 Authority Relative to the Agreement. Each of Gulf West and
Mercantile has the requisite corporate power and authority to execute and
deliver this Agreement and, subject to the receipt of all necessary
governmental and regulatory approvals and consents to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
has been duly and validly authorized by all necessary corporate action required
to be taken by Gulf West and Mercantile in respect thereof, including approval
thereof by their respective Boards of Directors. This Agreement has been duly
executed and delivered by Gulf West and Mercantile and, subject to receipt of
all necessary governmental and regulatory approvals and consents and the
expiration of any statutorily required waiting periods (and assuming the due
authorization, execution, and delivery by the Bank of this Agreement and that
this Agreement constitutes the valid and binding obligation of the Bank)
constitutes a valid and legally binding obligation of Gulf West and Mercantile,
enforceable against Gulf West and Mercantile (except in all cases to the extent
that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance,
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moratorium, or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and the general principles governing specific
performance, injunctive relief, and other equitable remedies). The execution,
delivery and performance of this Agreement by Gulf West and Mercantile, and the
consummation of the transactions contemplated hereby, will not conflict with,
or result in any violation or breach of or default under the respective
Articles of Incorporation or Bylaws of Gulf West and Mercantile or any
agreement, document or instrument by which either Gulf West or Mercantile is
obligated or bound. Neither Gulf West nor Mercantile is currently in violation
of its respective Articles of Incorporation or Bylaws.
SECTION 4.5 No Violation. Except as set forth in Section 4.5 of the
Gulf West Disclosure Letter, neither the execution, delivery nor performance of
this Agreement in its entirety, nor the consummation of the Merger, following
the receipt of such approvals as may be required from the FDIC, FRB, OCC, SEC,
DOJ and the Department and the expiration of any statutorily required waiting
periods (the "Required Governmental Approvals") will (i) violate (with or
without the giving of notice or the passage of time), any law, order, writ,
judgment, injunction, award, decree, rule, statute, ordinance or regulation
applicable to Gulf West or Mercantile other than those which do not, or are not
reasonably likely to have a Material Adverse Effect on Gulf West and Mercantile
on a consolidated basis or prevent the consummation of the Merger, or (ii) be
in material conflict with, result in a material breach or termination of any
provision of, cause the acceleration of the maturity of any debt or obligation
pursuant to, constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any security
interest, lien, charge or other encumbrance upon any property or assets of Gulf
West or Mercantile pursuant to, any terms, conditions or provisions of any
note, license, instrument, indenture, mortgage, deed of trust or other
agreement or understanding or any other restriction of any kind or character,
to which Gulf West or Mercantile is a party or by which any of its assets or
properties are subject or bound, other than those which do not and are not
reasonably likely to have a Material Adverse Effect on Gulf West and Mercantile
on a consolidated basis.
SECTION 4.6 Consents and Approvals. Except for the Required
Governmental Approvals and as described in Section 4.6 of the Gulf West
Disclosure Letter, no prior consent, approval or authorization of, or
declaration, filing or registration with any person, domestic or foreign, is
required of Gulf West or Mercantile in connection with the execution, delivery
and performance by Gulf West and Mercantile of this Agreement and the
transactions contemplated hereby other than (i) the filing of the Articles of
Merger under the FFIC, (ii) the Required Governmental Approvals, and (iii)
notices to or filings with the IRS or the Pension Benefit Guaranty Corporation
with respect to any employee benefit plans.
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SECTION 4.7 Regulatory Reports. Since January 1996, except as set
forth in Section 4.7 of the Gulf West Disclosure Letter, Gulf West and
Mercantile each have filed all reports, registrations and statements, together
with any amendments required to be made thereto, that are required to be filed
with the Department, the FRB, or the FDIC or other state banking authorities.
SECTION 4.8 Securities Issuances. As of the date of this Agreement,
Gulf West is not required to register any of its securities under, and has not
registered its securities under, the provisions of Section 12 of the Exchange
Act, nor are either of them required to file any reports under Section 13 of
the Exchange Act in accordance with Section 15(d) of the Exchange Act. All
issuances of securities by Gulf West and Mercantile prior to date hereof either
were exempt from registration under the Securities Act and the Florida
Securities Investor Protection Act, and all other applicable securities laws or
were duly registered.
SECTION 4.9 Financial Statements. Gulf West and Mercantile have
provided the Bank true and complete copies of the consolidated audited balance
sheets of Gulf West and its Subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of income, shareholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994 and its unaudited
interim consolidated financial statements as of April 30, 1997 (such balance
sheets and the related statements of income, shareholders' equity and cash
flows are collectively referred to herein as the "Gulf West Financial
Statements"). The Gulf West Financial Statements fairly present in all material
respects the financial position of Gulf West and its Subsidiaries on a
consolidated basis as of their respective dates and the consolidated results of
operations and cash flows of Gulf West and its Subsidiaries for the periods
indicated and were prepared in accordance with GAAP applied on a basis
consistent with prior periods (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments and the fact that they do
not contain all of the footnote disclosures required by GAAP), except as
otherwise noted therein or in the notes to the financial statements. The
accounting records underlying the Gulf West Financial Statements fairly reflect
in all material respects the transactions of Gulf West and its Subsidiaries. As
of their dates, the Gulf West Financial Statements conformed, and when issued,
will conform, in all material respects with all applicable rules and
regulations promulgated by the Department and the FDIC. Neither Gulf West nor
any of its Subsidiaries have material liabilities or obligations of a type
which should be included in or reflected on the Gulf West Financial Statements
or in the Notes thereto if prepared in accordance with GAAP, whether related to
tax or non-tax matters, accrued or contingent, due or not yet due, liquidated
or unliquidated, or otherwise, except as and to the extent disclosed or
reflected in Gulf West Financial Statements for the periods indicated. Except
as set forth in Section 4.9 of the Gulf West Disclosure Letter, Gulf West and
its Subsidiaries do not
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have any off balance sheet liabilities associated with financial derivative
products or potential liabilities associated with financial derivative
products.
SECTION 4.10 Absence of Certain Changes. Except as and to the extent
set forth in Section 4.10 of the Gulf West Disclosure Letter, since December
31, 1996 neither Gulf West nor Mercantile have:
(a) made any amendment to their respective Articles of Incorporation
or Bylaws or changed the character of their business in any material manner
other than as may be caused by the filing of the Articles of Merger;
(b) through the date of this Agreement suffered any Material
Adverse Effect (as defined in Section 10.15(d));
(c) directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect to their capital stock or redeemed, purchased
or otherwise acquired, or arranged for the redemption, purchase or acquisition
of, or issued or authorized for issuance any shares of their capital stock or
other of their securities except for the issuance of securities pursuant to the
exercise of stock options granted as of the date of this agreement and the
issuance of shares pursuant to Gulf West's Employee Stock purchase Plan;
(d) except as required by GAAP, applicable law or regulation, made any
or acquiesced with any change in any accounting methods, principles or
practices used in preparing the Gulf West Financial Statements or in keeping
Gulf West's books;
(e) agreed, whether in writing or otherwise, to take any action the
performance of which would adversely change the representations contained in
this Section 4.10 in the future so that any such representation would not be
true in all material respects as of the Closing.
SECTION 4.11 Gulf West Indebtedness. Gulf West has delivered to the
Bank true and complete copies of all loan documents ("Gulf West Loan
Documents") related to indebtedness of Gulf West and its Subsidiaries, other
than leases described in Section 4.16, deposits, purchases of federal funds,
fully secured repurchase agreements, bankers' acceptances, letters of credit
issued in the ordinary course of business, and trade payables less than 30 days
past due ("Gulf West Indebtedness"), and made available to the Bank all
material correspondence concerning the status of Gulf West Indebtedness.
SECTION 4.12 Litigation. Except as set forth in Section 4.12 of the
Gulf West Disclosure Letter, there are no Proceedings pending or, to the
Knowledge of Gulf West and Mercantile, threatened against Gulf West or any of
its Subsidiaries or involving any of their
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respective properties or assets, at law or in equity or before or by any
foreign, federal, state, municipal, or other governmental court, department,
commission, board, bureau, agency, or other instrumentality or person or any
board of arbitration or similar entity. Gulf West will notify the Bank
immediately in writing of any Proceedings against Gulf West or any of its
Subsidiaries.
SECTION 4.13 Tax Matters. Gulf West has filed all tax returns required
to be filed by it (the "Gulf West Filed Returns") or requests for extensions
have been filed and granted and have not expired and, except as set forth in
Section 4.13 of the Gulf West Disclosure Letter, Gulf West and its Subsidiaries
each have paid or discharged, or have established adequate reserves for the
payment of, all federal income taxes and all state and local income taxes and
all franchise, property, sales, employment, foreign or other taxes required to
be paid with respect to the periods covered by the Gulf West Filed Returns.
With respect to the periods for which returns have not yet been filed or where
taxes are being contested in good faith, except as set forth in Section 4.13 of
the Gulf West Disclosure Letter, Gulf West and its Subsidiaries have
established adequate reserves determined in accordance with GAAP for the
payment of all federal, state and local income taxes and all franchise,
property, sales, employment, foreign or other taxes. Except as described in
Section 4.13 of the Gulf West Disclosure Letter, neither Gulf West nor any of
its Subsidiaries have any direct or indirect material liability for the payment
of federal, state or local income taxes, or franchise, property, sales,
employment or other taxes in excess of amounts paid or reserves established.
Gulf West and its Subsidiaries have not filed any IRS Forms 1139 (Application
for Tentative Refund). Except as set forth in Section 4.13 of the Gulf West
Disclosure Letter, there are no pending questions raised in writing by the IRS
or other taxing authority for taxes or assessments of Gulf West and its
Subsidiaries, nor are there any outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Gulf West and
its Subsidiaries for any period. Except as set forth in Section 4.13 of the
Gulf West Disclosure Letter, Gulf West and its Subsidiaries have withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over.
SECTION 4.14 Employee Benefit Plans.
(a) Gulf West has delivered or made available prior to the execution
of this Agreement true and complete copies (or, in the case of unwritten bonus
or other unwritten incentive plans, summaries thereof and financial data with
respect thereto) of all material pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other material incentive plans, all other material employee programs,
arrangements or agreements, whether arrived at through collective bargaining or
otherwise, all material medical, vision,
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dental or other health plans, all life insurance plans and all other employee
benefit plans or fringe benefit plans, including, without limitation, all
"employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
currently adopted by, maintained by, sponsored in whole or in part by, or
contributed to by Gulf West or any affiliate thereof for the benefit of any
employee or under which any employee is eligible to participate and under which
Gulf West could have any liability contingent or otherwise (collectively, the
"Gulf West Benefit Plans"). Any of the Gulf West 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 "Gulf West ERISA Plan." Any of the Gulf West
Benefit Plans pursuant to which Gulf West is or may become obligated to, or
obligated to cause any other person to, issue, deliver or sell shares of
capital stock of Gulf West, or grant, extent or enter into any option, warrant,
call, right, commitment or agreement to issue, deliver or sell shares, or any
other interest in respect of capital stock of Gulf West, is referred to herein
as a "Gulf West Stock Plan." No Gulf West Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA. Gulf West has
set forth in Section 4.14 of the Gulf West Disclosure Letter (i) a list of all
of the Gulf West Benefit Plans, (ii) a list of Gulf West Benefit Plans that are
Gulf West ERISA Plans, (iii) a list of Gulf West Benefit Plans that are Gulf
West Stock Plans and (iv) a list of the number of shares covered by, exercise
prices for, and holders of, all stock options granted and available for grant
under the Gulf West Stock Plans.
(b) All Gulf West Benefit Plans are in substantial compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations.
(c) All liabilities under any Gulf West Benefit Plan are fully accrued
or reserved against in the Gulf West Financial Statements in accordance with
GAAP. No Gulf West ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d))8)(A)
of ERISA, and the present 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.
(d) Gulf West does not have any obligations for retiree health and
life benefits under any Gulf West Benefit Plan or otherwise, except as set
forth in Section 4.14 of the Gulf West Disclosure Letter. There are no
restrictions on the rights of Gulf West to amend or terminate any such Gulf
West Benefit Plan without incurring any material liability thereunder.
(e) Except as set forth in the Gulf West Disclosure Letter, neither
the execution and delivery of this Agreement nor the
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consummation of the transactions contemplated hereby or thereby will (i) result
in any payment (including, without limitation, severance, golden parachute or
otherwise) becoming due to any employees under any Gulf West Benefit Plan or
(ii) result in any acceleration of the time of payment or vesting of any such
benefits.
SECTION 4.15 Labor Matters. Except as disclosed in Section 4.15 or
4.14(a), (d) or (e) of the Gulf West Disclosure Letter, (i) neither Gulf West
nor any of its Subsidiaries are parties to any oral or written contracts or
agreements granting benefits or rights to employees or any collective
bargaining agreement or to any conciliation agreement with the Department of
Labor, the Equal Employment Opportunity Commission or any federal, state or
local agency which requires equal employment opportunities or affirmative
action in employment, (ii) there are no unfair labor practice complaints
pending against Gulf West and Mercantile before the National Labor Relations
Board or any similar claims pending before any similar state, local or foreign
agency; and (iii) to the Knowledge of Gulf West and its Subsidiaries, there is
no activity or proceeding of any labor organization (or representative thereof)
or employee group to organize any employees of Gulf West and its Subsidiaries,
nor of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by
or with respect to any such employees. To the Knowledge of Gulf West, Gulf West
and its Subsidiaries are in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and Gulf West and Mercantile are
not engaged in any unfair labor practice.
SECTION 4.16 Leases, Contracts and Agreements. Except as set forth in
Section 4.16 of the Gulf West Disclosure Letter, there are no leases,
subleases, licenses, contracts and agreements (other than Gulf West Excepted
Contracts as defined below) to which Gulf West or any of its Subsidiaries are
parties or by which Gulf West or any of its Subsidiaries are bound which
obligate or may obligate Gulf West or any of its Subsidiaries in the aggregate
for an amount in excess of $25,000 over the entire term of any such agreement
or related contracts of a similar nature to one or more related parties which
in the aggregate obligate or may obligate Gulf West or any of its Subsidiaries
in the aggregate for an amount in excess of $25,000 over the entire term of
such related contracts (the "Gulf West Contracts"). Gulf West has made
available to the Bank true and correct copies of all such Gulf West Contracts.
For the purposes of this Agreement, the Gulf West Contracts shall be deemed not
to include loans made by, repurchase agreements made by, spot foreign exchange
transactions of, bankers acceptances of trade payables due within 30 days made
in the ordinary course of business or deposits by Gulf West or Mercantile (the
"Gulf West Excepted Contracts"). Except as set forth in Section 4.16 of the
Gulf West Disclosure Letter, no participations or loans have been sold which
have buy back, recourse or guaranty provisions which create contingent or
direct liabilities of Gulf West and Mercantile. Except as disclosed
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in Section 4.16 of the Gulf West Disclosure Letter, all of the Gulf West
Contracts are legal, valid and binding obligations of Gulf West and Mercantile,
and to the Knowledge of Gulf West and Mercantile, the other parties to the Gulf
West Contracts. To the Knowledge of Gulf West, each such Contract is in full
force and effect and is enforceable by Gulf West in accordance with its terms,
except in all cases to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws now or hereafter in effect relating to creditors' rights generally and the
general principles governing specific performance, injunctive relief, and other
equitable remedies. Except as described in Section 4.16 of the Gulf West
Disclosure Letter, all rent and other payments by Gulf West and its
Subsidiaries under the Gulf West Contracts are current, there are no existing
defaults by Gulf West and its Subsidiaries under the Gulf West Contracts, and
to the Knowledge of Gulf West, no termination, condition or other event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default.
SECTION 4.17 Related Gulf West and Mercantile Transactions. Except as
set forth in Section 4.17 of the Gulf West Disclosure Letter, there are no
agreements, instruments, commitments, extensions of credit, or other
contractual agreements of any kind between or among Gulf West or Mercantile,
whether on their own behalf or in the capacity as trustee or custodian for the
funds of any employee benefit plan (as defined in ERISA), and any of their
Affiliates (as defined in Section 10.15(a)).
SECTION 4.18 Compliance with Laws. Except as set forth in Section 4.18
of the Gulf West Disclosure Letter, neither Gulf West nor any of its
Subsidiaries are in default with respect to or in violation of (i) any
judgment, order, writ, injunction or decree of any court or (ii) to the
Knowledge of Gulf West any statute, law, ordinance, rule, order or regulation
of any federal, state or local governmental department, commission, board,
bureau, agency or instrumentality. Gulf West and its Subsidiaries have all
material permits, licenses, and franchises from governmental agencies required
to conduct their respective businesses as they are now being conducted.
SECTION 4.19 Insurance. Each of Gulf West and Mercantile have in
effect the insurance coverage (including fidelity bonds) described in Section
4.19 of the Gulf West Disclosure Letter and have had similar insurance in force
for the lesser of the last 3 years or the time since they were organized. There
have been no claims under such policies of insurance within the last 3 years
and neither Gulf West nor Mercantile is aware of any facts which would form the
basis of a claim under such policies of insurance. Neither Gulf West nor any of
its Subsidiaries has any reason to believe that the existing fidelity coverage
will not be renewed by its carrier on substantially the same terms.
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SECTION 4.20 Loans. Each loan reflected as an asset in the Gulf West
Financial Statements as of December 31, 1996, and each loan entered into by
Mercantile subsequent thereto, (i) is evidenced in all material respects by
notes, agreements or other evidences of indebtedness which are true, genuine
and what they purport to be, and (ii) is the legal, valid and binding
obligation of the obligor named therein, enforceable by the Bank in accordance
with its terms, except in all cases to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, or similar laws, now or hereafter in effect, affecting
creditors' rights generally, and the general principles governing specific
performance, injunctive relief, and other equitable remedies. Except as
disclosed in Section 4.20 of the Gulf West Disclosure Letter, Gulf West and
Mercantile are not parties to any loan, including any loan guaranty, with any
director, executive officer or 5% shareholder of Gulf West or any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. Except as disclosed in Section 4.20 of the Gulf West
Disclosure Letter, Mercantile does not have (i) any loan in its portfolio
exceeding Mercantile's legal lending limit, and (ii) any known significant
delinquent (30 days past due), substandard, doubtful, loss, nonperforming or
problem loans as classified by the Department or the FDIC or by Mercantile
pursuant to Mercantile's written policies.
SECTION 4.21 Patents, Trademarks and Copyrights. Except as set forth
in Section 4.21 of the Gulf West Disclosure Letter, Gulf West and Mercantile do
not require the use of any material patent, patent application, invention,
process, trademark (whether registered or unregistered), trademark application,
trade name, service mark, copyright, or any material trade secret for the
business or operations of either Gulf West or any of its Subsidiaries. Each of
Gulf West and its Subsidiaries own or are licensed or otherwise have the right
to use any items listed in Section 4.21 of the Gulf West Disclosure Letter and
neither Gulf West nor any of its Subsidiaries is infringing on the patent,
trademark or copyright of any other person.
SECTION 4.22 Environmental Compliance. Except as set forth in Section
4.22 of the Gulf West Disclosure Letter:
(a) To the Knowledge of Gulf West each of Gulf West and Mercantile,
and any property owned or operated by either of them are in compliance in all
material respects with all applicable Environmental Laws (as defined in Section
10.15(b)) and has obtained and is in compliance with all material Permits
required under any Environmental Law. To the knowledge of Gulf West, there is
no past or present event, condition or circumstance that could reasonably be
expected to (1) interfere with the conduct of the business of Gulf West and
Mercantile in the manner now conducted relating to such entity's compliance
with Environmental Laws, (2) constitute a violation of any Environmental Law
which in either event is
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reasonably likely to have a Material Adverse Effect upon Gulf West and
Mercantile;
(b) To the Knowledge of Gulf West, neither Gulf West nor any of its
Subsidiaries currently lease, operate, own, or exercise managerial functions
at, nor has any of them formerly leased, operated, owned, or exercised
managerial functions at, any facility or real property that, to their
Knowledge, is the subject of any actual, threatened or potential Proceeding
under any Environmental Law;
(c) To the knowledge of Gulf West, Gulf West has not received notice
of any Proceeding pending or, threatened against Gulf West and Mercantile under
any Environmental Law or relating to the release, threatened release,
management, treatment, storage, or disposal of, or exposure to Polluting
Substances defined in Section 10,15(a), seeking to impose, or that could result
in the imposition on Gulf West of any material liability under any
Environmental Laws, and neither Gulf West nor any of its Subsidiaries has
received any notice (whether from any regulatory body or private person) of any
claim under or violation of, or potential or threatened violation of, any
Environmental Law;
(d) To the Knowledge of Gulf West, Gulf West has not received notice
of any action or Proceeding pending or, threatened under any Environmental Law
involving the release or threat of release of any Polluting Substances at or on
any property where Polluting Substances generated by Gulf West and Mercantile
have been disposed, treated or stored seeking to impose, or that could result
in the imposition on Gulf West and Mercantile of any material liability under
any Environmental Laws;
(e) Neither Gulf West nor any of its Subsidiaries has generated any
Polluting Substances for which any of them was required under an Environmental
Law to execute any waste disposal manifest or receipt;
(f) To the Knowledge of Gulf West and Mercantile, there has been no
release of Polluting Substances in or on any Gulf West Property (as defined
below) in violation of any Environmental Laws or which would require
remediation or any report or notification (other than routine, non-incident
specific, annual reporting under applicable Environmental Laws) to any
governmental or regulatory authority;
(g) To the Knowledge of Gulf West and Mercantile, there are no
underground or above ground storage tanks on or under any Gulf West Property
which are not in compliance with Environmental Laws and any Gulf West Property
previously containing such tanks has been in compliance with all Environmental
Laws;
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(h) To the Knowledge of Gulf West, there is no asbestos containing
material on any Current Controlled Gulf West Property (as defined below) or any
Gulf West Collateral Property (as defined below); and
(i) Mercantile has fully complied in all material respects with the
guidelines issued by the FDIC on February 25, 1993, and the rules and
regulations of any other governmental authority with jurisdiction over
Mercantile, that direct banks to implement programs to reduce the potential for
banks to incur liability under, or to assess the compliance of borrowers or
Gulf West Collateral Property with, Environmental Laws.
(j) For purposes of this Section 4.22, "Gulf West Property" includes
(1) any real property which Gulf West or Mercantile currently or in the past
have leased, operated or owned or managed in any manner including without
limitation any property acquired by foreclosure or deed in lieu thereof
(respectively, "Current Controlled Gulf West Property" and "Former Controlled
Gulf West Property," and collectively "Gulf West Controlled Property") and (2)
property now held as security for a loan or other indebtedness to Gulf West or
Mercantile or property currently proposed as security for loans or other credit
Gulf West or Mercantile is currently evaluating whether to extend or has
committed to extend a loan ("Gulf West Collateral Property").
SECTION 4.23 Regulatory Actions. Except as set forth in Section 4.23
of the Gulf West Disclosure Letter, there are no actions or proceedings pending
or, to the Knowledge of Gulf West, threatened against Gulf West or its
Subsidiaries by or before any agency or department of any federal, state or
local government or regulatory authorities, including the FRB, the FDIC or the
Department asserting that Gulf West or any of its Subsidiaries is not in
compliance with any of the statutes, rules, or regulations which such agency or
authority enforces. Except as set forth in Section 4.23 of the Gulf West
Disclosure Letter, neither Gulf West nor any of its Subsidiaries are subject to
a formal or informal agreement, memorandum of understanding, enforcement action
with or in receipt of any type of financial assistance by any regulatory
authority having jurisdiction over such entity. Neither Gulf West nor any of
its Subsidiaries has taken or agreed to take any action which would materially
impede or delay receipt of any regulatory approval required in order to
consummate the transactions contemplated hereby. Except as set forth in Section
4.23 of the Gulf West Disclosure Letter, neither Gulf West nor any Subsidiary
has received or been made aware of any complaints or inquiries under the
Community Reinvestment Act, the Fair Housing Act, the Equal Credit Opportunity
Act or any other state or federal anti-discrimination fair lending law and,
Gulf West is not aware of any such complaint or inquiry.
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SECTION 4.24 Title to Properties; Encumbrances. Except as set forth in
Section 4.24 of the Gulf West Disclosure Letter, Gulf West and each of its
Subsidiaries have good and marketable title to, or an adequate leasehold
interest in, all its material properties and assets, real and personal
(including, without limitation, all the properties and assets reflected in the
Gulf West Financial Statements, except for those properties and assets disposed
of for fair market value in the ordinary course of business and consistent with
prudent banking practice since the date of the Gulf West Financial Statements),
free and clear of all mortgages, liens, pledges, charges and other encumbrances
other than those (i) for current property taxes not yet due and payable or
being contested in good faith, (ii) pledges to secure deposits, or (iii)
imperfections of title and encumbrances as do not materially interfere with the
present use of such property or asset. Any real property or other material
assets of Gulf West or its Subsidiaries held under lease are held under valid
leases enforceable in accordance with their terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, or similar laws, now or hereafter in effect, affecting
creditors' rights generally, and the general principles governing specific
performance, injunctive relief, and other equitable remedies). Except as set
forth in Section 4.24 of the Gulf West Disclosure Letter, Gulf West and its
Subsidiaries have a title policy in full force and effect from a title
insurance company which, to the best of Gulf West Knowledge, is solvent,
insuring good and marketable title to all real property owned by Gulf West or
any of its Subsidiaries (other than real property held as "Other Real Estate
Owned" acquired through foreclosure) in favor of Gulf West or the respective
Subsidiary as the case may be. Gulf West has made available to the Bank all of
the files and information in the possession of Gulf West and its Subsidiaries
concerning such properties, including any title exceptions which might affect
marketable title or value of such property. Except as set forth in Section 4.24
of the Gulf West Disclosure Letter, Gulf West and each of its Subsidiaries own
all furniture, equipment, art and other property used to transact its
respective business as presently located on the respective premises.
SECTION 4.25 Registration Statement. None of the information supplied
or to be supplied by Gulf West, its Subsidiaries, or, to the Knowledge of Gulf
West, any of their respective directors, officers, employees, agents, or
Affiliate thereof, for inclusion in the Registration Statement to be filed by
Gulf West with the SEC, the Proxy Statement, or any other document to be filed
with any regulatory or governmental agency or authority in connection with the
transactions contemplated hereby will, in the case of the Proxy Statement, when
it is first mailed to the shareholders of the Bank contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
such statements are made, not misleading, or, in the case of the Registration
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Statement, when it becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading, or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Shareholders' Meeting of the Bank, including any adjournments thereof, be false
or misleading with respect to any material fact or omit to state any material
fact necessary to correct any statement or remedy any omission in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting.
All documents that Gulf West and Mercantile are responsible for filing with any
regulatory or governmental agency in connection with the Merger will comply in
all material respects with the provisions of applicable law.
SECTION 4.26 Availability of Gulf West Common Stock. As of the date of
this Agreement and until the earlier of the Effective Time or termination of
the Agreement, Gulf West has and shall continue to have available and shall
reserve for issuance a sufficient number of authorized and unissued shares of
Gulf West Common Stock to pay the Merger Consideration set forth in Section 1.6
of this Agreement, and Gulf West will not take any action during the term of
this Agreement that will cause it not to have a sufficient number of authorized
and unissued shares of Gulf West Common Stock to pay such consideration upon
consummation of the Merger.
SECTION 4.27 Ownership of the Bank Common Stock. Neither Gulf West,
nor its Subsidiaries, beneficially own for their own account any shares of the
Bank Common Stock.
SECTION 4.28 Representations Not Misleading. No representation or
warranty by Gulf West and Mercantile in this Agreement, nor any information or
item required to be furnished to the Bank by Gulf West and Mercantile under and
pursuant to, this Agreement including but not limited to the Gulf West
Disclosure Letter, intentionally contains or intentionally will contain any
untrue statement of a material fact or intentionally omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. Gulf West and Mercantile do not make and hereby expressly disclaim
any representations or warranties to Bank with respect to any projections or
budgets heretofore delivered to or made available to Bank regarding the future
revenues, expenses, or expenditures or future results of operations of Gulf
West or Mercantile.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
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SECTION 5.1 Affirmative Covenants of the Bank. During the period of
time from the date of this Agreement until the earlier of the Effective Time or
the termination of this Agreement, the Bank shall, except as specifically
contemplated by this Agreement or unless the prior written consent of Gulf West
is obtained to vary therefrom:
(a) operate and conduct the business of the Bank in the ordinary
course of business and consistent with prudent banking practices;
(b) use its reasonable best efforts to preserve intact the Bank's
business organization, assets, licenses, permits, authorizations, and business
opportunities;
(c) comply with all material contractual obligations applicable to the
Bank's operations;
(d) use its reasonable best efforts to maintain all the Bank's
properties in good repair, order and condition, reasonable wear and tear
excepted, and maintain the insurance coverages described in Section 5.1(d) of
the Bank Disclosure Letter (which shall list all Property insured by such
coverages) or obtain comparable insurance coverages from reputable insurers
which, in respect to amounts, types and risks insured, are adequate for the
business conducted by the Bank and, to the extent available at comparable
costs, consistent with the existing insurance coverages;
(e) in good faith and in a timely manner use its reasonable best
efforts to (i) cooperate with Gulf West and Mercantile in satisfying the
conditions in this Agreement, (ii) assist Gulf West and Mercantile in obtaining
as promptly as possible all consents, approvals, authorizations and rulings,
whether regulatory, corporate or otherwise, as are necessary for Gulf West and
Mercantile and the Bank (or any of them) to carry out and consummate the
transactions contemplated by this Agreement, including all consents, approvals
and authorizations required by any agreement or understanding existing at the
Closing between the Bank and any governmental agency or other third party,
(iii) furnish information concerning the Bank not previously provided to Gulf
West required for inclusion in any filings or applications that may be
necessary in that regard and (iv) perform all acts and execute and deliver all
documents necessary to be performed, executed or delivered by the Bank to cause
the transactions contemplated by this Agreement to be consummated at the
earliest practicable date;
(f) comply in all material respects with all applicable material laws
and regulations;
(g) promptly notify Gulf West upon obtaining Knowledge of any material
default, event of default or condition with which the passage of time or giving
of notice would constitute a default or an
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event of default under the Bank Loan Documents and promptly notify and provide
copies to Gulf West of any material written communications concerning such Bank
Loan Documents;
(h) promptly give written notice to Gulf West upon obtaining Knowledge
of any event or fact that would cause any of the representations or warranties
of the Bank contained in or referred to in this Agreement to be untrue or
misleading in any material respect;
(i) deliver to Gulf West a list (Section 5.1(i) of the Bank Disclosure
Letter), dated as of the Closing, showing (i) the name of each bank or
institution where the Bank has accounts or safe deposit boxes, (ii) the name(s)
in which such accounts or boxes are held and (iii) the name of each person
authorized to draw thereon or have access thereto;
(j) deliver to Gulf West a list (Section 5.1(j) of the Bank Disclosure
Letter), dated as of the Closing, showing all liabilities and obligations of
the Bank incurred since the Balance Sheet Date (except those arising in the
ordinary course of its business), certified by an officer of Bank;
(k) promptly notify Gulf West of any material change or inaccuracies
in any data furnished in the Bank's Disclosure Letter or requested in writing
by Gulf West or Mercantile and made available to them by the Bank after the
date of this Agreement; and
(l) promptly following their availability, the Bank will provide Gulf
West with the unaudited balance sheet and statements of income of the Bank as
of the end of each month hereafter, prepared on a basis consistent with prior
periods.
SECTION 5.2 Negative Covenants of the Bank. During the period from the
date of this Agreement to the earlier of the Effective Time or the termination
of this Agreement, except as described in Section 5.2 of the Bank Disclosure
Letter or as otherwise specifically permitted by this Agreement, the Bank will
not without the prior written consent of Gulf West:
(a) except as contemplated by this Agreement, amend its articles of
incorporation or association or bylaws;
(b) except as required by GAAP, applicable law or regulation, make any
or acquiesce with any change in any accounting method, principle or practice
used in preparing the Bank Financial Statements or in keeping the Bank's books;
(c) make any change in the number of shares of the capital stock
issued and outstanding, or issue, reserve for issuance, grant, sell or
authorize the issuance of any shares of its capital stock or
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Rights of any kind relating to the issuance or sale of or conversion into
shares of its capital stock;
(d) contract to create any obligation or liability (absolute, accrued,
contingent or otherwise) except in the ordinary course of business and
consistent with prudent banking practices (it being understood and agreed that
the incurrence of indebtedness in the ordinary course of business shall
include, without limitation, creation of deposit liabilities, advances from
Federal Reserve Bank or Federal Home Loan Bank, entry into repurchase
agreements, and letters of credit);
(e) contract to create any mortgage, pledge, lien, security interest
or encumbrances, restrictions, or charge of any kind which attaches to any of
the Bank's Current Controlled Property (other than statutory liens for which
the obligations secured thereby shall not become delinquent), except in the
ordinary course of business and consistent with prudent banking practices;
(f) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its material properties or assets,
except in the ordinary course of business and consistent with prudent banking
practices;
(g) sell any real estate owned as of the date of this Agreement or
acquired thereafter, which real estate qualifies as "other real estate owned"
under accounting principles applicable to it, except in the ordinary course of
business and consistent with prudent banking practices and applicable banking
laws and regulations;
(h) dispose of or permit to lapse any rights to the use of any
material registered trademark, service mark, trade name or copyright, or
dispose of or disclose to any person other than its employees any material
trade secret not theretofore a matter of public knowledge;
(i) except as set forth in Section 3.10 of the Bank Disclosure Letter
and except for regular salary increases granted in the ordinary course of
business within the Bank's 1997 budget approved by the Bank's Board of
Directors in March 1997 and consistent with prior practices, or required by
applicable law; grant any increase in compensation or pay or agree to pay or
accrue any bonus, percentage compensation, service award, severance payment or
like benefit to or for the credit of any director, officer, employee or other
person (other than pursuant to policies, contracts, agreements, or other
arrangements in effect on the date of this Agreement and disclosed in Section
5.2 of the Bank Disclosure Letter); or enter into any employment, consulting or
severance agreement or other agreement with any director, officer or employee,
or adopt, amend or terminate any Employee Benefit Plan or change or modify the
period of vesting or retirement age for any participant
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of such a plan other than any such change required by law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax qualified
status of such plan;
(j) directly or indirectly declare, set aside or pay any dividend or
make any distribution or payment in respect of shares of its capital stock or
redeem, purchase or otherwise acquire, or arrange for the redemption, purchase
or acquisition of, any shares of its capital stock or other of its securities
except pursuant to the Merger;
(k) except for purchases of United States Treasury securities or
United States Government agency securities, or in connection with a settlement
of indebtedness, foreclosure, the exercise of creditors' remedies or in a
fiduciary capacity, make any investment in or acquire the capital stock of or
other equity securities in any person;
(l) make any capital expenditure or a series of capital expenditures
of a similar nature relating to one capital project in excess of $25,000;
(m) make any income tax or franchise tax election or settle or
compromise any federal, state, local or foreign income tax or franchise tax
liability, or, except in the ordinary course of business consistent with
prudent banking practices, make any other tax election or settle or compromise
any other federal, state, local or foreign tax liability;
(n) except for negotiations and discussions between the Parties hereto
relating to the transactions contemplated by this Agreement or as otherwise
permitted hereunder, enter into any transaction, or enter into, modify or amend
any contract or commitment outstanding or new loan, or acquire any loan
participation other than in the ordinary course of business and consistent with
prudent banking practices;
(o) except as contemplated by this Agreement, adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization, or other reorganization or business combination of the Bank;
(p) issue any certificates of deposit except in the ordinary course of
business and in accordance with prudent banking practices;
(q) modify, amend, waive or extend either the Bank Loan Documents or
any rights under such agreements;
(r) sell or contract to sell the Bank premises or any part thereof;
(s) change any fiscal year or the length thereof;
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(t) prepay in whole or in part the Bank Indebtedness; or
(u) except as permitted by Section 6.6, enter into any agreement,
understanding or commitment, written or oral, with any other person which is in
any manner inconsistent with the obligations of the Bank and its directors
under this Agreement or any related written agreement. Nothing contained in
this Section 5.2 or in Section 5.1 is intended to influence the general
management or overall operations of the Bank in a manner not permitted by
applicable law and the provisions thereof shall automatically be reduced in
compliance therewith.
SECTION 5.3. Covenants of Gulf West. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
(a) Gulf West covenants and agrees that it will:
(i) conduct its business and the business of its
Subsidiaries in accordance with prudent practices;
(ii) take no action which would (A) materially adversely
affect the ability of any Party to this Agreement to obtain any
approvals or 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 7.1(a) of this Agreement,
or (B) materially adversely affect the ability of any Party to this
Agreement to perform its covenants and agreements under this
Agreement; provided that the foregoing shall not prevent Gulf West or
any of its Subsidiaries from discontinuing or disposing of any of its
properties, assets, or business if such action is, in the judgment of
Gulf West, desirable in the conduct of the business of Gulf West and
its Subsidiaries;
(iii) promptly notify the Bank of any material change or
inaccuracy in any data previously given or made available to the Bank
pursuant to this Agreement; and
(iv) promptly give written notice to the Bank upon obtaining
Knowledge of any event or fact that would cause any of the
representations or warranties of Gulf West contained in or referred to
in this Agreement to be untrue or misleading in any material respect.
(b) Gulf West further covenants and agrees that it will not without
the Bank's written consent (which consent shall not be unreasonably withheld):
(i) amend the articles of incorporation or bylaws of Gulf
West, in each case in any manner adverse to the holders of the Bank
Common Stock; or
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(ii) issue any new Rights or new shares of its capital stock
except as may be required in connection with the exercise of Rights
outstanding as of the date hereof or in connection with issuances of
stock to its employees pursuant to its employee stock purchase plan.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.1 Access To, and Information Concerning, Properties and
Records.
(a) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement, each Party shall afford the other, upon
reasonable notice and to the extent permitted by law, and each other's legal
counsel, accountants and other representatives reasonable access, during normal
business hours, to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records, permit such Party to make such inspections
(including without limitation, physical inspection of the surface and
subsurface of any property thereof and any structure thereon) as they may
require and furnish to such Party during such period all such information
concerning its affairs as such Party may reasonably request. All information
disclosed by either Party to the other which is confidential and which is not
in the public domain shall be held confidential by the receiving Party and its
representatives, except to the extent counsel to the receiving Party has
advised it such information is required to or should be disclosed in filings
with regulatory agencies or governmental authorities or in proxy materials
delivered to shareholders of the receiving Party. In the event this Agreement
is terminated for any reason, each Party hereto agrees to return to the
receiving Party all copies of such confidential information, and this Section
6.1 shall survive such termination.
(b) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement, Gulf West shall give to the Bank promptly
following their availability, the unaudited quarterly consolidated balance
sheet and statement of income of Gulf West and its Subsidiaries, as of the end
of each quarter hereafter, prepared on a basis consistent with prior periods.
SECTION 6.2 Filings with Regulatory Agencies. Each Party and their
respective Subsidiaries, if any, shall file all notices, applications and
reports ("Filings") required to be filed by each of them with the FDIC, the
FRB, the OCC, the Department, and the SEC between the date of this Agreement
and the Effective Time and shall deliver to the other Parties copies of all
such Filings promptly after the same are filed. If financial statements are
contained in any such Filings filed with the FDIC, the FRB, the OCC, the
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Department, or the SEC, such financial statements shall fairly present the
consolidated financial position of the entity filing such statements as of the
dates indicated thereon 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
year-end adjustments or any other adjustments described therein which are not
expected to be material in amount, and except for the absence of certain
footnote information in the unaudited statements). As of their respective
effective dates, such Filings filed pursuant to the securities laws will comply
in all material respects with the applicable 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, in light of the circumstances under which
they were made, not misleading (except to the extent that any such statement or
omission therein has been corrected or otherwise disclosed or updated in a
subsequent report filed by such Party with such governmental or regulatory
agency or authority). Any financial statements contained in any other Filings
to another governmental or regulatory agency or authority (or which are not
filed pursuant to the securities laws) shall be prepared in accordance with the
laws, rules, and regulations applicable to such Filings.
SECTION 6.3 Miscellaneous Agreements and Consents. Subject to the
terms and conditions of this Agreement, Gulf West, Mercantile, and the Bank
each agree to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make
effective, as soon as practicable after the date hereof, the transactions
contemplated by this Agreement, provided that nothing herein shall preclude any
Party from exercising its rights under this Agreement. Each Party shall use
their respective reasonable best efforts to obtain or cause to be obtained
consents of all third parties and governmental and regulatory authorities
necessary or desirable for the consummation of the transactions contemplated
herein.
SECTION 6.4 Bank Indebtedness. Prior to the Effective Time, the Bank
shall pay all regularly scheduled payments on all Bank Indebtedness and shall
cooperate with Gulf West in taking such actions as are reasonably appropriate
or necessary in connection with the redemption, prepayment, modification,
satisfaction or elimination of any outstanding indebtedness of the Bank with
respect to which a consent is required to be obtained to effectuate the Merger
and the transactions contemplated by this Agreement and has not been so
obtained.
SECTION 6.5 Best Good Faith Efforts. All parties hereto agree that the
parties will use their reasonable best good faith efforts to secure all
regulatory approvals necessary to consummate the Merger and other transactions
provided herein and to satisfy the other conditions to Closing contained
herein.
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SECTION 6.6 Acquisition Proposals. The Bank will not, and will use its
best efforts to cause its directors, officers, financial advisors, legal
counsel, accountants and other agents and representatives (for purposes of this
Section 6.6 only, being referred to as "affiliates") not to, directly or
indirectly, initiate, solicit or encourage, or take any other action to
facilitate any inquiries or the making of any proposal with respect to, engage
or participate in negotiations concerning, provide any nonpublic information or
data to or have any discussions with any person other than a Party hereto or
their affiliates relating to any acquisition, tender offer (including a
self-tender offer), exchange offer, merger, consolidation, acquisition of
beneficial ownership of or the right to vote securities of such entity or any
of its subsidiaries, dissolution, business combination, purchase of all or any
significant portion of the assets or any division of, or any equity interest
in, such entity or any Subsidiary, or similar transaction other than the Merger
(such proposals, announcements, or transactions being referred to as
"Acquisition Proposals"). Notwithstanding the preceding sentence, to the extent
its Board of Directors determines it is required to do so in the exercise of
its fiduciary duties to the Bank's shareholders under applicable law as so
advised in writing by independent counsel, the Bank, and its affiliates, may
engage and participate in negotiations concerning, provide nonpublic
information or data to and have discussions with any person or their affiliates
relating to an Acquisition Proposal. The Bank will promptly notify Gulf West
orally and in writing if any such Acquisition Proposal (including the terms
thereof and identify of the persons making such proposal) is received and
furnish to Gulf West a copy of any written proposal.
SECTION 6.7 Public Announcement. Prior to the Effective Time, subject
to written advice of counsel with respect to legal requirements relating to
public disclosure of matters related to the subject matter of this Agreement,
the timing and content of any announcements, press releases or other public
statements concerning the proposal contained herein will occur upon, and be
determined by, the mutual consent of the Bank and Gulf West.
SECTION 6.8 Employees and Employee Benefit Plans. All employees of the
Bank at the Effective Time shall become employees at will of the Surviving
Corporation. Gulf West presently intends that, after the Merger, neither Gulf
West, nor the Surviving Corporation will make additional contributions to the
employee benefit plans sponsored by the Bank immediately prior to the Merger.
Gulf West agrees that the employees of the Bank will be entitled to
participate as newly hired employees in the employee benefit plans and programs
maintained for employees of Gulf West and its affiliates, in accordance with
the respective terms of such plans and programs, and Gulf West shall take all
actions necessary or appropriate to facilitate coverage of the Bank's employees
in
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such plans and programs from and after the Effective Time, as follows:
(i) Employee Welfare Benefit Plans and Programs: Each employee of the
Bank will be entitled to credit for prior service with the Bank for all
purposes under the employee welfare benefit plans and other employee benefit
plans and programs (other than those described in subparagraph (ii) below and
any stock option plans) sponsored by Gulf West to the extent the Bank sponsored
a similar type of plan which the Bank employee participated in immediately
prior to the Effective Time. Any preexisting condition exclusion applicable to
such plans and programs shall be waived with respect to any Bank employee. For
purposes of determining each Bank employee's benefit for the year in which the
Merger occurs under the Gulf West vacation program, any vacation taken by a
Bank employee immediately preceding the Effective Time for the year in which
the Merger occurs will be deducted from the total Gulf West vacation benefit
available to such Bank employee for such year. Gulf West agrees that for
purposes of determining the number of vacation days available with respect to
each Bank employee for the year in which the Merger occurs, that the number of
vacation days for such year shall be determined under the Bank vacation policy
in effect as of January 1, 1997. Unused sick leave and vacation leave accrued
by employees of the Bank as of the Effective Time will be recognized by Gulf
West to the extent it is used in the fiscal year of Gulf West in which the
Effective Time occurs. Gulf West further agrees to credit each Bank employee
for the year during which such coverage under the Gulf West welfare benefit
plan begins, with any deductibles already incurred during such year under the
Bank's group health plan.
(ii) Employee Pension Benefit Plans: Each Bank employee shall be
entitled to credit for past service with the Bank for the purpose of satisfying
any eligibility or vesting periods applicable to the Gulf West employee pension
benefit plans which are subject to Sections 401(a) and 501(a) of the Code
(including, without limitation, the Gulf West 401(k) Plan).
On or before, but effective as of, the Effective Time, the Bank may
take such actions as may be necessary to cause each individual employed by the
Bank immediately prior to the Effective Time to have a fully vested and
non-forfeitable interest in such employee's account balance under the 401(k)
plan sponsored by the Bank as of the Effective Time.
SECTION 6.9 Environmental Investigation; Right to Terminate Agreement.
(a) Gulf West and its consultants, agents and representatives, shall
have the right to the same extent that the Bank has such right, but not the
obligation or responsibility, to inspect any Property, including, without
limitation, for the purpose of
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conducting asbestos surveys and sampling, and other environmental assessments
and investigations ("Environmental Inspections"). Gulf West' right to conduct
Environmental Inspections shall include the right to sample and analyze air,
sediment, soil and groundwater of any Property to the same extent that the Bank
has such right. Gulf West may conduct such Environmental Inspections at any
time but shall complete such inspections on or prior to the 35th day after the
date hereof.
(b) The Bank shall give to Gulf West written notice of any Property
acquired, leased, managed or controlled by the Bank or in which the Bank
acquires a security interest between the date hereof and the Closing ("Interim
Acquisition"). Such written notice shall be given to Gulf West within 5
business days of the date of an Interim Acquisition. Gulf West may elect to
conduct an Environmental Inspection of any such Property which is the subject
of an Interim Acquisition and the time periods set forth in this Section 6.9
for the performance of Environmental Inspections, secondary investigations
(hereinafter defined) and for Gulf West' giving of notice to the Bank of
non-acceptability and need for remediation (as set forth below) shall commence
on the date written notice of the respective Interim Acquisition is received by
Gulf West; provided however, Gulf West shall in all events notify the Bank of
any Property which is unacceptable and requires remediation on or before the
77th day after the date hereof.
(c) Gulf West shall notify the Bank prior to any physical inspections
of Property, and the Bank may place reasonable restrictions on the time of such
inspections. If, as a result of any such Environmental Inspection, further
investigation ("secondary investigation") including, without limitation, test
borings, soil, water and other sampling is deemed desirable by Gulf West, Gulf
West shall notify the Bank of the Properties on which it intends to conduct a
secondary investigation on or prior to the 42nd day after the date hereof. Gulf
West shall notify the Bank of any Properties that, in the sole discretion of
Gulf West, are not acceptable and require remediation on or prior to the 77th
day after the date hereof.
(d) Gulf West agrees to indemnify and hold harmless the Bank and
occupants of such property for any claims for damage to property or injury or
death to person in connection with the Environmental Inspections or secondary
investigations conducted by it or its agents, which damage or injury is
directly or indirectly attributable to the acts or omissions of it or its
agents or employees. Gulf West shall have no liability or responsibility of any
nature whatsoever for the results, conclusions or other findings related to any
Environmental Inspection, secondary investigation or other environmental
survey. If this Agreement is terminated, then except as otherwise required by
law, Gulf West shall have no obligation to make any reports to any governmental
authority of the results of any Environmental Inspection, secondary
investigation or
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other environmental survey, but such reporting shall remain the responsibility
of and within the discretion of the Bank, as the case may be. Gulf West shall
have no liability to the Bank for making any report of such results to any
governmental authority. The Bank shall be furnished with a copy of any such
report or results of any environmental study if it so requests.
(e) Gulf West shall have the right to terminate this Agreement in the
following circumstances, if such circumstance, together with any other
circumstances set forth below and any breach or inaccuracy of any
representation or warranty of the Bank contained in Article III, would have a
Material Adverse Effect or would in the future have a Material Adverse Effect
if the reasonably expected potential adverse effects indicated thereby were to
occur or exceeds the specified monetary limits set forth therein:
(i) the factual substance of any representation or warranty set
forth in Section 3.23 is not true and accurate in all material respects
irrespective of the Knowledge or lack of Knowledge of the Bank;
(ii) the results of such Environmental Inspection, secondary
investigation or other environmental survey are disapproved by Gulf West
because the Environmental Inspection, secondary investigation or other
environmental survey identifies violations or reasonably expected potential
violations of Environmental Laws;
(iii) if the Environmental Inspection, secondary investigation or
other environmental survey identifies any past or present event, condition or
circumstance that, based on the estimates of the environmental professionals
referred to in this Section 6.9, may require expenditures by the Bank or
increases in reserves, in connection with (1) remediation or monitoring of any
Controlled Property, (2) preparing and obtaining approval by the appropriate
environmental regulatory authority of remediation plans with respect to
Controlled Properties, or (3) obtaining remediation estimates in connection
with Collateral Properties which in the aggregate when taken together with all
other expenditures for environmental matters exceed $100,000.00;
(iv) the presence of any underground or above ground storage tank
in, on or under any Property (1) which has not been registered or which has not
fully qualified for and met all conditions necessary to be entitled to
applicable governmental remediation funds in the event a release of Polluting
Substances were to occur from any such tank, (2) from which a release of any
Polluting Substances has occurred or (3) which otherwise is in violation in any
material respect of an Environmental Law;
(v) the presence of any asbestos containing material in, on or
under any Controlled Property, the removal or monitoring of
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which would constitute a Material Adverse Effect or which, based on the
estimates of the environmental professionals referred to in this Section 6.9,
may require expenditures by the Bank or increases in reserves that when added
to all other expenditures for environmental matters exceed $100,000.00;
(vi) Gulf West is not permitted to conduct an Environmental
Inspection or secondary investigation of any Property within the time frame and
in the manner provided in Section 6.9; or
(vii) if for any Property identified by Gulf West as
unacceptable and requiring remediation the Bank does not deliver to Gulf West
written evidence acceptable to Gulf West that the Bank has developed a
remediation plan approved by the applicable environmental regulatory authority
which is acceptable to Gulf West.
Gulf West and the Bank agree that the Bank's willful failure
to comply with (vii) above shall be conclusively deemed to cause a Material
Adverse Effect.
(f) The Bank agrees to make available to Gulf West and its
consultants, agents and representatives all documents and other material
relating to environmental conditions of the Property including, without
limitation, the results of other environmental inspections and surveys. The
Bank also agrees that all engineers and consultants who prepared or furnished
such reports may discuss such reports and information with Gulf West and shall
be entitled to certify the same in favor of Gulf West and its consultants,
agents and representatives and make all other data available to Gulf West and
its consultants, agents and representatives; provided that the Bank is given
notice of, and the right to participate in, such discussions, and provided
further that any such certification or additional data shall be obtained at the
sole cost of Gulf West. At the written request of the Bank, Gulf West agrees to
provide the Bank with a copy of all environmental reports prepared by its
consultants as a result of the Environmental Inspections.
SECTION 6.10 Florida Takeover Law. The Bank hereby agrees that it has
or will take all action necessary so that the provisions of Florida Statutes
Section 607.0902 shall not apply to any acquisition of the Bank Common Stock
made in connection with the Merger or the transactions contemplated thereby,
including the acquisition of any proxies by Gulf West from any shareholders of
the Bank.
SECTION 6.11 Exchange Agent Agreement. Immediately prior to the
Effective Time, the Bank, Gulf West and Mercantile agree to enter into, and
Gulf West agrees to cause the Exchange Agent to enter into, the Exchange Agent
Agreement with the Exchange Agent, or if the Exchange Agent refuses to serve as
exchange agent, such other exchange agent as shall be mutually agreed to by the
Bank and Gulf West.
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SECTION 6.12 Bank's Designees.
(a) Immediately following or at the Effective Time, Gulf West shall
cause two (2) vacancies to be created on the Board of Directors of Gulf West
(by increasing the number of members of the Board of Directors or otherwise)
and shall, with respect to such vacancies, thereafter immediately cause two (2)
persons designated by the Bank to be elected to its Board of Directors. Each
designee of the Bank shall serve until his successor is duly elected and
qualified.
(b) Immediately following or at the Effective Time, Mercantile shall
cause three (3) vacancies to be created on the Board of Directors of Mercantile
(by increasing the number of members of the Board of Directors or otherwise)
and shall, with respect to such vacancies, thereafter immediately cause three
(3) persons designated by the Bank to be elected to its Board of Directors.
Each designee of the Bank shall serve until his successor is duly elected and
qualified.
SECTION 6.13 Indemnification and Insurance.
(a) Gulf West shall, and shall cause the Surviving Corporation
(and its successors and assigns) to, indemnify, defend, and hold harmless each
person who is now, or has at anytime prior to the date hereof, or who becomes
prior to the Effective Time, an officer, director, or employee of the Bank
(each, an "Indemnified Party"), after the Effective Time against any and all
costs or expenses (including reasonable attorneys' fees), judgments, fines,
penalties, losses, claims, damages, liabilities, and amounts paid in settlement
in connection with any claim, action, suit, proceeding, or investigation,
whether civil, criminal, administrative, or investigative, arising out of or
pertaining to any action or omission occurring on or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement) to the fullest extent then permitted under Florida law and by the
articles of incorporation and bylaws of the Bank as in effect on the date
hereof, including provisions relating to advances of expenses incurred in the
defense of any action or suit. Gulf West shall, and shall cause the Surviving
Corporation, to apply such rights of indemnification in good faith and to the
fullest extent permitted by applicable law.
(b) Incident to any information furnished or disclosed by Gulf
West or any Subsidiary of Gulf West in connection with the Registration
Statement and Proxy Statement, and subject to applicable law, Gulf West shall
indemnify, defend, and hold harmless the indemnified parties against all costs
or expenses (including reasonable attorneys' fees), judgments, fines,
penalties, losses, claims, damages, liabilities, and amounts paid in settlement
in connection with any claim, action, suit, proceeding, or investigation,
whether civil, criminal, administrative, or
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investigative, arising out of or under the federal securities laws or any state
securities or blue sky laws based in whole or in part on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
documents (including any amendment or supplement to such document), (ii) any
omission or alleged omission to state in such documents a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation by Gulf West or any Subsidiary of Gulf West
of the federal securities laws or the state securities or blue sky laws in
connection with such documents; provided, however, that neither Gulf West nor
any of its Subsidiaries will be liable in any case to the extent that any such
claim, action, suite, proceeding, or investigation is based on any untrue or
alleged untrue statement or omission or alleged omission made in such
Registration Statement and Proxy Statement and any amendment thereto in
reliance on and in conformity with information furnished in writing to Gulf
West or its Subsidiaries by the Bank or any Indemnified Party specifically for
use therein.
(c) Prior to Closing, the Bank may purchase extended coverage
for a period of three years under the current directors' and officers'
liability insurance maintained by the Bank with respect to matters occurring
prior to the Effective Time, provided that the cost thereof does not exceed
$20,000.
(d) The provisions of this Section 6.13 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party, his or
her heirs and representatives, and shall survive the consummation of the Merger
and be binding on all successors and assigns of Gulf West and the Surviving
Corporation.
SECTION 6.14 No Acquisition Transactions. Other than acquisitions
which may be mutually agreed to by the Parties, no Party shall, or shall permit
any of its Subsidiaries to acquire or agree to acquire, by merger or
consolidation with or by purchase of a substantial equity interest in or a
substantial portion of the assets of or by any other manner any business or any
corporation, partnership, association, or other business organization or
division thereof or otherwise acquire or agree to acquire any assets in each
case which are material, individually or in the aggregate, to such Party and
its Subsidiaries taken as a whole; provided, however, that the foregoing shall
not prohibit (i) internal reorganizations, consolidations, or dissolutions
involving only existing Subsidiaries, and (ii) foreclosures and other
acquisitions related to previously contracted debt, in each case in the
ordinary course of business.
SECTION 6.15 Standstill. Except as contemplated by this Agreement, for
a period of three years after the date hereof, Gulf West will not (and will
ensure that its Subsidiaries and Affiliates will not), without the prior
written approval of the Board of Directors of the Bank or any committee
thereof, (i) purchase or
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otherwise acquire, or enter into any agreement to purchase or otherwise
acquire, any equity securities of the Bank, any warrants or options to purchase
such equity securities, any securities convertible into such equity securities,
or any other rights to acquire such equity securities; (ii) make or in any way
participate directly or indirectly in any "solicitation" of "proxies" (as such
terms are used in the proxy rules of the SEC), to vote any equity securities of
the Bank (unless any third Party shall then be engaged in such a solicitation
and such solicitation relates to a contest for control of the Bank and except
that this clause (ii) shall not apply to solicitations made by the Bank); or
(iii) make any public request to waive any provision of this Section 6.15 or to
permit any action prohibited by this Section 6.15 to be taken.
SECTION 6.16 Shareholder Representation Agreements. The Bank shall use
its best efforts to obtain from holders of the Bank's capital stock who will
receive 50% or more of the shares of Gulf West Common Stock to be received as
Merger Consideration, a representation that they have no plan or intention to
sell or otherwise dispose of 50% or more of the shares of Gulf West Common
Stock to be received as Merger Consideration pursuant to the Merger.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each Party to effect the Merger are
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time:
(a) All consents and approvals of, filings and registrations with, and
notifications to, all governmental or regulatory authorities and agencies,
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 or approval from any governmental or regulatory
authority or agency shall have imposed any condition or requirement which in
the reasonable judgment of either Party would so adversely impact the economic
or business benefits of the transactions contemplated by this Agreement or
otherwise would in the judgment of either Party be so burdensome as to render
inadvisable the consummation of the Merger;
(b) The Merger will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction and no law or order
shall have been enacted which prohibits the Merger;
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(c) The shareholders of the Bank shall have approved this Agreement
and the consummation of the transactions contemplated hereby, including the
Merger, as and to the extent required by law.
(d) The Registration Statement shall have been declared effective
under the Securities Act and all necessary approvals or permits under
applicable state securities or "blue sky" laws relating to the issuance of the
Gulf West Common Stock to be issued in the Merger shall have been obtained, and
no stop order suspending the effectiveness of such Registration Statement shall
be in effect and no Proceedings for such purpose, or any Proceedings under the
SEC or applicable state securities authorities rules with respect to the
transactions contemplated hereby, shall be pending before or threatened by the
SEC or any applicable state securities or blue sky authorities; and
(e) Each Party shall have received an opinion of Fowler, White,
Gillen, Boggs, Villareal and Banker, P.A., in form and substance reasonably
satisfactory to such Parties, dated as of the Effective Time, that the Merger
will qualify as a reorganization under Section 368(a) of the Code and that
accordingly: (i) no gain or loss will be recognized by the Parties or any
affiliate thereof as a result of the Merger; (ii) no gain or loss will be
recognized by the shareholders of the Bank who exchange their Bank Common Stock
solely for Gulf West Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in Gulf West Common
Stock); and (iii) the tax basis of the Gulf West Common Stock received by
shareholders who exchange all of their Bank Common Stock solely for Gulf West
Common Stock in the Merger will be the same as the tax basis of the Bank Common
Stock surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received). In rendering such
opinion, Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. may require
and rely upon representations contained in certificates of officers of Gulf
West and others.
SECTION 7.2 Conditions to the Obligations of Gulf West and Mercantile
to Effect the Merger.
The obligations of Gulf West and Mercantile to effect the Merger are
subject to the satisfaction by the Bank or waiver by Gulf West of the following
conditions prior to the Effective Time:
(a) all representations and warranties of the Bank qualified as to
materiality shall be true and correct in all respects and those representations
and warranties not so qualified shall be true and correct in all material
respects as of the date hereof and, in either case without taking into account
any supplement to the Bank's Disclosure Letter after the date hereof, provided
pursuant to Article III hereof, at and as of the Closing, with the same force
and effect as though made on and as of the Closing (except to the extent such
representations and warranties are by their express
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provisions made as of a specified date and except to the extent that such
representation and warranty has been made untrue by reason of an event or
circumstance which Gulf West has expressly consented in writing pursuant to the
provision of Article V hereof), and any representation qualified by Knowledge
must be true and correct without regard to such qualification;
(b) the Bank shall have performed in all material respects all
obligations and agreements and in all material respects complied with all
covenants and conditions, contained in this Agreement to be performed or
complied with by it prior to the Effective Time;
(c) the directors and executive officers of the Bank shall have
delivered to Gulf West a release dated the Effective Time in substantially the
form of Exhibit F and each of the Director's of the Bank shall have delivered
to Gulf West their resignations as a director of the Bank;
(d) Gulf West shall have received the opinion of counsel to the Bank
acceptable to it as to the matters set forth on Exhibit D attached hereto;
(e) the holders of no more than 5% of the Shares shall have demanded
or be entitled to demand payment of the fair value of their shares as
Dissenting Shareholders;
(f) At and as of the Closing, the sum of the Bank's Common Stock,
Additional Paid In Capital, Surplus, Retained Earnings, and Undivided Profits
determined in accordance with GAAP shall be equal to or greater than
$8,500,000, excluding the effect of any transaction expenses paid in connection
with the Merger as contemplated by Sections 6.13 and 10.1 hereof and the
effects of any FASB 115 and FASB 107 adjustments.
(g) at and as of the Closing, the loan loss reserve of the Bank shall
be equal to or greater than 1.50% of the Bank's gross loans;
(h) there shall be no Bank Indebtedness;
(i) Gulf West shall have received from holders of the Bank's capital
stock who will receive 50% or more of the shares of Gulf West Common Stock to
be received as Merger Consideration, a representation that they have no plan or
intention to sell or otherwise dispose of 50% or more of the shares of Gulf
West Common Stock to be received as Merger Consideration pursuant to the
Merger;
(j) the Bank shall have delivered to Gulf West a schedule of all
transactions in the capital stock (or instruments exercisable for or
convertible into capital stock) of the Bank of which the Bank has Knowledge
from and including the date of this Agreement through the Closing Date;
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(k) Gulf West shall have received the executed Affiliate Letters
required by Section 1.8(b);
(l) the Bank shall have taken such write-downs of assets on its books
as are consistent with Gulf West' accounting methods for reserving for loan
losses, as mutually agreed to by the parties; and
(m) there shall not have occurred a Material Adverse Effect as to the
Bank.
(n) Gulf West shall have received certificates dated as of the Closing
executed by the Chairman of the Board of the Bank, and the Secretary or Cashier
of the Bank, certifying in such reasonable detail as Gulf West may reasonably
request, to the effect described in Sections 7.2(a), (b), (c), (f), (g), (h),
(j) and (m).
SECTION 7.3 Conditions to the Obligations of the Bank to Effect the
Merger. The obligations of the Bank to effect the Merger are subject to the
satisfaction by Gulf West or waiver by the Bank of the following conditions
prior to the Effective Time:
(a) all representations and warranties of Gulf West qualified as to
materiality shall be true and correct in all respects, and those
representations and warranties not so qualified shall be true and correct in
all material respects as of the date hereof and, in either case without taking
into account any supplement provided pursuant to Article IV hereof, at and as
of the Closing, with the same force and effect as though made on and as of the
Closing (except to the extent such representations and warranties are by their
express provisions made as of a specific date and except to the extent that
such representation and warranty has been made untrue by reason of an event or
circumstance which the Bank has expressly consented to in writing pursuant to
the provisions of Article V hereof), and any representation qualified by
Knowledge must be true and correct without regard to such qualification;
(b) Gulf West and Mercantile shall have performed in all material
respects all obligations and agreements and in all material respects complied
with all covenants and conditions contained in this Agreement to be performed
or complied with by either of them prior to the Effective Time;
(c) the Bank shall have received the opinion of counsel to Gulf West
and Mercantile acceptable to it as to the matters set forth on Exhibit E
attached hereto;
(d) the Bank shall have received certificates dated the Closing,
executed by the President and Chief Financial Officer of both Gulf West and
Mercantile, respectively, certifying, in such detail as the Bank may reasonably
request, to the effect described in Sections 7.3(a) and (b);
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(e) there shall not have occurred a Material Adverse Effect with
respect to Gulf West; and
(f) Gulf West shall have delivered to Exchange Agent the Merger
Consideration.
ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. Prior to the Effective Time, this Agreement
may be terminated and the Merger contemplated hereby may be abandoned at any
time notwithstanding approval thereof by the shareholders of the Bank:
(a) by mutual written consent duly authorized by the Boards of
Directors of Gulf West and the Bank;
(b) by Gulf West (i) if there is a breach or inaccuracy of any
representation or warranty of the Bank contained in Article III which
constitutes a Material Adverse Effect, and which breach or inaccuracy is not
cured after thirty days written notice by Gulf West, (ii) if there shall have
been a breach of Section 6.6, or (iii) pursuant to Section 6.9; or
(c) by the Bank if there is an inaccuracy of any representation or
warranty of Gulf West or Mercantile contained in Article IV which constitutes a
Material Adverse Effect, and which breach or inaccuracy is not cured after
thirty days written notice by the Bank; or
(d) by either Gulf West or the Bank if the Effective Time shall not
have occurred on or before April 30, 1998 or such later date agreed to in
writing by Gulf West and the Bank; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.1(d) shall not be available
to any Party whose failure to fulfill any obligations under this Agreement has
been the cause of, or resulted in the failure of the Merger to be consummated
on or before such date; or
(e) by Gulf West or the Bank if any court of competent jurisdiction in
the United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining, denying approval for or otherwise prohibiting the
Merger and such order, decree, ruling, denial or other action shall have become
final and nonappealable; or
(f) by Gulf West if the Board of Directors of the Bank shall have
withdrawn or modified in any manner its approval or recommendation of this
Agreement or the Merger, or shall have
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resolved to do the same; provided, however, that Gulf West may not terminate
this Agreement pursuant to this clause if, as a result of the Bank's receipt of
an Acquisition Proposal from a third party, the Bank withdraws or modifies its
approval or recommendation of this Agreement or the Merger but thereafter (and
prior to termination of this Agreement by Gulf West) the Bank publicly
reconfirms its recommendation of the transactions contemplated hereby and
notifies Gulf West of such reconfirmation prior to termination of this
Agreement by Gulf West pursuant to this clause; or
(g) by the Bank if it shall receive any Acquisition Proposal after the
date hereof from a third party or parties and the Board of Directors of the
Bank shall have received a written opinion from independent legal counsel to
the effect that, and the Board of Directors shall have determined in good faith
in the exercise of its fiduciary duties that the Bank is required to accept
such Acquisition Proposal; provided, however that the Bank may only terminate
this Agreement pursuant to this clause if it simultaneously with such
termination delivers to Gulf West the termination fee provided for in Section
8.5 hereof; or
(h) by Gulf West in the event dissenters' rights are claimed, pursuant
to applicable provisions of the national Bank Act, by persons owning in the
aggregate more than 5% of the issued and outstanding Bank Common Stock; or
(i) by either Gulf West or the Bank, in the event of a material breach
by the other Party of any covenant, agreement, or obligation contained herein,
which breach cannot be or has not been cured within 30 days after the giving of
written notice to the Party committing such breach; or
(j) by either Gulf West or the Bank, if the shareholders of the Bank
fail to vote their approval of this Agreement and the transactions contemplated
as required by the FFIC or the National Banking Act at the Shareholders'
Meeting (or any adjournment thereof).
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any Party or its directors, officers or shareholders, other than
pursuant to the provisions of Sections 6.9(f), the last two sentences of
6.1(a), 6.13, 6.15, 8.2, 10.1, 10.8 and 10.15. Neither Party hereto shall be
liable for monetary damages resulting from any breach of this Agreement unless
such breach results from a knowing misrepresentation which the breaching Party
knows was a misrepresentation when made, and which results in a Material
Adverse Change or results from the intentional material breach of a covenant
which is within the reasonable control of the breaching Party.
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Additionally, if a representation becomes untrue between the execution of this
Agreement and the Closing and such facts and circumstances which caused such
representation to become untrue were beyond the reasonable control of the Party
making such representation, such Party shall not be liable to the other Party
for the monetary damage with respect thereto. The foregoing notwithstanding,
nothing contained herein shall be deemed to relieve the obligation of the Bank
to pay any termination fee which may be due under Section 8.5 hereof if payment
is otherwise required under the provisions thereof.
SECTION 8.3 Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Bank, Gulf West and, if required, Mercantile at any time
before or after adoption of this Agreement by the shareholders of the Bank but,
after any submission of this Agreement to such shareholders for approval, no
amendment shall be made which reduces the Merger Consideration to be paid
pursuant to the Merger or which materially and adversely affects the rights of
the Bank's shareholders hereunder without any required approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the Parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective
Time, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein, except
that no waiver shall be effective which reduces the Merger Consideration or
which materially affects the rights of the Bank's shareholders unless such
waiver is approved by two thirds of the Bank's Shareholders. Any agreement on
the part of any Party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such Party.
SECTION 8.5 Termination Fee. If the Bank either (a) violates its
obligations set forth in Section 6.6 hereof and this Agreement is thereafter
terminated pursuant to Section 8.1(b)(ii), or (b) prior to termination of this
Agreement receives any Acquisition Proposal and this Agreement is thereafter
terminated pursuant to Sections 8.1(f) or 8.1(g) as a result of receipt of such
Acquisition Proposal, then the Bank shall pay to Gulf West a fee of $500,000 in
cash at the time of such termination.
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ARTICLE IX.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Except for this Article IX, Article II, and Sections 1.1, 1.2, 1.3,
1.4, 1.5, 1.6, 6.8, 6.13, 10.1, 10.3, 10.5 and 10.13, the Parties hereto agree
that none of their respective representations warranties and covenants
contained in this Agreement shall survive after the Effective Time. Such
representations, warranties, obligations, covenants, and agreements which do
survive the Effective Time shall be for the benefit of the employees and
indemnified persons referenced therein and if not otherwise referenced to the
benefit of the shareholders of the Bank existing prior to the Effective Time.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1 Expenses. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement, including without
limitation, attorneys' fees, accountants' fees, other professional fees and
costs related to expenses of officers and directors of the Bank, shall be paid
by the Party incurring such costs and expenses; provided, however, without the
consent of Gulf West, which consent shall not be unreasonably withheld, all
such costs and expenses paid or accrued as of the Effective Time by the Bank
including but not limited to the fairness opinion fee of Alex Sheshunoff & Co.
Investment Banker and all legal and accounting fees shall not exceed $150,000.
Each Party hereto hereby agrees to and shall indemnify the other Party hereto
against any liability arising from any such fee or payment incurred by such
Party.
SECTION 10.2 Brokers and Finders. All negotiations on behalf of Gulf
West and the Bank relating to this Agreement and the transactions contemplated
by this Agreement have been carried on by the parties hereto and their
respective agents directly without the intervention of any other person in such
manner as to give rise to any claim against Gulf West, Mercantile or the Bank
for financial advisory fees other than the fee of $35,000 payable to Alex
Sheshunoff & Co. Investment Banking in connection with the rendering of a
fairness opinion (the "Fairness Opinion Fee"), brokerage or commission fees,
finder's fees or other like payment in connection with the consummation of the
transactions contemplated hereby.
SECTION 10.3 Entire Agreement; Assignment. Except as otherwise
expressly provided herein, this Agreement (a) constitutes the entire agreement
among the Parties with respect to the transactions contemplated hereunder and
supersedes all other prior agreements, representations and understandings, both
written and oral, among the Parties or any of them with respect to the subject
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matter hereof, and (b) shall not be assigned by operation of law or otherwise,
provided that Gulf West may assign its rights and obligations or those of
Mercantile to any direct or indirect, wholly-owned, subsidiary of Gulf West,
but no such assignment shall relieve Gulf West of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 10.4 Further Assurances. From time to time as and when
requested by Gulf West or its successors or assigns, the Bank and the officers
and directors of the Bank, shall execute and deliver such further agreements,
documents, deeds, certificates and other instruments and shall take or cause to
be taken such other actions, including those as shall be necessary to vest or
perfect in or to confirm of record or otherwise the Bank's title to and
possession of, all of its property, interests, assets, rights, privileges,
immunities, powers, franchises and authority, as shall be reasonably necessary
or advisable to carry out the purposes of and effect the transactions
contemplated by this Agreement.
SECTION 10.5 Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were 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, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 10.6 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner Materially Adverse to any
Party.
SECTION 10.7 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered if delivered in person, by cable, telegram or telex
or by telecopy; five business days after mailing if delivered by registered or
certified mail (postage prepaid, return receipt requested); and two business
days after sending if delivered by overnight courier; to the respective parties
as follows:
if to Gulf West or Mercantile:
Mercantile Bank
425 22nd Avenue North
St. Petersburg, Florida 33704
Attention: Gordon W. Campbell
Chairman of the Board, President
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With a required copy to:
David C. Shobe, Esq.
Fowler White Gillen Boggs Villareal & Banker, P.A.
501 E. Kennedy Blvd.
Tampa, Florida 33601
if to the Bank:
Citizens National Bank
& Trust Company
9550-1 U.S. Highway 19
Port Richey, Florida 34668
Attention: Dr. Henry W. Hanff
Chairman of the Board
With a required copy to:
Richard A. Denmon, Esq.
Carlton Fields
One Harbour Place
Tampa, Florida 33601
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 10.9 Descriptive Headings. The descriptive headings are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 10.10 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each Party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.12 Incorporation by References. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto
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<PAGE> 229
are incorporated herein by reference hereto as though fully set forth at the
point referred to in the Agreement.
SECTION 10.13 Obligation of Gulf West. Whenever this Agreement
requires Gulf West (including the Surviving Corporation) to take any action,
such requirement shall be deemed to include an undertaking by Gulf West to
cause its Subsidiaries to take such action.
SECTION 10.14 Fiduciary Duty. Subject to Sections 6.6, 8.1(f) and (g)
and 8.5, no provision of this Agreement shall be construed to prevent the
exercise by any director of the Bank (or the actions of the Bank thereon) of
his or her fiduciary duty.
SECTION 10.15 Certain Definitions.
(a) "Affiliate" shall mean, with respect to any person, any person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such person in question. For the purposes of this definition,
"control" (including, with correlative meaning, the terms "controlled by" and
"under common control with") as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
(b) "Environmental Laws" shall mean all federal, state and local laws,
ordinances, rules, regulations, and orders of courts or administrative agencies
or authorities, relating to the release, threatened release, recycling,
processing, use, handling, transportation treatment, storage, disposal,
remediation, removal, inspection or monitoring of Polluting Substances or
protection of human health or safety or the environment (including, without
limitation, wildlife, air, surface water, ground water, land surface, and
subsurface strata), including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended ("SARA"), the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), Hazardous and Solid Waste Amendments of 1984, as amended
("HSWA"), the Hazardous Materials Transportation Act, as amended ("HMTA"), the
Toxic Substances Control Act ("TSCA"), Occupational Safety and Health Act
("OSHA"), Federal Water Pollution Control Act, Clean Air Act, and any and all
regulations promulgated pursuant to any of the foregoing.
(c) "Knowledge," "known," "know(s)" or "knowing" -- An individual
shall be deemed to have "knowledge" of or to have "known" a particular fact or
other matter if (i) such individual is actually aware of such fact or other
matter, or (ii) such individual could be expected to discover or otherwise
become aware of such fact or other
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<PAGE> 230
matter in the course of conducting a reasonable investigation. A corporation or
bank shall be deemed to have "Knowledge" of or to have "known" a particular
fact or other matter if any individual who is serving, as a director, or as an
officer listed on Section 10.15(c) of the Disclosure Letter, of the corporation
or bank, has, or at any time had, actual Knowledge of such fact or other
matter. Each Party hereto is understood to have undertaken a separate
investigation pursuant to which they have discussed with the directors, senior
vice president and executive officers of Gulf West, Mercantile, or the Bank, as
the case may be, the transactions contemplated hereby and reviewed their
respective files to determine the existence or absence of facts or other
matters in any statement qualified as "known" by, or the "Knowledge" of, each
Party hereto, provided that in conducting such investigation the parties shall
not be required to conduct interviews with their respective employees other
than their respective Senior Vice Presidents, Executive officers and Directors
unless the discussions with such senior vice presidents, executive officers and
directors specifically indicates that such employee(s) may have relevant
information of a specific nature which the parties should follow up on.
(d) "Material Adverse Effect or Change" or "Materially Adverse Effect
or Change" 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 or Change" 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,
and (b) actions and omissions of a Party (or any of its Subsidiaries) taken
with the prior informed written consent of the other Party in contemplation of
the transactions contemplated hereby.
(e) "Polluting Substances" shall mean those substances included within
the statutory or regulatory definitions, of "pollutant," "contaminant," "toxic
waste," "hazardous substance," "hazardous waste," "solid waste," or "regulated
substance" pursuant to CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA, and/or any
other Environmental Laws, as amended, and shall include, without limitation,
any material, waste or substance which is or contains explosives, radioactive
materials, oil or any fraction thereof, asbestos, or formaldehyde. To the
extent that the laws or regulations of the State of Florida establish a meaning
for "hazardous substance," "hazardous waste," "hazardous materials," "solid
waste," or "toxic waste," which is broader than that specified in any of
CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA or other Environmental Laws such
broader meaning shall apply.
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<PAGE> 231
(f) "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, discarding or abandoning.
(g) "Subsidiary" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity or any partnership, joint venture
or other enterprise in which any entity has, directly or indirectly, any equity
interest.
63
<PAGE> 232
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
Attest CITIZENS NATIONAL BANK
& TRUST COMPANY
By:
- -------------------------------- -------------------------------
(SEAL)
Attest GULF WEST BANKS, INC.
By:
- --------------------------------- -------------------------------
(SEAL)
Attest MERCANTILE BANK
By:
- ---------------------------------- -------------------------------
(SEAL)
64
<PAGE> 233
ATTACHMENTS
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
A. Articles and Plan of Merger
B. Affiliate Letter
C. Exchange Agent Agreement
D. Opinion of Counsel for the Bank
E. Opinion of Counsel for Gulf West and Mercantile
F. Release to be Executed by Executive Officers and Directors
of Bank
</TABLE>
<PAGE> 234
ANNEX B
PROVISIONS OF THE NATIONAL BANKING ACT RELATING
TO DISSENTERS' RIGHTS OF APPRAISAL
SECTION 214A. PROCEDURE FOR CONVERSION, MERGER OR CONSOLIDATION; VOTE OF
STOCKHOLDERS
A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the national banking
association is located, under a State charter, in the following manner:
(a) Approval of board of directors; publication of notice of stockholders'
meeting; waiver of publication; notice by registered or certified mail
The plan of conversion, merger, or consolidation must be approved by a
majority of the entire board of directors of the national banking association.
The bank shall publish notice of the time, place, and object of the
stockholders' meeting to act upon the plan, in some newspaper with general
circulation in the place where the principal office of the national banking
association is located, at least once a week for four consecutive weeks:
Provided, That newspaper publication may be dispensed with entirely if waived by
all the stockholders and in the case of a merger or consolidation one
publication at least ten days before the meeting shall be sufficient if
publication for four weeks is waived by holders of at least two-thirds of each
class of capital stock and prior written consent of the Comptroller of the
Currency is obtained. The national banking association shall send such notice to
each stockholder of record by registered mail or by certified mail at least ten
days prior to the meeting, which notice may be waived specifically by any
stockholder.
(b) Rights of dissenting stockholders
A stockholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversion, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the stockholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting stockholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting stockholder who has
requested payment as provided herein, such stockholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting stockholders of the
national banking association.
<PAGE> 235
ANNEX C
July 31, 1997
Board of Directors
Citizens National Bank and Trust Company
9550-1 US Highway 19, Embassy Crossing
Port Richey, Florida 34668-4640
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock of
Citizens National Bank and Trust Company ("Citizens"), of the exchange ratio
("Exchange Ratio") by which holders of the outstanding common stock of Citizens
will receive shares of the common stock of Gulf West Banks, Inc. ("Gulf West").
The shares will be exchanged pursuant to the Amended and Restated Agreement and
Plan of Merger dated on or about October ___, 1997 (the "Merger Agreement")
which provides for the merger (the "Merger") of Citizens with and into
Mercantile Bank ("Mercantile"), a wholly owned subsidiary of Gulf West. Pursuant
to the Merger Agreement, each share of Citizens' common stock, par value $5.00
per share, issued and outstanding immediately prior to the Effective Time, shall
be converted into and represent the right to receive 3.2337 shares of Gulf West
common stock.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes. Sheshunoff was previously engaged, in the Fall of 1995, to assist
Citizens in assessing the possibility of a sale of Citizens to another banking
organization. On behalf of Citizens, Sheshunoff solicited more than fifty
companies, provided fourteen companies with information regarding Citizens and
received two indications of interest in a possible acquisition of Citizens for
cash and no expressions of interest in an acquisition for stock. Citizens' Board
of Directors deemed the offers inadequate and terminated its search, electing to
pursue a possible affiliation in a merger with a community bank having similar
competitive circumstances and compatible business philosophies. Sheshunoff did
not participate in Citizens' search for a possible merger partner.
In connection with our opinion, we have, among other things:
1. Evaluated the Exchange Ratio and the relative contributions of each of
the companies to the combined company based upon: (i) 1996 reported earnings
adjusted in the case of Gulf West for their SAIF special assessment; (ii) 1997
estimated earnings for both companies; (iii) 1997 estimated earnings adjusted in
the case of Citizens for their settlement of certain litigation; and (iv)
reported equity capital. The Exchange Ratio was negotiated between the
management of Citizens and Gulf West without the participation or assistance of
Sheshunoff;
2. Analyzed the potential improvement in stock liquidity, market
value, profitability, earnings, asset growth and franchise value to Citizens
following the Merger, as an alternative to continued operations as an
independent bank;
3. Reviewed Citizens' and Gulf West's most recent Annual Reports as
of December 1996 and quarterly reports as of March 31, 1997, as well as
unaudited internal financial statements;
4. Reviewed certain internal financial reports and earnings estimates for
Citizens and Gulf West individually and on a combined basis, and held
discussions with the management of both companies concerning their recent
operating performance and expected 1997 operating performance;
5. Reviewed the expected cost savings in the merger as estimated by
the management of Citizens and Gulf West;
6. Compared Citizens' and Gulf West's recent operating results with
those of certain other banks and thrifts operating in the southeastern United
States that we deemed appropriate;
7. Reviewed the historical stock price and limited trading volume of Gulf
West common stock and the lack of any active market for Citizens common stock.
Reviewed the most recent pricing for a completed trade of Gulf West's stock
($5.50 per share) for which Gulf West has trade price information;
8. Discussed with the management of Citizens and Gulf West, Gulf West's
plans to register, with the Securities and Exchange Commission, Gulf West's
existing common stock and the stock to be issued in connection with the Merger
resulting in potentially improved liquidity in the stock and the potential to
develop a more active trading market;
<PAGE> 236
9. Reviewed a draft of the Merger Agreement;
10. Reviewed the exchange ratios and other pricing data of mergers of
small and modestly profitable banking companies in Florida and the Southeast
completed during the last year;
11. Reviewed Citizens' recent attempt to sell Citizens and the limited
number of responses to the sale solicitation. The two expressions of interest
received were both for cash consideration in the amounts of approximately $8.6
million and $7.8 million. Based upon the Exchange Ratio in the Merger Agreement
and a $5.50 per share market value for Gulf West common stock, the Merger
results in Citizens stockholders receiving Gulf West common stock with an
aggregate estimated market value of $10,725,000; and,
12. Performed such other analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information provided to us by Citizens and Gulf West for
the purposes of this opinion. In addition, where appropriate, we have relied
upon publicly available information that we believe to be reliable, accurate and
complete; however, we cannot guarantee the reliability, accuracy or completeness
of any such publicly available information. We have not made an independent
evaluation of the assets or liabilities of Citizens or Gulf West, nor have we
been furnished with any such appraisals.
We have assumed that financial forecasts and earnings estimates prepared
by the management of Citizens and Gulf West have been reasonably prepared and
reflect management's best currently available estimates and judgment as to the
future financial performance of the companies. We have assumed such forecasts
and projections will be realized in the amounts and at the times contemplated
thereby. We also relied upon management's estimate of the dollar amount and
attainability of the expected cost savings and revenue enhancements resulting
from the Merger.
We are not experts in the evaluation of loan portfolios for the purposes
of assessing the adequacy of the allowance for losses and have assumed that such
allowances for each of the companies are in the aggregate, adequate to cover
such losses. We assume that no material change in the signed final Merger
Agreement will occur when compared to the last draft of the Merger Agreement
provided to us. We have assumed that both Citizens and Gulf West will receive
all required regulatory approvals necessary to consummate the Merger without
conditions that will materially impact the Merger.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view,
to the holders of Citizens' common stock, of the Exchange Ratio as stated in the
Merger Agreement and does not address Citizens' underlying business decision to
undertake the Merger. Moreover, this letter, and the opinion expressed herein,
does not constitute a recommendation to any stockholder as to any approval of
the Merger or the Merger Agreement. It is understood that this letter is for the
information of the Board of Directors of Citizens and may not be used for any
other purpose without our prior written consent, except that this opinion may be
included in its entirety in any regulatory filings made by Citizens and Gulf
West with respect to the Merger.
Based on the foregoing and such other matters we have deemed relevant, it
is our opinion, as of the date hereof, that the Exchange Ratio is fair, from a
financial point of view, to the holders of Citizens common stock.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
GULF WEST BANKS, INC.
ARTICLE I
NAME OF CORPORATION
The name of the corporation shall be Gulf West Banks, Inc.
(hereafter the "Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The street address of the corporation's initial registered office is
425 22nd Avenue North, St. Petersburg, Florida 33704, and the name of the
corporation's initial registered agent at such address is Gordon W. Campbell.
The corporation may change its registered office or its registered agent or
both by filing with the Department of State of the State of Florida a statement
complying with Section 607.0502, Florida Statutes or any successor thereto
covering such subject matter.
ARTICLE III
POWERS OF CORPORATION
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact all other lawful business for which
corporations may be incorporated under the laws of the State of Florida. The
Corporation shall have all the powers of a corporation organized under said
laws.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
<PAGE> 2
ARTICLE V
CAPITAL STOCK
1. Common Shares. The total number of shares of capital stock which
the Corporation has authority to issue is 10,000,000 shares of common stock at
$2.00 par value per share. The shares may be issued by the Corporation without
the approval of stockholders except as otherwise provided in these Articles or
the rules of a national securities exchange, if applicable. The consideration
for the issuance of the shares shall be paid to or received by the Corporation
in full before their issuance and shall not be less than the par value per
share. Before the corporation issues shares, the Board of Directors must
determine that the consideration received or to be received for the shares is
adequate. The consideration for the issuance of the shares may consist of
tangible or intangible property or benefit to the corporation including but not
limited to cash, promissory notes, services performed, promises to perform
services evidenced by a written contract or other securities or contract rights
or obligations of the corporation or any combination of the foregoing. In the
absence of actual fraud in the transaction, the judgment of the Board of
Directors as to the value of such consideration shall be conclusive. Upon
receipt of such consideration such shares shall be deemed to be fully paid and
nonassessable. Each holder of shares of common stock shall be entitled to one
vote for each share held by such holders.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of common stock of the Corporation.
2. Preferred Shares. In addition to the common stock authorized
herein, the Corporation is authorized to issue one million (1,000,000) shares
of "Class A Preferred Stock," with a par value of $5.00 per share. The Class A
Preferred Stock may be issued in different series. Except as set forth below,
the Board of Directors of the Corporation shall establish the series and
determine the variation in the relative rights (including conversion rights, if
any, and dividend rate) and preferences between series.
(a) Non-Voting. The holders of the Class A Preferred
Stock shall have no voting rights in the Corporation.
(b) Non-Cumulative Dividends. The holders of shares of
Class A Preferred Stock shall be entitled to receive, on a non-
cumulative basis out of any assets at the time legally available
therefore and when and as declared by the Board of Directors of the
2
<PAGE> 3
Corporation, dividends at the rate determined by the Board for each series of
Class A Preferred Stock.
(c) Preferences on Liquidation. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Shares of Class A Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, before any payment
shall be made in respect of the Corporation's common stock, an amount equal to
$5.00 per share plus all unpaid but declared dividends thereon to the date
fixed for distribution. After setting apart or paying in full the preferential
amounts due the holders of Class A Preferred Stock, the remaining assets of the
Corporation available for distribution to stockholders, if any, shall be
distributed exclusively to the holders of common stock entitling the holder
thereof to receive an equal proportion of said remaining assets. If upon
liquidation, dissolution, or winding up of the Corporation, the assets of the
Corporation available for distribution to its shareholders shall be
insufficient to pay the holders of the shares of Class A Preferred Stock the
full amounts to which they respectively shall be entitled, the holders of the
shares of Class A Preferred Stock shall share ratably in any distribution of
assets according to the respective amounts which would be payable in respect to
the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full. The merger or consolidation of
the Corporation into or with another company in which this Corporation shall
not survive and in which the shareholders of the Corporation shall own less
than 50% of the voting securities of the surviving company, or the sale,
transfer or lease (but not including the transfer or lease by pledge or
mortgage to a bona fide lender) of all or substantially all of the assets of
the Corporation shall be deemed to a liquidation, dissolution or winding up of
the Corporation as those terms are used herein.
ARTICLE VI
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by
the Board of Directors of the Corporation and without action by the
shareholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Corporation in such manner, upon such terms, and in
such amounts as the Board of Directors shall determine. However, this power is
subject to any limitations or restrictions which are contained in the express
terms of any class of shares of the Corporation
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<PAGE> 4
outstanding at the time of the purchase or acquisition in question
or as are imposed by law or regulation.
ARTICLE VII
MEETINGS OF SHAREHOLDERS
Notwithstanding any other provision of these Articles or the Bylaws of
the Corporation, any action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting, by consent in writing, to the taking of any action by a
majority of the outstanding shares entitled to vote thereon. Special meetings
of the shareholders of the Corporation for any purpose or purposes may be
called at any time by the board of directors of the Corporation, or by a
committee of the board of directors which has been duly designated by the board
of directors and whose powers and authorities, as provided in a resolution of
the board of directors or in the Bylaws of the Corporation, include the power
and authority to call such meetings, but special meetings may not be called by
any other person or persons. Meetings of shareholders may be held within or
without the State of Florida, as the Bylaws of the Corporation may provide.
ARTICLE VIII
NOTICE FOR NOMINATIONS AND PROPOSALS
1. GENERAL GUIDELINES. Nominations for the election of directors and
proposals for any new business to be taken up at any annual or special meeting
of shareholders may be made by the Board of Directors or by any shareholder of
the Corporation entitled to vote generally in the election of directors. In
order for a shareholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail (postage prepaid) to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to any
such meeting. However, if less than thirty-one days' notice of the meeting is
given to shareholders, such written notice shall be delivered or mailed as
prescribed to the Secretary of the Corporation no later than the close of the
tenth day following the day on which notice of the meeting was mailed to
shareholders.
2. CONTENT OF NOTICE FOR NOMINATIONS. Each notice given by a
shareholder with respect to nominations for election of directors shall set
forth (i) the name, age, business address and, if known, residence address of
each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, (iii) the
4
<PAGE> 5
number of shares of stock of the Corporation which are beneficially owned by
each such nominee, (iv) such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as director
(if elected) and (v) as to the shareholder giving such notice (a) his name and
address as they appear on the Corporation's books and (b) the class and number
of shares of the Corporation which are beneficially owned by such shareholder.
In addition, the shareholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation.
3. CONTENT OF NOTICE FOR PROPOSALS. Each notice given by a shareholder
to the Secretary with respect to business proposals to bring before a meeting
shall set forth in writing as to each matter: (i) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (ii) the name and address, as they
appear on the Corporation's books, of the shareholder proposing such business;
(iii) the class and number of shares of the Corporation which are beneficially
owned by the shareholder; and (iv) any material interest of the shareholder in
such business. Notwithstanding anything in these Articles to the contrary, no
business shall be conducted at the meeting except in accordance with the
procedures set forth in this Article VIII.
4. DEFECTIVE NOMINATIONS AND PROPOSALS. The Chairman of the annual or
special meeting of shareholders may, if the facts warrant, determine and
declare to the meeting that a nomination or proposal was not made in accordance
with the foregoing procedure, and, if he should so determine, he shall so
declare to the meeting that the defective nomination or proposal shall be
disregarded and may or may not be laid over for action at the next succeeding
adjourned, special or annual meeting of the stockholders taking place thirty
days or more thereafter. This provision shall not require the holding of any
adjourned or special meeting of shareholders for the purpose of considering the
defective nomination or proposal.
ARTICLE IX
DIRECTORS
1. NUMBER; STAGGERED BOARD. The Corporation shall have the
number of directors specified in the Corporation's Bylaws. The
Corporation's board of directors shall be divided into three
classes of directors which shall be designated Class I, Class II,
and Class III. Such classes shall be as nearly equal in number as
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<PAGE> 6
is possible, with the terms of all members of one class expiring each year. At
the first annual meeting of shareholders, Class III directors shall be elected
to hold office for a term expiring at the third succeeding annual meeting
thereafter. The Class II directors shall be elected to hold office for a term
expiring at the second succeeding annual meeting thereafter, and Class I
directors shall be elected to hold office for a term expiring at the first
succeeding annual meeting thereafter. At each annual meeting held after the
first annual meeting, the successors to the class of directors whose term has
then expired shall be chosen for a full term of three (3) years to serve until
such time as their successors shall have been duly elected and qualified unless
such position on the board of directors was eliminated by action, taken prior
to the meeting, to reduce the size of the board of directors.
2. VACANCIES ON BOARD. Vacancies on the board of directors of the
Corporation shall be filled by a vote of at least two-thirds of the directors
then in office, whether or not they constitute a quorum. Any director so chosen
shall hold office for a term expiring at the annual shareholders' meeting at
which the term of the class to which the director has been chosen expires and
when the director's successor is elected and qualified.
3. REDUCTION IN SIZE OF BOARD. If the number of directors of the
Corporation is reduced, the directorship(s) eliminated shall be allocated among
the classes in a manner ensuring that the structure set forth in the preceding
paragraph is preserved. The board of directors shall designate, by the name of
the incumbent(s), the position(s) to be abolished. Notwithstanding the
foregoing, no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. If the number of directors of
the Corporation is increased, the additional directorships shall be allocated
in a manner ensuring that the structure set forth in the preceding paragraph is
preserved.
4. REMOVAL OF DIRECTORS. No member of the board of directors of the
Corporation may be removed except for cause, and then only by the affirmative
vote of at least two-thirds of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the shareholders called
specifically for that purpose.
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ARTICLE X
FAIR PRICE REQUIREMENTS
1. Fair Price Requirement. No "Business Combination" with a
Principal Shareholder or any affiliate thereof shall be effected unless all of
the following conditions, to the extent applicable, are fulfilled.
(a) The ratio of (i) the aggregate amount of the cash and the
fair market value of the other consideration to be received per share
by the holders of the common stock of the Corporation in the Business
Combination to (ii) the "Market Price" (as hereinafter defined) of the
common stock of the Corporation immediately prior to the announcement
of the Business Combination or the solicitation of the holders of the
common stock of the Corporation regarding the Business Combination,
whichever is first, shall be at least as great as the ratio of (x) the
highest price per share previously paid by the "Principal Shareholder"
(as hereinafter defined) (whether before or after it became a
Principal Shareholder) for any of the shares of common stock of the
Corporation at any time beneficially owned, directly, or indirectly,
by the Principal Shareholder to (y) the Market Price of the common
stock of the Corporation on the trading date immediately prior to the
earliest date on which the Principal Shareholder (whether before or
after it became a Principal Shareholder) purchased any shares of
common stock of the Corporation during the two year period prior to
the date on which the Principal Shareholder acquired the shares of
common stock of the Corporation at any time owned by it for which it
paid the highest price per share (or, if the Principal Shareholder did
not purchase any shares of common stock of the Corporation during the
two year period, the Market Price of the common stock of the
Corporation on the date two years prior to the date on which the
Principal Shareholder acquired the shares of common stock of the
Corporation at any time owned by it for which it paid the highest
price per share).
(b) The aggregate amount of the cash and the fair market
value of the other consideration to be received per share by the
holder of the common stock of the Corporation in the Business
Combination shall be not less than the highest price per share
previously paid by the Principal Shareholder (whether before or after
it became a Principal Shareholder) for any of the shares of common
stock of the Corporation at any time beneficially owned, directly or
indirectly, by the Principal Shareholder.
(c) The consideration to be received by the holders of
the common stock of the Corporation in the Business
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<PAGE> 8
Combination shall be in the same form and of the same kind as the
consideration paid by the Principal Shareholder in acquiring the
majority of the shares of commons stock of the Corporation already
beneficially owned, directly or indirectly, by the Principal
Shareholder.
The conditions imposed by this Article X shall be in addition to all
other conditions (including, without limitation, the vote of the holders of any
class or series of stock of the Corporation) otherwise imposed by law, by any
other Article of this Certificate, by any resolution of the Board of Directors
providing for the issuance of a class or series of stock, or by any agreement
between the Corporation and any national securities exchange.
2. Certain Definitions. For the purpose of these Articles,
the following terms shall have the definitions indicated.
(a) The term "BUSINESS COMBINATION" means any merger,
reorganization, or consolidation of the Corporation, including a
Subsidiary Combination which is not a Controlled Subsidiary
Combination.
(b) The term "SUBSIDIARY COMBINATION" means any merger,
reorganization or consolidation of a corporation which is controlled
by the Corporation (a "Subsidiary").
(c) The term "CONTROLLED SUBSIDIARY COMBINATION" means a
Subsidiary Combination after which the surviving entity continues to
be controlled by the Corporation.
(d) Any corporation, partnership, person, or entity will be
deemed to be a "BENEFICIAL OWNER" of or to own beneficially any share
or shares of stock of the Corporation: (i) which it owns directly,
whether or not of record; or (ii) which it has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement or arrangement or
understanding or upon exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or which it has the right to vote
pursuant to any agreement, arrangement, or understanding; or (iii)
which are beneficially owned, directly or indirectly (including shares
deemed to be owned through application of clause (ii) above) by any
other corporation, person, or entity with which it or any of its
Affiliates or Associates have any agreement or arrangement or
understanding for the purpose of acquiring, holding, voting, or
disposing of Voting Stock.
(e) The "MARKET PRICE" of the common stock of the Corporation
shall be the mean between the high "bid" and the low "asked" prices of
the common stock in the over-the-counter market on the day on which
such value is to be determined or, if no shares were traded on such
date, on the next preceding
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<PAGE> 9
day on which such shares were traded, as reported by the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") or other national quotation service. If the common stock of
the Corporation is not regularly traded in the over-the-counter market
but is registered on a national securities exchange or traded in the
national over-the-counter market, the market value of the common stock
shall mean the closing price of the common stock on such national
securities exchange or market on the day on which such value is to be
determined or, if no shares were traded on such day, on the next
preceding day on which shares were traded, as reported by the National
Quotation Bureau, Incorporated or other national quotation service. If
no such quotations are available, the fair market value on the date in
question of a share of such stock shall be as determined by the Board
of Directors in good faith; and in the case of property other than
cash or stock, the fair market value of such property other than cash
or stock shall be the fair market value of such property on the date
in question as determined by the Board of Directors in good faith.
(f) The term "PRINCIPAL SHAREHOLDER" shall mean and include
any individual, Corporation, partnership, or other person or entity
which, together with its affiliates" and associates Beneficially Owns
in the aggregate ten percent (10%) or more of the outstanding shares
of Voting Stock, and any Affiliate or Associate of any such
individual, corporation, partnership, or other person or entity.
(g) The term "SUBSTANTIAL PART" shall mean more than
twenty-five percent (25%) of the fair market value of the total assets
of the Corporation, as of the end of its most recent fiscal quarter
ending prior to the time the determination is being made.
(h) The term "VOTING STOCK" shall mean the stock of the
Corporation entitled to vote in the election of directors.
For the purpose only of determining the percentage of the outstanding
shares of Voting Stock which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Stock will be deemed to include any shares of Voting Stock which such
corporation, partnership, person or other entity beneficially owns pursuant to
the foregoing provisions of this subsection (whether or not such shares of
Voting Stock are in fact issued or outstanding), but shall not include any
other shares of Voting Stock which may be issuable either immediately or at
some future date pursuant to any agreement, arrangement, or understanding or
upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
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3. Exceptions. The provisions of Section 1 of this Article X shall not
apply to a Business Combination which was approved by two-thirds of those
members of the Board of Directors of the Corporation who were directors prior
to the time when the Principal Shareholder became a Principal Shareholder. The
provisions of this Article X also shall not apply to a Business Combination
which (a) does not change any shareholder's percentage ownership in the shares
of stock entitled to vote in the election of directors of any successor of the
Corporation from the percentage of the shares of Voting Stock beneficially
owned by such shareholder; (b) provides for the provision of this Article X,
without any amendment, change alternation, or deletion, to apply to any
successor to the Corporation and (c) does not transfer all or a Substantial
Part of the Corporation's assets other than to a wholly-owned subsidiary of the
Corporation if such issuance of shares of Voting Stock or transfer of assets is
part of a plan to transfer such shares of Voting Stock or assets to a Principal
Shareholder.
4. Additional Provisions. Nothing contained in this Article X shall be
construed to relieve a Principal Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article X shall prevent
any shareholders of the Corporation from objecting to any Business Combination
and from demanding any appraisal rights which may be available to such
shareholders.
ARTICLE XI
EVALUATION OF OFFERS
The Board of Directors of the Corporation, when evaluating any offer
to (A) make a tender or exchange offer for any equity security of the
Corporation, (B) merge or consolidate the Corporation with another corporation
or entity, or (C) purchase or otherwise acquire all or substantially all of the
properties and assets of the Corporation, may, in connection with the exercise
of its judgment in determining what is in the best interest of the Corporation
and its shareholders, give due consideration to all relevant factors. Relevant
factors include, but are not limited to, the social and economic effect of
acceptance of such offer: (1) on the Corporation's present and future customers
and employees and those of its subsidiaries; (2) on the communities in which
the Corporation and its subsidiaries operate or are located; (3) on the ability
of the Corporation to fulfill its corporate objective as a bank holding company
under applicable statutes and regulations; and (4) on the ability of its
subsidiary bank to fulfill the objectives of the bank under applicable statutes
and regulations.
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ARTICLE XII
INDEMNIFICATION
1. The Corporation shall indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the Corporation),
by reason of the fact that he is or was a director, officer, employee, or agent
to the Corporation or is or was serving at the request of the Corporation as
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against liability incurred in
connection with such proceeding, including any appeal thereof (other than
expenses, penalties, or other payments incurred in an administrative proceeding
or action instituted by an appropriate bank regulatory agency, which proceeding
or action results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Corporation), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to the best interest of the Corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any 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 which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
2. The Corporation shall indemnify any person who was or is a party to
any proceeding by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer,
employee, or agent of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
association, bank, corporation, partnership, joint venture, trust, or other
enterprise, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof
(other than expenses, penalties or other payments incurred in an administrative
proceeding or action instituted by an appropriate bank regulatory agency, which
proceeding or action results in a final order assessing civil money penalties
or requiring affirmative action by an individual or individuals in the form of
payments to the Corporation). Such indemnification shall be authorized if such
person acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, except that no
indemnification shall be made under this subsection
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<PAGE> 12
in respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable unless, and only to the extent that, the court in
which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
3. To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subparagraph 1 or Subparagraph 2, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith (other than
expenses, penalties, or other payments incurred in an administrative proceeding
or action instituted by an appropriate regulatory agency, which proceeding or
action results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Corporation).
4. Any indemnification under subparagraph 1 or subparagraph 2 unless
pursuant to a determination by a court, shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subparagraph
1 or subparagraph 2. Such determination shall be made:
(a) By the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such
proceeding;
(b) If such a quorum is not obtainable or even if
obtainable, by majority vote of a committee duly designated by the
board of directors consisting solely of two or more directors not at
the time parties to the proceeding. All board members, whether
parties or not, are qualified to participate in designating said
committee;
(c) By independent legal counsel:
i. Selected by the board of directors
prescribed in (a) above or the committee
prescribed in (b) above; or
ii. If a quorum of the directors cannot be
obtained for (a) above and the committee
cannot be designated under (b) above,
selected by majority vote of the full board
of
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directors (in which directors who are
parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or,
if no such quorum is obtainable, by a majority vote of shareholders
who were not parties to such proceeding.
5. Evaluation of the reasonableness of expenses shall be made in the
same manner as the determination that indemnification is authorized. However,
if the determination of authorization is made by independent legal counsel, the
full board of directors shall evaluate and determine the reasonableness of
expenses.
6. Expenses incurred by an officer or director in defending a civil or
criminal proceeding shall be paid by the Corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if he is ultimately found not
to be entitled to indemnification by the Corporation pursuant to this
Paragraph. Expenses incurred by other employees and agents may be paid in
advance upon such terms or conditions that the board of directors deems
appropriate.
7. The indemnification and advancement of expenses provided pursuant
to this Paragraph are not exclusive and the Corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. However, indemnification or advancement of expenses shall not be made
to or on behalf of any director, officer, employee, or agent if a judgment or
other final adjudication establishes that his actions, or omissions to act,
were material to the cause of action so adjudicated and constitute;
(a) A violation of the criminal law unless the director,
officer, employee, or agent had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct
was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of section 607.0831, or any successor provision,
of the Florida General Corporation Act are applicable;
(d) Willful misconduct or a conscious disregard for the best
interests of the Corporation in a proceeding by or in the
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right of the Corporation to procure a judgment in its favor or
in a proceeding by or in the right of a shareholder; or
(e) Behavior which is adjudged in an administrative
proceeding or action instituted by an appropriate bank regulatory
agency to be deserving of a final order assessing civil money
penalties or requiring affirmative action by an individual or
individuals in the form of payments to the Corporation.
8. Indemnification and advancement of expenses as provided in this
Paragraph shall continue unless otherwise provided when authorized or ratified,
as to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
a person, unless otherwise provided when authorized or ratified.
9. Notwithstanding the failure of the Corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer employee or agent of the
Corporation who is or was a party to a proceeding may apply for indemnification
or advancement of expenses, or both, to the court conducting the proceeding, to
the circuit court, or to another court of competent jurisdiction. On receipt of
an application, the court, after giving any notice that it considers necessary,
may order indemnification and advancement of expenses, including expenses
incurred in seeking court-ordered indemnification or advancement of expenses,
if it determines that;
(a) The director, officer, employee or agent is entitled to
mandatory indemnification under subparagraphs (1), (2) or (3), in
which case the court shall also order the Corporation to pay the
director reasonable expenses incurred in obtaining court-ordered
indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement or expenses, or both, by virtue of the
exercise by the Corporation of its power pursuant to subparagraph (7);
or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses or
both, in view of all the relevant circumstances, regardless of whether
such person met the standard of conduct set forth in subparagraph (1),
subparagraph (2), or subparagraph (7).
10. For purposes of this Paragraph, the term "Corporation" includes,
in addition to the resulting Corporation, any constituent Corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was a director, officer, employee, or
agent of a constituent corporation,
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or is or was serving at the request of a constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, is in the same position under this section with
respect to the resulting or surviving Corporation as he would have been with
respect to such constituent corporation if its separate existence had
continued.
11. For purposes of this Paragraph, the term "other enterprises"
includes employee benefit plans, the term "expenses" includes counsel fees,
including those for appeal the term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding; the term proceeding" includes any
threatened, pending, or completed action suit or other type of proceeding,
whether civil, criminal, administrative, or investigative and whether formal or
informal; the term "agent" includes a volunteer; and the term "serving at the
request of the Corporation" includes any service as a director, officer,
employee, or agent of the Corporation that imposes duties on such persons,
including duties relating to an employee benefit plan and its participants or
beneficiaries; and the term "not opposed to the best interest of the
Corporation" describes the action of a person who acts in good faith and in a
manner he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
12. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was, a director, officer, employee,
or agent of the Corporation or is or was serving at the request of the
Corporation as a directors officer, employee, or agent of another association,
bank, corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Paragraph; provided, however, such insurance coverage shall
explicitly exclude insurance coverage for a formal order assessing civil money
penalties against a director, officer, employee or agent of the Corporation,
13. If any expenses or other amounts are paid by way of
indemnification otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the Corporation,
the Corporation shall, not later than the time of delivery to shareholders of
written notice of the next annual meeting of shareholders, unless such meeting
is held within 3 months from the date of such payment, and, in any event,
within 15 months from the date of such payment, deliver either personally or by
mail to each shareholder of record at the time entitled to vote for the
election of directors a statement specifying the persons paid, the amounts
paid, and the nature and
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status at the time of such payment of the litigation or threatened
litigation.
14. The directors of the Corporation shall not be personally liable
for monetary damages to the Corporation or any other person for any statements,
vote, or decision regarding corporate management or policy taken as a director
at a duly called meeting of the board of directors, or any failure to take any
action at such meeting, unless:
(a) The director breached or failed to perform his
duties as a director; and
(b) The director's breach of, or failure to perform
those duties constitutes:
i. A violation of the criminal law, unless the
director had reasonable cause to believe
his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful.
A judgment or other final adjudication
against the director in any criminal
proceeding for a violation of the criminal
law estops that director from contesting
the fact that his breach, or failure to
perform, constitutes a violation of the
criminal law, but does not estop the
director from establishing that he had
reasonable cause to believe that his
conduct was lawful or had no reasonable
cause to believe that his conduct was
unlawful;
ii. A transaction from which the director
derived an improper personal benefit,
either directly or indirectly;
iii. A circumstance under which the liability
provisions of Section 607.0831 of the
Florida General Corporation Act are
applicable;
iv. In a proceeding by or in the right of the
Corporation to procure a judgment in its
favor by or in the right of a shareholder,
conscious disregard for the best interest
of the Corporation, or willful misconduct;
v. In a proceeding by or in the right of
someone other than the Corporation or a
shareholder, recklessness or an act or
omission which was committed in bad faith
or with malicious purpose or in a manner
exhibiting wanton and willful disregard of
human rights, safety or property; or
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vi. Behavior which is adjudged in an
administrative proceeding or action
instituted by an appropriate regulatory
agency to be deserving of a final order
assessing civil money penalties or
requiring affirmative action by an
individual or individuals in the form of
payments to the Corporation.
15. To the extent permitted by state and federal law, the Corporation
shall indemnify all directors who become a party to any proceeding as a result
of being a director of the Corporation. The Corporation shall likewise, to the
extent permitted by state and federal law, indemnify all directors against any
claims made against them because of acts, a failure to act, negligence or
breach of contract on the part of the Corporation, its other directors,
officers, employees or agents.
If the Florida General Corporation Act is amended after approval by
the shareholders of this Paragraph to authorize action further eliminating or
limiting the personal liability of directors then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Florida General Corporation Act, as so amended. Any repeal or
modification of this subparagraph by the shareholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE XIII
AMENDMENT OF THE CORPORATION'S BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, repeal, alter, amend, and rescind the Bylaws of the Corporation.
Notwithstanding any other provision of these Articles of Incorporation or the
Bylaws (and notwithstanding the fact that some lesser percentage may be
specified by law), the Bylaws of the Corporation shall not be made, repealed,
altered, amended or rescinded by the shareholders of the Corporation except by
the vote of the holders of not less than two-thirds of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (considered for this purpose as one class) cast at a meeting of
the shareholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment, or rescission is included in the
notice of such meeting), or, as set forth above, by the board of directors.
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ARTICLE XIV
AMENDMENT OF THE ARTICLES OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend, or rescind
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights conferred on shareholders herein
are granted subject to this reservation. Notwithstanding the foregoing, the
provisions set forth in Articles VII, VIII, IX, X, XI, XII, XIII and this
Article XIV may not be repealed, altered, amended, or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than two-thirds of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the shareholders called for
that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment, or rescission is included in the notice of such
meeting).
ARTICLE XV
INCORPORATORS
The name and mailing address of the incorporator is as follows:
GORDON W. CAMPBELL
425 22nd Avenue North
St. Petersburg, Florida 33704
IN WITNESS WHEREOF, said ______________________ has caused these
Articles of Incorporation to be signed by Gordon W. Campbell, its Incorporator,
this ________ day of ________, 1994.
-----------------------------------
Gordon W. Campbell, Incorporator
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CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE
FOR THE SERVICE OF PROCESS WITHIN FLORIDA,
NAMING AGENT UPON WHOM PROCESS MAY BE SERVED
In compliance with Section 48.091, Florida Statutes, the following is
submitted:
Gulf West Banks, Inc. has named Gordon W. Campbell, located at
425 22nd Avenue North, City of St. Petersburg, County of Pinellas,
State of Florida, as its agent to accept service of process within
Florida.
------------------------------------
Gordon W. Campbell, Incorporator
Date
--------------------------------
Having been named to accept service of process for the above-stated
corporation, at the place designated in this certificate, I hereby agree to act
in this capacity, and I further agree to comply with the provisions of all
statutes relative to the proper and complete performance of my duties.
------------------------------------
Gordon W. Campbell, Registered Agent
Date
--------------------------------
19
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
GULF WEST BANKS, INC.
ARTICLE I
Home Office
The home office of Gulf West Banks, Inc. (the "Corporation") shall be
at 425 22nd Avenue North, St. Petersburg, Florida 33704. The Corporation may
also have offices at such other places within or without the State of Florida as
the Board of Directors shall from time to time determine.
ARTICLE II
Shareholders
1. Place of Meetings. All annual and special meetings of shareholders
shall be held at the home office of the Corporation or at such other place
within or without the State in which the home office of the Corporation is
located and as designated in the notice of such meeting.
2. Annual Meeting. A meeting of the shareholders of the Corporation for
the election of directors and for the transaction of any other business of the
Corporation shall be held annually at such date and time as the Board of
Directors may determine.
3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by a committee of the Board of Directors in accordance with the
provisions of the Corporation's Articles of Incorporation.
4. Conduct of Meetings. Annual and special meetings shall be conducted
in accordance with the rules and procedures established by the Board of
Directors. The Board of Directors shall designate, when present, either the
chairman of the board or president or in their absence another member of the
Board to preside at such meetings.
5. Notice of Meetings. Written notice stating the place, day, and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be mailed by the secretary or the officer performing his duties, not less than
ten days nor more than sixty days before the meeting to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer
<PAGE> 2
books or records of the Corporation as of the record date prescribed in Section
6 of this Article II, with postage thereon prepaid. If a shareholder is present
at a meeting, or in writing waives notice thereof before or after the meeting,
notice of the meeting to such stockholder shall be unnecessary. When any
shareholders' meeting, either annual or special, is adjourned for thirty days,
notice of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the time and place of
any meeting adjourned for less than thirty days or of the business to be
transacted at such adjourned meeting, other than an announcement at the meeting
at which such adjournment is taken.
6. Fixing of Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the record
date for any such determination of shareholders. Such date in any case shall be
not more than sixty days, and in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Paragraph, such determination shall apply to any adjournment
thereof.
7. Voting Lists. The officer or agent having charge of the share
transfer books for shares of the Corporation shall make, at least ten days
before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
The record, for a period of ten days before such meeting, shall be kept in a
file at the principal office of the Corporation, and shall be subject to
inspection by any shareholder for any purpose germane to the meeting at any time
during usual business hours. Such record shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder for any purpose germane to the meeting during the whole time of the
meeting. The original share transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such record or transfer books or to
vote at any meeting of shareholders.
8. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or
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represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
9. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his duly authorized attorney
in fact. Proxies solicited on behalf of the management shall be voted as
directed by the shareholder or, in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution unless otherwise provided in the proxy.
10. Voting. At each election for directors, every shareholder entitled
to vote at such election shall be entitled to one vote for each share of stock
held by him. Unless otherwise provided in the Articles of Incorporation, by
Statute, or by these Bylaws, a majority of those votes cast by shareholders at a
lawful meeting shall be sufficient to pass on a transaction or matter.
11. Voting of shares in the name of two or more persons. When ownership
of stock stands in the name of two or more persons, in the absence of written
direction to the Corporation to the contrary, at any meeting of the shareholders
of the Corporation, any one or more of such shareholders may cast, in person or
by proxy, all votes to which such ownership is entitled. In the event an attempt
is made to cast conflicting votes, in person or by proxy, by the several persons
in whose name shares of stock stand, the vote to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
12. Voting of shares by certain holders. Shares standing in the name of
another corporation may be voted by any officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, trustee, or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the
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name of the pledgee and thereafter the pledgee shall be entitled to vote the
shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
13. Inspectors of election. In advance of any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
as inspectors of election to act at such meeting or any adjournment thereof. The
number of inspectors shall be either one or three. If the Board of Directors so
appoints either one or three inspectors, that appointment shall not be altered
at the meeting. If inspectors of election are not so appointed, the chairman of
the meeting may make such appointment at the meeting. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the meeting
or at the meeting by the chairman of the meeting.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share; determining the shares of stock represented at the
meeting and the existence of a quorum; determining the authenticity, validity,
and effect of proxies; receiving votes, ballots, or consents; hearing and
determining all challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or consents; determining
the results of elections; and such acts as may be proper to conduct the election
or vote with fairness to all shareholders.
14. Nominating Committee. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Articles of Incorporation.
15. New Business. Any new business to be taken up at the annual meeting
shall be stated in writing and filed with the secretary of the Corporation in
accordance with the provisions of the Corporation's Articles of Incorporation.
This provision shall
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not prevent the consideration and approval or disapproval at the annual meeting
of reports of officers, directors, and committees, but in connection with such
reports no new business shall be acted upon at such annual meeting unless stated
and filed as provided in the Corporation's Articles of Incorporation.
ARTICLE III
Board of Directors
1. General Powers. The business and affairs of the Corporation shall be
under the direction of its Board of Directors. The Board of Directors shall
annually elect a president from among its members and may also elect a chairman
of the Board from among its members. The Board of Directors shall designate,
when present, either the chairman of the Board or the president to preside at
its meetings.
2. Number, Term, and Election. The Board of Directors shall consist of
no less than five (5) and no more than 25 members and shall be divided into
three classes as nearly equal in number as possible. The members of each class
shall be elected for a term of three years and until their successors are
elected or qualified. The Board of Directors shall be classified in accordance
with the provisions of the Corporation's Articles of Incorporation. The Board of
Directors may increase the number of members of the Board of Directors but in no
event shall the number of directors be increased in excess of twenty-five (25).
3. Regular Meetings. A regular meeting of the Board of Directors shall
be held without notice other than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
4. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the chairman of the board or the president, or by
one-third of the directors.
Members of the Board of Directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
5. Notice. Written notice of any special meeting shall be given to each
director at least two days previous thereto delivered personally or by telegram
or at least five days previous thereto delivered by mail at the address at which
the director is most likely to be reached. Such notice shall be deemed to be
delivered
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when deposited in the United States mail so addressed, with postage thereon
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
6. Quorum. A majority of the number of directors determined under
Paragraph 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Paragraph 5 of this Article III.
7. Manner of Acting. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless a greater number is prescribed by these Bylaws, the Articles
of Incorporation, or the laws of Florida.
8. Action Without a Meeting. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
9. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the chairman of the Board or the president. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof by
the chairman of the Board or the president.
10. Vacancies. Any vacancy occurring in the Board of Directors shall be
filed in accordance with the provisions of the Corporation's Articles of
Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of two-thirds of the
directors then in office. The term of such director shall be in accordance with
the provisions of the Corporation's Articles of Incorporation.
11. Removal of Directors. Any directors or the entire Board of
Directors may be removed for cause and then only in accordance with the
provisions of the Corporation's Articles of Incorporation.
12. Compensation. Directors, as such, may receive a stated
fee for their services. By resolution of the Board of Directors,
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a reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the Board of
Directors. Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
13. Presumption of Assent. A director of the Corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent or abstention shall be entered in the minutes of the meeting or unless
he shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who votes in favor of such action.
ARTICLE IV
Committees of the Board of Directors
1. Generally. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, as they may
determine to be necessary or appropriate for the conduct of the business of the
Corporation, and may prescribe the duties, constitution, and procedures thereof.
Each committee shall consist of one or more directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee
who may replace any absent or disqualified member at any meeting of the
committee.
The Board of Directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the Board.
Any member of any such committee may resign at any time by giving notice to the
Corporation provided, however, that notice to the Board, the chairman of the
Board, the chief executive officer, the chairman of such committee, or the
secretary shall be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at any later time
specified therein. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective. Any member of any such
committee may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the authorized number of directors at any
meeting of the Board called for that purpose.
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2. Executive Committee.
(a) Appointment. The Board of Directors, by resolution adopted
by a majority of the full Board, may designate the Chairman, President and two
(2) or more of the other directors to constitute an Executive Committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any directors,
of any responsibility imposed by law or regulation.
(b) Authority. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the Executive Committee; and except also
that the Executive Committee shall not have the authority of the Board of
Directors with reference to: declaration of dividends; the amendment of the
Charter or Bylaws of the Corporation, or recommending to the Shareholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Corporation; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the Executive Committee,
directly or indirectly, has any material beneficial interest.
(c) Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the Executive Committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the Executive
Committee.
(d) Meetings. Regular meetings of the Executive Committee may
be held without notice at such times and places as the Executive Committee may
fix from time to time by resolution. Special meetings of the Executive Committee
may be called by any member thereof upon not less than one day's notice, stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the Executive Committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the Executive Committee need not state the business
proposed to be transacted at the meeting.
(e) Quorum. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
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(f) Action Without a Meeting. Any action required or permitted
to be taken by the Executive Committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the Executive Committee.
(g) Vacancies. Any vacancies in the Executive Committee
may be filled by a resolution adopted by a majority of the full
Board of Directors.
(h) Resignations and Removals. Any member of the Executive
Committee may be removed at any time without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the Executive Committee
may resign from the Executive Committee at any time by giving written notice to
the President or Secretary of the Corporation. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
(i) Procedure. The Executive Committee may fix its own rules
of procedure which shall not be inconsistent with these Bylaws. It shall keep
regular Minutes of its proceedings and report the same to the Board of Directors
for its information at the meeting held next after the proceedings shall have
occurred.
ARTICLE V
Officers
1. Positions. The officers of the Corporation shall be a President,
Chairman of the Board, Chief Executive Officer, Chief Financial Officer, one or
more Vice Presidents, a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. The President shall be a director of the
Corporation. Any of the foregoing offices may be held by the same person. The
Board of Directors may also elect or authorize the appointment of such other
officers as the business of the Corporation may require. The officers shall have
such authority and perform such duties as the Board of Directors may from time
to time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
in their respective offices.
2. Election and Term of Office. The officers of the Corporation shall
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of the shareholders. If the election
of officers is not held at such meeting, such election shall be held as soon
thereafter as possible. Each officer shall hold office until his successor shall
have been duly elected and qualified or until his death or until he shall resign
or shall have been removed in the
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manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contract rights. The Board of Directors may
authorize the Corporation to enter into contract with any officer in accordance
with state law, but no such contract shall impair the right of the Board of
Directors to remove any officer at any time in accordance with Paragraph 3 of
this Article V.
3. Removal. Any officer may be removed by vote of a majority of the
Board of Directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled
by the Board of Directors for the unexpired portion of the term.
5. Remuneration. The remuneration of the executive officers (Chairman,
President and Executive Vice President) shall be fixed from time to time by the
Board of Directors and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
ARTICLE VI
Contracts, Loans, Checks, and Deposits
1. Contracts. To the extent permitted by applicable law, and except as
otherwise prescribed by the Corporation's Articles of Incorporation or these
Bylaws with respect to certificates for shares, the Board of Directors may
authorize any officer, employee, or agent of the Corporation to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation. Such authority may be general or confined to specific
instances.
2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
the Board of Directors. Such authority may be general or confined to specific
instances.
3. Checks, Drafts, Etc.. All checks, drafts or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation shall be signed by one or more officers, employees, or agents
of the Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors.
4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the
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Corporation in any of its duly authorized depositories as the Board of Directors
may select.
ARTICLE VII
Certificates for Shares and Their Transfer
1. Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by (i) the chairman of the Board of Directors
or the president (or a vice president), and by (ii) the treasurer or the
secretary of the Corporation. The certificates may be sealed with the seal of
the Corporation or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. If any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before the certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of its issue.
2. Form of Share Certificate. All certificates representing shares
issued by the Corporation shall set forth upon their face or back that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations, the relative
rights of the shares of each class authorized to be issued, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined, and the authority of the Board
of Directors to fix and determine the relative rights and preferences of
subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Florida; the
name of the person to whom issued; the number and class of shares; the date of
issue; the designation of the series, if any, which such certificate represents;
the par value of each share represented by such certificate, or a statement that
the shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the Board of Directors.
3. Payment for Shares. No certificate shall be issued for any share
until such share is fully paid.
4. Form of Payment for Shares. The consideration for the issuance of
shares shall be paid in accordance with the provisions of the Corporation's
Articles of Incorporation.
5. Transfer of Shares. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of
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record thereof or by his legal representative, who shall furnish proper evidence
of such authority, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Corporation. Such transfer shall be made only
on surrender for cancellation of the certificate for such shares. The person in
whose name shares of capital stock stand on the books of the Corporation shall
be deemed by the Corporation to be the owner thereof for all purposes.
6. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the shareholders entitled to examine the stock ledger,
the voting lists (required by Paragraph 7 of Article II), or the books of the
Corporation, or to vote in person or by proxy at any meeting of shareholders.
7. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
8. Beneficial Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of
December of each year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants appointed by and
responsible to the Board of Directors.
ARTICLE IX
Dividends
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Subject to the provisions of the Articles of Incorporation and
applicable law, the Board of Directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property, or in the Corporation's own stock.
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the
Board of Directors shall prescribe.
ARTICLE XI
Amendments
In accordance with the Corporation's Articles of Incorporation, these
Bylaws may be repealed, altered, amended, or rescinded by the shareholders of
the Corporation only by a vote of the holders of not less than two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the shareholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment, or rescission is
included in the notice of such meeting). In addition, the Board of Directors may
repeal, alter, amend, or rescind these Bylaws by vote of a majority of the Board
of Directors at a legal meeting held in accordance with the provisions of these
Bylaws.
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EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into effective as of the _____ day of ______________, 1994, by and among GULF
WEST BANKS, INC., a Florida corporation, GORDON W. CAMPBELL, an individual
("Campbell"), and JOHN WM. GALBRAITH, an individual ("Galbraith"). Campbell and
Galbraith are sometimes hereinafter individually referred to as a "Shareholder"
and collectively as the "Shareholders."
W I T N E S S E T H :
WHEREAS, Campbell is the Chairman of the Board and President of the
Company and owns or has the right to acquire 210,447 shares (the "Campbell
shares") of the Company's Common Stock (as defined below);
WHEREAS, Galbraith is a director of the Company and owns or has the
right to acquire 294,562 shares (the "Galbraith shares") of the Company's Common
Stock (as defined below);
WHEREAS, the Shareholders have requested to obtain from the Company,
and the Company has agreed to grant to the Shareholders, certain rights with
respect to the Shares (as defined below) owned by the Shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound thereby, agree as follows:
SECTION 1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings (all terms defined in this Agreement
in this singular to have the same meanings when used in the plural and vice
versa):
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Campbell" shall have the meaning set forth in the preamble hereto.
(c) "Campbell shares" shall have the meaning set forth in the preamble
hereto.
(d) "Commission" shall mean the United States Securities and Exchange
Commission.
(e) "Common Stock" shall mean the Company's common stock, par value
$1.00 per share, including the Shares.
(f) "Company" shall mean Gulf West Banks, Inc., a Florida corporation.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
(h) "Galbraith" shall have the meaning set forth in the preamble
hereto.
(i) "Galbraith shares" shall have the meaning set forth in the preamble
hereto.
(j) "IPO" shall mean an initial public offering by the Company.
(k) "Shares" shall mean the Campbell shares and the Galbraith shares,
collectively.
SECTION 2. REGISTRATION RIGHTS.
(a) If the Company shall file a registration statement (other than
pursuant to subsection (b) below and other than any registration statement on
Form S-4, Form S-8, or any successor form or other form not permitting
registration of securities offered by selling security holders) with the
Commission at any time while any of the Shares are owned by the Shareholders,
the Company shall give each of the Shareholders at least 45 days' prior written
notice of the filing of such registration statement. If requested by any
Shareholder in writing within 30 days after receipt of such notice, the Company
shall, at the Company's sole expense (other than fees and disbursements of
counsel for any of the Shareholders and the underwriting discounts and
commissions, if any, payable in respect of the Shares sold by any Shareholder),
register or qualify all or, at each Shareholder's option, any portion of the
Shares of any Shareholder who shall have made such request, concurrently with
the registration of such other securities, all to the extent requisite to permit
the public offering and sale of the Shares through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable.
(b) If, at any time after the date of this Agreement, the Company shall
receive the written request from any Shareholder to register the offer and sale
of all or part of his Shares, the Company shall, as promptly as practicable,
prepare and file with the Commission a registration statement sufficient to
permit the public offering and sale of such Shares through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file one
registration statement for each Shareholder under this paragraph (b) for which
all expenses incurred in connection with such registration (other than fees and
disbursements of counsel for any of the Shareholders and the underwriting
discounts and commissions, if any, payable in respect of the Shares sold by any
Shareholder) shall be borne by the Company. Within three business days after
receiving any request contemplated by this Section 2(b), the Company shall give
written notice to the other Shareholder, advising him that the Company is
proceeding with such registration and offering to include therein all or any
portion of such other Shareholders' Shares, provided that the Company receives a
written request to do so from such Shareholder within 30 days after receipt by
him of the Company's notice. Notwithstanding the foregoing provisions of this
Section 2(b), if the Company shall receive a written request from any
Shareholder to register the offer and sale of all or part of his Shares pursuant
to this Section 2(b) and, at the time the Company receives such request, the
Company (in its sole discretion) believes that it would not be in the best
interests of the Company to begin
-2-
<PAGE> 3
the preparation and filing of a registration statement due to other activities
or operations undertaken by the Company at such time, then the Company may delay
beginning the preparation and filing of the registration statement for a period
not to exceed 180 days from the date on which the Company receives such request.
(c) Notwithstanding any other provision of this Section 2, if the
Company shall receive a written request from any Shareholder to register the
offer and sale of all or part of his Shares pursuant to Section 2(b) above and,
at the time the Company receives such request, the Company intends to begin (or
has already begun) the preparation and filing of a registration statement (other
than any registration statement on Form S-4, Form S-8, or any successor form or
other form not permitting registration of securities offered by selling security
holders) with the Commission relating to the offer and sale of shares of Common
Stock for the Company's account, the Company may proceed with such registration
and treat such Shareholder's request as if it were made pursuant to Section 2(a)
above and subject to the other terms and conditions set forth herein.
(d) Notwithstanding any other provision of this Section 2, if the
managing underwriter of any offering covered by a registration statement
described in Sections 2(a), 2(b), or 2(c) above advises the Shareholders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, the Common Stock held by shareholders other than the
Shareholders ("Other Shareholders") shall first be excluded from such
registration on a pro rata basis in proportion to ownership of Common Stock
(treating for such purposes convertible securities as if converted into Common
Stock) by the Other Shareholders to the extent so required by such limitation.
Thereafter, the Shares held by the Shareholders shall be excluded from such
registration on a pro rata basis in proportion to ownership of Shares (treating
for such purposes convertible securities as if converted into Common Stock) by
the Shareholders to the extent required by such limitation.
(e) In the event of a registration pursuant to this Section 2, the
Company shall use its best efforts to cause the Shares so registered to be
registered or qualified for sale under the securities or blue sky laws of such
jurisdictions as any Shareholder may reasonably request; provided, however, that
the Company shall not by reason of this Section 2(e) be required to qualify to
do business in any state in which its is not otherwise required to qualify to do
business or to file a general consent to service of process.
(f) The Company shall keep effective any registration or qualification
contemplated by this Section 2 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication for such period of time as
shall be required to permit the Shareholders to complete the offer and sale of
the Shares covered thereby. The Company shall in no event be required to keep
any such registration or qualification in effect for a period in excess of nine
months from the date on which the Shareholders are first free to sell such
Shares; provided, however, that, if the Company is required to keep any such
registration or qualification in effect with respect to securities other than
the Shares beyond such period, the Company shall keep such registration or
qualification in effect as it relates to the Shares for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities.
-3-
<PAGE> 4
(g) In the event of a registration pursuant to the provisions of this
Section 2, the Company shall furnish to each Shareholder such number of copies
of the registration statement and of each amendment and supplement thereto (in
each case, including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents as any Shareholder may reasonably request to facilitate
the disposition of the Shares included in such registration.
(h) In the event of a registration pursuant to the provisions of this
Section 2, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Shares.
SECTION 3. INDEMNIFICATION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Shareholder from and against any and all loss,
liability, charge, claim, damage, and expense whatsoever (which shall include,
for all purposes of this Section 3, but not be limited to, attorneys' fees and
any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus, or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Shares, or (B) in any
application or other document or communication (in this Section 3 collectively
called an "application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the Shares under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Shareholder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Agreement. The foregoing agreement to indemnify shall
be in addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against any Shareholder (an "indemnified
party") in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability other
-4-
<PAGE> 5
than pursuant to this Section 3(a)) and the Company shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses. Such
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 3 to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent, which shall not be unreasonably withheld. The
Company shall not, without the prior written consent of each indemnified party
that is not released as described in this sentence, settle or compromise any
action, or permit a default or consent to the entry of judgment, in or otherwise
seek to terminate, any pending or threatened action, in respect of which
indemnity may be sought hereunder (whether or not any indemnified party is a
party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the
Shareholders of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of any
Shares or any preliminary prospectus, final prospectus, registration statement,
or amendment or supplement thereto, or any application relating to any sale of
any Shares.
(b) Each Shareholder participating in any registration agrees to
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed any registration statement covering
Shares held by the Shareholder, each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, and its or their respective counsel, to the same extent as the
foregoing indemnity from the Company to the Shareholders in Section 3(a), but
only with respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written information
furnished to the Company with respect to such Shareholder by or on behalf of
such Shareholder expressly for inclusion in any such registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be. If any action shall be
brought against the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against a Shareholder pursuant to this Section 3(b),
such Shareholder shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 3(a).
-5-
<PAGE> 6
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 3(a) or
3(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Shareholders of the Shares included
in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to all losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and such Shareholders
in connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company or by such
Shareholders, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Shareholders agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Shareholders for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Shareholders and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
3(c). In no case shall any Shareholder be responsible for a portion of the
contribution obligation imposed on all Shareholders in excess of his pro rata
share based on the number of Shares owned by him and included in such
registration as compared to the number of Shares owned by all Shareholders and
included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 3(c), each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed any
such registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 3(c). Anything in this
Section 3(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 3(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
SECTION 4. ASSIGNMENT OF REGISTRATION RIGHTS. Rights under this
Agreement may be assigned by each Shareholder to transferees or assignees of
such Shareholder's Shares; provided, however, that the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of the name and address of such transferee or assignee and the Shares with
respect to which such registration rights are being assigned; provided, further,
that such assignment shall be effective only if, immediately following such
transfer or assignment,
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<PAGE> 7
the further disposition of such securities by the transferee or assignee is
restricted under the Act. The term "Shareholders" as used in this Agreement
includes permitted assignees of rights under this Agreement in accordance with
this Section 4.
SECTION 5. LOCK-UP AGREEMENT. Each Shareholder agrees, in connection
with an IPO of Common Stock, upon request of the underwriters managing such
initial public offering, to enter into a lock-up agreement with the managing
underwriters providing that such Shareholder will not sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Shares without the prior written consent of such underwriters until 180 days
following the closing of the IPO.
SECTION 6. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to each Shareholder that such Shareholder shall furnish to the
Company such information regarding himself, the Shares held by him, and the
intended method of distribution of such securities as shall be reasonably
required to effect the registration of the Shares and shall execute such
documents in connection with such registration as the Company may reasonably
request.
SECTION 7. MISCELLANEOUS.
(a) A copy of this Agreement shall be filed with the Secretary of the
Company.
(b) The provisions of this Agreement shall be deemed to apply equally
to the Shares or other securities distributed in respect of the Shares.
(c) At any time and from time to time each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
(d) Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, in
addition to any other right or remedy available to him or it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to such injunction and to the ordering of specific performance.
(e) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail, or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex, or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, as follows:
If to the Company: Gulf West Banks, Inc.
425 22nd Avenue North
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<PAGE> 8
St. Petersburg, FL 33704
fax: 813-823-7675
If to Campbell: ___________________________
___________________________
___________________________
If to Galbraith: ___________________________
___________________________
___________________________
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section 7(e) shall be deemed given at the
time of receipt thereof.
(f) This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof, supersedes all existing agreements
among them concerning such subject matter, and may be amended only by a written
instrument executed by the Company and by each Shareholder who is adversely
affected by such amendment.
(g) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns, and shall
inure to the benefit of each indemnified party under Section 3.
(h) Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(i) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(j) This Agreement shall terminate on such date as the Shareholders own
no Shares, provided that nothing herein shall affect any rights or obligations
which arise prior to such termination or under Section 3 hereof.
(k) The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
(l) Any masculine personal pronoun shall be considered to mean the
corresponding feminine or neuter personal pronoun, as the context requires.
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<PAGE> 9
(m) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida, without regard to
principals of conflict of law thereunder.
(n) The Company and each Shareholder irrevocably consent to the
jurisdiction of the courts of the State of Florida and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, any document or instrument delivered pursuant to,
in connection with, or simultaneously with this Agreement, or a breach of this
Agreement or any such other document or instrument. In any such action or
proceeding, the Company and each Shareholder waives personal service of any
summons, complaint, or other process and agrees that service thereof may be made
in accordance with Section 7(e). Within 30 days after such service, or such
other time as may be mutually agreed upon in writing by the attorneys for the
parties to such action or proceeding, the party so served shall appear or answer
such summons, complaint, or other process. Should the party so served fail to
appear or answer within such 30-day period or such extended period, as the case
may be, such party shall be deemed in default and judgment may be entered
against such party for the amount or other relief as demanded in any summons,
complaint, or other process so served.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
WITNESSES:
GULF WEST BANKS, INC.
By:
- ----------------------------------- -------------------------------------
Name:
- ----------------------------------- -----------------------------------
Title:
----------------------------------
GORDON W. CAMPBELL
- ----------------------------------- ----------------------------------------
Gordon W. Campbell, an individual
- -----------------------------------
JOHN WM. GALBRAITH
- ----------------------------------- ----------------------------------------
John Wm. Galbraith, an individual
- -----------------------------------
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<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT, is
made and entered into this ______ day of March, 1994, but effective for all
purposes of August 17, 1992, by and between MERCANTILE BANK, a Florida
corporation organized and existing under the laws of the State of Florida,
hereinafter referred to as "Bank," and GORDON W. CAMPBELL, a Key Employee and
Executive of the Bank, hereinafter referred to as "Executive."
W I T N E S S E T H :
WHEREAS, the Executive has been and continues to be a valued Executive
of the Bank and is currently serving as its President and Chief Executive
Officer; and
WHEREAS, it is the consensus of the Board of Directors that Executive's
services have been of exceptional merit and have made a substantial contribution
to the profits and position of the Bank in its industry and in the Tampa Bay
area; and
WHEREAS, the Board further believes that Executive's experience,
knowledge of the Bank's business and his reputation and contacts in the industry
and in the Tampa Bay area are of such value to Bank's continued growth and
profitability that it would suffer severe financial loss should the Executive
terminate his services; and
WHEREAS, the Bank and the Executive entered into an agreement on
December 2, 1993 (the "Agreement") pursuant to which the Bank agreed to make
certain payments to the Executive upon his severance or retirement and to his
designated beneficiary or beneficiaries in the event of his death while employed
by the Bank or while receiving the benefits provided hereunder; and
WHEREAS, the Bank and the Executive now desire to amend the Agreement
in certain respects by this Agreement and Restatement.
NOW, THEREFORE, in consideration of the Executive's past services and
those to be performed in the future, and based upon the mutual promises and
covenants herein contained, the Bank and the Executive do hereby agree that the
Executive Salary Continuation Agreement dated December 2, 1993 is hereby Amended
and Restated as follows:
I. ARTICLE ONE - DEFINITIONS
A. Effective Date:
The effective date of this Agreement shall be August 17, 1992.
<PAGE> 2
B. Normal Retirement Date:
The Normal Retirement Date shall mean the first day of the
calendar month following the month in which the Executive
reaches his seventieth (70th) birthday.
C. Severance Benefits:
Severance Benefits shall mean those benefits to which the
Executive is entitled in the event he voluntarily terminates
his employment, his employment is terminated as a result of
his total disability, or he is discharged by the Bank without
cause.
II. ARTICLE TWO - EMPLOYMENT STATUS
A. Employment:
The Executive is currently employed by the Bank in the
capacity indicated above upon the terms and conditions agreed
upon by the Executive and the Bank and confirmed in a separate
employment agreement.
B. No Employment Agreement Created:
No provision of this Agreement shall be deemed to restrict or
in any way limit the existing employment agreement between the
Bank and the Executive. It is not intended that any of the
provisions of this Agreement create any specific employment
rights for the Executive or limit the right of the Bank to
discharge the Executive with or without cause.
Likewise, no provision of this Agreement shall limit the
Executive's rights to terminate his employment at any time.
III. ARTICLE THREE - BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to have
any effect or impose any limitation on the Executive's current or
future salary increases, cash bonuses or profit-sharing distributions
or credits. The following benefits are not part of any salary reduction
plan or an arrangement deferring a bonus or a salary increase. The
Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
A. Retirement Benefits:
If the Executive shall remain in the employment of the Bank
until his "Normal Retirement Date," then, in that event, he
shall be entitled to receive as his "Normal
2
<PAGE> 3
Retirement Benefit" the monthly benefit listed on Exhibit "A"
or such other benefit amount as may have been subsequently
approved from time to time by the Board of Directors of the
Bank in accordance with the terms hereof. It is acknowledged
and agreed that this is a projected benefit and it may be
adjusted from time to time by the Board of Directors of the
Bank to reflect the historical performance of the Bank's net
yield on its United States Treasury investments. The
Executive's "Normal Retirement Benefit" shall be paid monthly
commencing on the first day of the month following his "Normal
Retirement Date" and continuing for a period of one hundred
eighty (180) months. In the event the Executive shall die
prior to the expiration of the one hundred eighty (180) month
period, the unpaid balance of his monthly retirement payments
shall continue to be paid monthly for the remainder of such
period to the beneficiary or beneficiaries designated by the
Executive in the beneficiary designation form provided by the
Bank. In the absence of or failure of the Executive to
designate a beneficiary, the remaining monthly payments shall
be paid to the personal representative of the Executive's
estate.
B. Early Retirement or Severance Benefit:
In the event the employment of the Executive by the Bank shall
terminate without cause prior to his "Normal Retirement Date,"
the Bank shall pay to the Executive as severance compensation
a monthly benefit determined by multiplying his "Normal
Retirement Benefit" by the applicable percentage from the
following table:
<TABLE>
<CAPTION>
YEAR OF PARTICIPATION APPLICABLE PERCENTAGE
--------------------- ---------------------
<S> <C>
Less than 1 0%
1 but less than 2 20%
2 but less than 3 30%
3 but less than 4 40%
4 but less than 5 50%
5 but less than 6 60%
6 but less than 7 70%
7 but less than 8 80%
8 but less than 9 90%
9 or more 100%
</TABLE>
The Executive's participation years shall be deemed to have
begun on August 17, 1992. The payment of the severance benefit
shall begin on the first day of the month following the month
in which the Executive's seventieth (70th) birthday occurs.
3
<PAGE> 4
The severance benefits shall be payable for a period of one
hundred eighty (180) months; provided, however, that if the
Executive dies prior to the expiration of one hundred eighty
(180) months, the unpaid balance of his monthly retirement
payments shall continue to be paid monthly for the remainder
of such period to the beneficiary or beneficiaries designated
by the Executive in the beneficiary designation form provided
by the Bank. In the absence of or a failure to designate a
beneficiary, the remaining monthly payments shall be paid to
the personal representative of the Executive's estate.
C. Termination of Service:
If the Executive is discharged for cause, all of the
Executive's benefits under this Agreement shall be forfeited
and this Agreement shall become null and void. If a dispute
arises as to the Executive's discharge "for cause," such
dispute shall be resolved by arbitration as set forth in
Article IV. B.
C. Death Benefit Prior To Retirement:
In the event of the death of the Executive prior to the
commencement of the payment of his "Normal Retirement
Benefit," or severance benefit, the Bank shall pay to the
Executive's designated beneficiary or beneficiaries a monthly
benefit equal to the Executive's "Normal Retirement Benefit"
commencing on the first day of the month following the month
in which the Executive's death occurs and continuing for a
period of one hundred and eighty (180) months. In the absence
of or failure of the Executive to designate a beneficiary, the
monthly retirement payments shall be paid to the personal
representative of the Executive's estate.
In the event the Executive's death shall be the result of
suicide on or before September 11, 1994, then no death
benefits shall be payable to the Executive's designated
beneficiary or his personal representative.
IV. ARTICLE FOUR - RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain a general creditor of the Bank in the same manner
as any other creditor having an unsecured claim against the Bank.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to
4
<PAGE> 5
refrain from funding the same and to determine the extent, nature and
method of such funding. Should the Bank elect to fund this Agreement,
in whole or in part, through the purchase of life insurance, mutual
funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such funding at any time.
At no time shall the Executive be deemed to have any lien nor right,
title or interest in or to any specific funding investment or to any
assets of the Bank. If the Bank elects to purchase life insurance on
the life of the Executive, the Executive shall assist the Bank in
applying for such life insurance by completing the necessary
application, submitting to a physical exam, and supplying such
additional information as may be necessary to obtain such insurance.
V. ARTICLE FIVE - MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his wife nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Executive or his beneficiary,
nor be transferrable by operation of law in the event of
bankruptcy, insolvency or otherwise. Any attempt by the
Executive or any beneficiary to assign, commute, hypothecate,
transfer or dispose of the benefits payable hereunder shall be
null and void, and the Bank shall not be obligated to make any
payments except as provided herein.
B. Binding Obligation of Bank and Any Successor In Interest:
This Agreement shall be binding upon the parties hereto, their
successors, beneficiaries, heirs and personal representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. Effect On Other Bank Benefit Plans:
The benefits provided hereunder shall be in addition to
the Executive's annual salary as determined by the Board
5
<PAGE> 6
of Directors, and nothing contained in this Agreement shall
affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Bank's existing or future compensation structure.
E. Reorganization:
The Bank agrees that if it merges or consolidates with any
other company or organization, or permits its business
activities to be taken over by any other organization, or
ceases its business activities or terminates its existence,
other than as specified above, the Executive shall be one
hundred percent (100%) vested in the early
retirement/severance benefit to be paid to the Executive
pursuant to the provisions of Article III B., above, without
regard to his actual years of participation under this
Agreement.
F. Headings:
Headings and Subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Florida.
VI. ERISA PROVISIONS
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan
shall be Mercantile Bank until its resignation or removal by
the Board of Directors. As Named Fiduciary and Administrator,
Mercantile Bank shall be responsible for the management,
control and administration of the Salary Continuation
Agreement as established herein. It may delegate to others
certain aspects of the management and operation
responsibilities of the plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
B. Claims Procedure and Arbitration:
In the event that benefits under this Plan Agreement are not
paid to the Executive (or to his beneficiary in the case of
the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a
6
<PAGE> 7
written claim must be made to the Named Fiduciary and
Administrator named above within sixty (60) days from the date
payments are refused. The Plan Fiduciary and Administrator and
the Bank shall review the written claim and if the claim is
denied, in whole or in part, they shall provide in writing
within ninety (90) days of receipt of such claim their
specific reasons for such denial, reference to the provisions
of this Agreement upon which the denial is based and any
additional material or information necessary to perfect the
claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review
of the claim denial is desired. A claim shall be deemed denied
if the Plan Fiduciary and Administrator fails to take any
action within the aforesaid ninety (90) day period.
If claimants desire a second review, they shall notify the
Plan Fiduciary and Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review the Plan
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In its
sole discretion, the Plan Fiduciary and Administrator shall
then review the second claim and provide a written decision
within sixty (60) days of its receipt of such claim. This
decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of
the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Corporation and
the third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause," such dispute shall likewise be
submitted to arbitration as above described and the parties
hereby agree to be bound by the decision thereunder.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Attest: (Corporate Seal) MERCANTILE BANK
By:
- ------------------------------ ---------------------------
Secretary "Bank"
Witnesses:
- ------------------------------ -----------------------------
GORDON W. CAMPBELL
- ------------------------------
As to Gordon W. Campbell "Executive"
8
<PAGE> 9
MONTHLY RETIREMENT
BENEFIT
$4,166.67
EXHIBIT "A"
EXHIBIT "A"
<PAGE> 10
AMENDED AND RESTATED
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT, is
made and entered into this ______ day of March, 1994, but effective for all
purposes of August 17, 1992, by and between MERCANTILE BANK, a Florida
corporation organized and existing under the laws of the State of Florida,
hereinafter referred to as "Bank," and BARRY K. MILLER, a Key Employee and
Executive of the Bank, hereinafter referred to as "Executive."
W I T N E S S E T H :
WHEREAS, the Executive has been and continues to be a valued Executive
of the Bank and is currently serving as an Executive Vice President; and
WHEREAS, it is the consensus of the Board of Directors that Executive's
services have been of exceptional merit and have made a substantial contribution
to the profits and position of the Bank in its industry and in the Tampa Bay
area; and
WHEREAS, the Board further believes that Executive's experience,
knowledge of the Bank's business and his reputation and contacts in the industry
and in the Tampa Bay area are of such value to Bank's continued growth and
profitability that it would suffer severe financial loss should the Executive
terminate his services; and
WHEREAS, the Bank and the Executive entered into an agreement on
December 2, 1993 (the "Agreement") pursuant to which the Bank agreed to make
certain payments to the Executive upon his severance or retirement and to his
designated beneficiary or beneficiaries in the event of his death while employed
by the Bank or while receiving the benefits provided hereunder; and
WHEREAS, the Bank and the Executive now desire to amend the Agreement
in certain respects by this Agreement and Restatement.
NOW, THEREFORE, in consideration of the Executive's past services and
those to be performed in the future, and based upon the mutual promises and
covenants herein contained, the Bank and the Executive do hereby agree that the
Executive Salary Continuation Agreement dated December 2, 1993 is hereby Amended
and Restated as follows:
I. ARTICLE ONE - DEFINITIONS
A. Effective Date:
The effective date of this Agreement shall be January 1, 1994.
B. Normal Retirement Date:
<PAGE> 11
The Normal Retirement Date shall mean the first day of the
calendar month following the twentieth (20th) anniversary of
the effective date of this Agreement.
C. Severance Benefits:
Severance Benefits shall mean those benefits to which the
Executive is entitled in the event he voluntarily terminates
his employment, his employment is terminated as a result of
his total disability, or he is discharged by the Bank without
cause.
II. ARTICLE TWO - EMPLOYMENT STATUS
A. Employment:
The Executive is currently employed by the Bank in the
capacity indicated above upon the terms and conditions agreed
upon by the Executive and the Bank.
B. No Employment Agreement Created:
No provision of this Agreement shall be deemed to restrict or
in any way limit the existing employment agreement between the
Bank and the Executive. It is not intended that any of the
provisions of this Agreement create any specific employment
rights for the Executive or limit the right of the Bank to
discharge the Executive with or without cause.
Likewise, no provision of this Agreement shall limit the
Executive's rights to terminate his employment at any time.
III. ARTICLE THREE - BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to have
any effect or impose any limitation on the Executive's current or
future salary increases, cash bonuses or profit-sharing distributions
or credits. The following benefits are not part of any salary reduction
plan or an arrangement deferring a bonus or a salary increase. The
Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
A. Retirement Benefits:
If the Executive shall remain in the employment of the Bank
until his "Normal Retirement Date," then, in that event, he
shall be entitled to receive as his "Normal Retirement
Benefit" the monthly benefit listed on Exhibit
2
<PAGE> 12
"A" or such other benefit amount as may have been subsequently
approved from time to time by the Board of Directors of the
Bank in accordance with the terms hereof. It is acknowledged
and agreed that this is a projected benefit and it may be
adjusted from time to time by the Board of Directors of the
Bank to reflect the historical performance of the Bank's net
yield on its United States Treasury investments. The
Executive's "Normal Retirement Benefit" shall be paid monthly
commencing on the first day of the month following his "Normal
Retirement Date" and continuing for a period of one hundred
eighty (180) months. In the event the Executive shall die
prior to the expiration of the one hundred eighty (180) month
period, the unpaid balance of his monthly retirement payments
shall continue to be paid monthly for the remainder of such
period to the beneficiary or beneficiaries designated by the
Executive in the beneficiary designation form provided by the
Bank. In the absence of or failure of the Executive to
designate a beneficiary, the remaining monthly payments shall
be paid to the personal representative of the Executive's
estate.
B. Early Retirement or Severance Benefit:
In the event the employment of the Executive by the Bank shall
terminate without cause prior to his "Normal Retirement Date,"
the Bank shall pay to the Executive as severance compensation
a monthly benefit determined by multiplying his "Normal
Retirement Benefit" by the applicable percentage from the
following table:
<TABLE>
<CAPTION>
YEAR OF PARTICIPATION APPLICABLE PERCENTAGE
--------------------- ---------------------
<S> <C>
Less than 1 0%
1 but less than 2 5%
2 but less than 3 10%
3 but less than 4 15%
4 but less than 5 20%
5 but less than 6 25%
6 but less than 7 30%
7 but less than 8 35%
8 but less than 9 40%
9 but less than 10 45%
10 but less than 11 50%
11 but less than 12 55%
12 but less than 13 60%
13 but less than 14 65%
14 but less than 15 70%
15 but less than 16 75%
16 but less than 17 80%
17 but less than 18 85%
</TABLE>
3
<PAGE> 13
<TABLE>
<S> <C>
18 but less than 19 90%
19 but less than 20 95%
20 or more 100%
</TABLE>
The Executive's participation years shall be deemed to have
begun on January 1, 1994. The payment of the severance benefit
shall begin on the first day of the month following the month
following the twentieth anniversary of the effective date of
this Agreement.
The severance benefits shall be payable for a period of one
hundred eighty (180) months; provided, however, that if the
Executive dies prior to the expiration of one hundred eighty
(180) months, the unpaid balance of his monthly retirement
payments shall continue to be paid monthly for the remainder
of such period to the beneficiary or beneficiaries designated
by the Executive in the beneficiary designation form provided
by the Bank. In the absence of or a failure to designate a
beneficiary, the remaining monthly payments shall be paid to
the personal representative of the Executive's estate.
C. Termination of Service:
If the Executive is discharged for cause, all of the
Executive's benefits under this Agreement shall be forfeited
and this Agreement shall become null and void. If a dispute
arises as to the Executive's discharge "for cause," such
dispute shall be resolved by arbitration as set forth in
Article IV. B.
D. Death Benefit Prior To Retirement:
In the event of the death of the Executive prior to the
commencement of the payment of his "Normal Retirement
Benefit," or severance benefit, the Bank shall pay to the
Executive's designated beneficiary or beneficiaries a monthly
benefit equal to the Executive's "Normal Retirement Benefit"
commencing on the first day of the month following the month
in which the Executive's death occurs and continuing for a
period of one hundred and eighty (180) months. In the absence
of or failure of the Executive to designate a beneficiary, the
monthly retirement payments shall be paid to the personal
representative of the Executive's estate.
In the event the Executive's death shall be the result of
suicide on or before February 23, 1995, then no death benefits
shall be payable to the Executive's designated beneficiary or
his personal representative.
4
<PAGE> 14
IV. ARTICLE FOUR - RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain a general creditor of the Bank in the same manner
as any other creditor having an unsecured claim against the Bank.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time. At no time
shall the Executive be deemed to have any lien nor right, title or
interest in or to any specific funding investment or to any assets of
the Bank. If the Bank elects to purchase life insurance on the life of
the Executive, the Executive shall assist the Bank in applying for such
life insurance by completing the necessary application, submitting to a
physical exam, and supplying such additional information as may be
necessary to obtain such insurance.
V. ARTICLE FIVE - MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his wife nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Executive or his beneficiary,
nor be transferrable by operation of law in the event of
bankruptcy, insolvency or otherwise. Any attempt by the
Executive or any beneficiary to assign, commute, hypothecate,
transfer or dispose of the benefits payable hereunder shall be
null and void, and the Bank shall not be obligated to make any
payments except as provided herein.
B. Binding Obligation of Bank and Any Successor In Interest:
This Agreement shall be binding upon the parties hereto, their
successors, beneficiaries, heirs and personal representatives.
5
<PAGE> 15
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. Effect On Other Bank Benefit Plans:
The benefits provided hereunder shall be in addition to the
Executive's annual salary as determined by the Board of
Directors, and nothing contained in this Agreement shall
affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Bank's existing or future compensation structure.
E. Reorganization:
The Bank agrees that if it merges or consolidates with any
other company or organization, or permits its business
activities to be taken over by any other organization, or
ceases its business activities or terminates its existence,
other than as specified above, the Executive shall be one
hundred percent (100%) vested in the early
retirement/severance benefit to be paid to the Executive
pursuant to the provisions of Article III B., above, without
regard to his actual years of participation under this
Agreement.
F. Headings:
Headings and Subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Florida.
VI. ERISA PROVISIONS
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan
shall be Mercantile Bank until its resignation or removal by
the Board of Directors. As Named Fiduciary and Administrator,
Mercantile Bank shall be responsible for the management,
control and administration of the Salary
6
<PAGE> 16
Continuation Agreement as established herein. It may delegate
to others certain aspects of the management and operation
responsibilities of the plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
B. Claims Procedure and Arbitration:
In the event that benefits under this Plan Agreement are not
paid to the Executive (or to his beneficiary in the case of
the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must
be made to the Named Fiduciary and Administrator named above
within sixty (60) days from the date payments are refused. The
Plan Fiduciary and Administrator and the Bank shall review the
written claim and if the claim is denied, in whole or in part,
they shall provide in writing within ninety (90) days of
receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the
denial is based and any additional material or information
necessary to perfect the claim. Such written notice shall
further indicate the additional steps to be taken by claimants
if a further review of the claim denial is desired. A claim
shall be deemed denied if the Plan Fiduciary and Administrator
fails to take any action within the aforesaid ninety (90) day
period.
If claimants desire a second review, they shall notify the
Plan Fiduciary and Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review the Plan
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In its
sole discretion, the Plan Fiduciary and Administrator shall
then review the second claim and provide a written decision
within sixty (60) days of its receipt of such claim. This
decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of
the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Corporation and
the third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
7
<PAGE> 17
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause," such dispute shall likewise be
submitted to arbitration as above described and the parties
hereby agree to be bound by the decision thereunder.
8
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Attest: (Corporate Seal) MERCANTILE BANK
By:
- ----------------------------- ----------------------------
Secretary "Bank"
Witnesses:
- ------------------------------ -------------------------------
BARRY K. MILLER
- ------------------------------
As to Barry K. Miller "Executive"
9
<PAGE> 19
MONTHLY RETIREMENT
BENEFIT
$4,166.67
EXHIBIT "A"
<PAGE> 20
AMENDED AND RESTATED
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT, is
made and entered into this ______ day of March, 1994, but effective for all
purposes of August 17, 1992, by and between MERCANTILE BANK, a Florida
corporation organized and existing under the laws of the State of Florida,
hereinafter referred to as "Bank," and ROBERT A. BLAKLEY, a Key Employee and
Executive of the Bank, hereinafter referred to as "Executive."
W I T N E S S E T H :
WHEREAS, the Executive has been and continues to be a valued Executive
of the Bank and is currently serving as a Senior Vice President; and
WHEREAS, it is the consensus of the Board of Directors that Executive's
services have been of exceptional merit and have made a substantial contribution
to the profits and position of the Bank in its industry and in the Tampa Bay
area; and
WHEREAS, the Board further believes that Executive's experience,
knowledge of the Bank's business and his reputation and contacts in the industry
and in the Tampa Bay area are of such value to Bank's continued growth and
profitability that it would suffer severe financial loss should the Executive
terminate his services; and
WHEREAS, the Bank and the Executive entered into an agreement on
December 2, 1993 (the "Agreement") pursuant to which the Bank agreed to make
certain payments to the Executive upon his severance or retirement and to his
designated beneficiary or beneficiaries in the event of his death while employed
by the Bank or while receiving the benefits provided hereunder; and
WHEREAS, the Bank and the Executive now desire to amend the Agreement
in certain respects by this Agreement and Restatement.
NOW, THEREFORE, in consideration of the Executive's past services and
those to be performed in the future, and based upon the mutual promises and
covenants herein contained, the Bank and the Executive do hereby agree that the
Executive Salary Continuation Agreement dated December 2, 1993 is hereby Amended
and Restated as follows:
I. ARTICLE ONE - DEFINITIONS
A. Effective Date:
The effective date of this Agreement shall be January 1, 1994.
B. Normal Retirement Date:
<PAGE> 21
The Normal Retirement Date shall mean the first day of the
calendar month following the twentieth (20th) anniversary of
the effective date of this Agreement.
C. Severance Benefits:
Severance Benefits shall mean those benefits to which the
Executive is entitled in the event he voluntarily terminates
his employment, his employment is terminated as a result of
his total disability, or he is discharged by the Bank without
cause.
II. ARTICLE TWO - EMPLOYMENT STATUS
A. Employment:
The Executive is currently employed by the Bank in the
capacity indicated above upon the terms and conditions agreed
upon by the Executive and the Bank.
B. No Employment Agreement Created:
No provision of this Agreement shall be deemed to restrict or
in any way limit the existing employment agreement between the
Bank and the Executive. It is not intended that any of the
provisions of this Agreement create any specific employment
rights for the Executive or limit the right of the Bank to
discharge the Executive with or without cause.
Likewise, no provision of this Agreement shall limit the
Executive's rights to terminate his employment at any time.
III. ARTICLE THREE - BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to have
any effect or impose any limitation on the Executive's current or
future salary increases, cash bonuses or profit-sharing distributions
or credits. The following benefits are not part of any salary reduction
plan or an arrangement deferring a bonus or a salary increase. The
Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
A. Retirement Benefits:
If the Executive shall remain in the employment of the Bank
until his "Normal Retirement Date," then, in that event, he
shall be entitled to receive as his "Normal Retirement
Benefit" the monthly benefit listed on Exhibit
2
<PAGE> 22
"A" or such other benefit amount as may have been subsequently
approved from time to time by the Board of Directors of the
Bank in accordance with the terms hereof. It is acknowledged
and agreed that this is a projected benefit and it may be
adjusted from time to time by the Board of Directors of the
Bank to reflect the historical performance of the Bank's net
yield on its United States Treasury investments. The
Executive's "Normal Retirement Benefit" shall be paid monthly
commencing on the first day of the month following his "Normal
Retirement Date" and continuing for a period of one hundred
eighty (180) months. In the event the Executive shall die
prior to the expiration of the one hundred eighty (180) month
period, the unpaid balance of his monthly retirement payments
shall continue to be paid monthly for the remainder of such
period to the beneficiary or beneficiaries designated by the
Executive in the beneficiary designation form provided by the
Bank. In the absence of or failure of the Executive to
designate a beneficiary, the remaining monthly payments shall
be paid to the personal representative of the Executive's
estate.
B. Early Retirement or Severance Benefit:
In the event the employment of the Executive by the Bank shall
terminate without cause prior to his "Normal Retirement Date,"
the Bank shall pay to the Executive as severance compensation
a monthly benefit determined by multiplying his "Normal
Retirement Benefit" by the applicable percentage from the
following table:
<TABLE>
<CAPTION>
YEAR OF PARTICIPATION APPLICABLE PERCENTAGE
--------------------- ---------------------
<S> <C>
Less than 1 0%
1 but less than 2 5%
2 but less than 3 10%
3 but less than 4 15%
4 but less than 5 20%
5 but less than 6 25%
6 but less than 7 30%
7 but less than 8 35%
8 but less than 9 40%
9 but less than 10 45%
10 but less than 11 50%
11 but less than 12 55%
12 but less than 13 60%
13 but less than 14 65%
14 but less than 15 70%
15 but less than 16 75%
16 but less than 17 80%
17 but less than 18 85%
</TABLE>
3
<PAGE> 23
<TABLE>
<S> <C>
18 but less than 19 90%
19 but less than 20 95%
20 or more 100%
</TABLE>
The Executive's participation years shall be deemed to have
begun on January 1, 1994. The payment of the severance benefit
shall begin on the first day of the month following the month
following the twentieth anniversary of the effective date of
this Agreement.
The severance benefits shall be payable for a period of one
hundred eighty (180) months; provided, however, that if the
Executive dies prior to the expiration of one hundred eighty
(180) months, the unpaid balance of his monthly retirement
payments shall continue to be paid monthly for the remainder
of such period to the beneficiary or beneficiaries designated
by the Executive in the beneficiary designation form provided
by the Bank. In the absence of or a failure to designate a
beneficiary, the remaining monthly payments shall be paid to
the personal representative of the Executive's estate.
C. Termination of Service:
If the Executive is discharged for cause, all of the
Executive's benefits under this Agreement shall be forfeited
and this Agreement shall become null and void. If a dispute
arises as to the Executive's discharge "for cause," such
dispute shall be resolved by arbitration as set forth in
Article IV. B.
D. Death Benefit Prior To Retirement:
In the event of the death of the Executive prior to the
commencement of the payment of his "Normal Retirement
Benefit," or severance benefit, the Bank shall pay to the
Executive's designated beneficiary or beneficiaries a monthly
benefit equal to the Executive's "Normal Retirement Benefit"
commencing on the first day of the month following the month
in which the Executive's death occurs and continuing for a
period of one hundred and eighty (180) months. In the absence
of or failure of the Executive to designate a beneficiary, the
monthly retirement payments shall be paid to the personal
representative of the Executive's estate.
In the event the Executive's death shall be the result of
suicide on or before February 23, 1995, then no death benefits
shall be payable to the Executive's designated beneficiary or
his personal representative.
4
<PAGE> 24
IV. ARTICLE FOUR - RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain a general creditor of the Bank in the same manner
as any other creditor having an unsecured claim against the Bank.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time. At no time
shall the Executive be deemed to have any lien nor right, title or
interest in or to any specific funding investment or to any assets of
the Bank. If the Bank elects to purchase life insurance on the life of
the Executive, the Executive shall assist the Bank in applying for such
life insurance by completing the necessary application, submitting to a
physical exam, and supplying such additional information as may be
necessary to obtain such insurance.
V. ARTICLE FIVE - MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his wife nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Executive or his beneficiary,
nor be transferrable by operation of law in the event of
bankruptcy, insolvency or otherwise. Any attempt by the
Executive or any beneficiary to assign, commute, hypothecate,
transfer or dispose of the benefits payable hereunder shall be
null and void, and the Bank shall not be obligated to make any
payments except as provided herein.
B. Binding Obligation of Bank and Any Successor In Interest:
This Agreement shall be binding upon the parties hereto, their
successors, beneficiaries, heirs and personal representatives.
5
<PAGE> 25
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. Effect On Other Bank Benefit Plans:
The benefits provided hereunder shall be in addition to the
Executive's annual salary as determined by the Board of
Directors, and nothing contained in this Agreement shall
affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Bank's existing or future compensation structure.
E. Reorganization:
The Bank agrees that if it merges or consolidates with any
other company or organization, or permits its business
activities to be taken over by any other organization, or
ceases its business activities or terminates its existence,
other than as specified above, the Executive shall be one
hundred percent (100%) vested in the early
retirement/severance benefit to be paid to the Executive
pursuant to the provisions of Article III B., above, without
regard to his actual years of participation under this
Agreement.
F. Headings:
Headings and Subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Florida.
VI. ERISA PROVISIONS
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan
shall be Mercantile Bank until its resignation or removal by
the Board of Directors. As Named Fiduciary and Administrator,
Mercantile Bank shall be responsible for the management,
control and administration of the Salary
6
<PAGE> 26
Continuation Agreement as established herein. It may delegate
to others certain aspects of the management and operation
responsibilities of the plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
B. Claims Procedure and Arbitration:
In the event that benefits under this Plan Agreement are not
paid to the Executive (or to his beneficiary in the case of
the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must
be made to the Named Fiduciary and Administrator named above
within sixty (60) days from the date payments are refused. The
Plan Fiduciary and Administrator and the Bank shall review the
written claim and if the claim is denied, in whole or in part,
they shall provide in writing within ninety (90) days of
receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the
denial is based and any additional material or information
necessary to perfect the claim. Such written notice shall
further indicate the additional steps to be taken by claimants
if a further review of the claim denial is desired. A claim
shall be deemed denied if the Plan Fiduciary and Administrator
fails to take any action within the aforesaid ninety (90) day
period.
If claimants desire a second review, they shall notify the
Plan Fiduciary and Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review the Plan
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In its
sole discretion, the Plan Fiduciary and Administrator shall
then review the second claim and provide a written decision
within sixty (60) days of its receipt of such claim. This
decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of
the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Corporation and
the third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
7
<PAGE> 27
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause," such dispute shall likewise be
submitted to arbitration as above described and the parties
hereby agree to be bound by the decision thereunder.
8
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Attest: (Corporate Seal) MERCANTILE BANK
By:
- ----------------------------- -----------------------------
Secretary "Bank"
Witnesses:
- ------------------------------ -------------------------------
ROBERT A. BLAKLEY
- ------------------------------
As to Robert A. Blakley "Executive"
9
<PAGE> 29
MONTHLY RETIREMENT
BENEFIT
$2,750.00
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.3
CONTRACT OF EMPLOYMENT
This Agreement, made and entered into this ______ day of _____________,
1992, by and between Mercantile Bank, a corporation duly organized and existing
under the laws of the State of Florida, and Gordon W. Campbell, as Chairman and
President of said Bank,
WHEREAS, Gordon W. Campbell is the existing Chairman of the
Board of Mercantile Bank and has been continually in that position
since the Bank's recapitalization as a bank, and
WHEREAS, the Bank and Gordon W. Campbell have seen fit to establish
matters normally dealt with in an employment contract such as salary, vehicle
allowance, expenses, and hospitalization by separate determinations, and
WHEREAS, it is not the intent of the parties to attempt to incorporate
in this Agreement any such separate determinations, nor is the exclusion of said
items from this Agreement in any way intended to nullify said determinations or
to modify them in any way, and
WHEREAS, the Executive Council at its meeting on August 26, 1992, in
open discussion with the said Gordon W. Campbell, did agree upon the following
additional contractual provisions,
W I T N E S S E T H :
The parties hereto in and for their mutual covenants and good and
valuable consideration, do agree as follows:
COMPENSATION
Gordon W. Campbell is hereby employed by Mercantile Bank for
a period of ten (10) years, commencing the 26th day of August,
<PAGE> 2
1992, at such reasonable salary as the parties hereto shall agree to from time
to time.
ALLOWANCES AND BENEFITS
Mr. Campbell shall be entitled to receive reimbursements and benefits
of all types commensurate with, and at least equal to, the benefits of the other
corporate officers, excepting only benefits which are given to a specific
officer for a specific and separate banking purpose.
DUTIES OF THE OFFICE
Mr. Campbell hereby commits to the Corporation to carry out the duties
set forth in the Bylaws and Charter for his position as President and/or
Chairman, and agrees to discharge the same faithfully and to the best of his
ability. The said Gordon W. Campbell shall devote his full business time and
attention to the business and affairs of the Corporation, and shall use his best
efforts to promote the best interest of the Corporation. He shall hold such
office or offices in a corporation or corporations, or any subsidiary
corporation, to which he may be elected and appointed by the Board of Directors
of Mercantile Bank, subject to such reasonable requirements and allowances as
the said Gordon W. Campbell shall request, and shall perform the duties thereof
to the best of his ability. The said Gordon W. Campbell shall perform such other
reasonable duties as shall from time to time be prescribed by the Directors of
the Corporation.
The Corporation understands that the said Gordon W. Campbell has
business interests outside of the Corporation, and there is no intent by this
Agreement to restrict those business interests or to
2
<PAGE> 3
prohibit the said Gordon W. Campbell from holding office in other corporations
or owning interest in other corporations, so long as said corporations do not
have an interest which substantially conflicts with the interest of Mercantile
Bank, and so long as the carrying out of the duties of such other offices do
not- by the requirements of time, talent, or knowledge interfere in any way with
the said Gordon W. Campbell fully performing the duties assigned to him by the
Board of Directors of Mercantile Bank.
SEPARATION
A. Discharge for Cause. The Bank may, at any time, terminate this
Agreement for cause, which term is hereby defined as any activity of the said
Gordon W. Campbell which is 1) clearly inconsistent with his fiduciary duties to
the Bank; 2) in violation of the laws of the State of Florida or the United
States of America to the extent of constituting a felony; 3) morally
reprehensible conduct of such a nature as to clearly have a substantial adverse
effect upon the business of the Bank; and 4) engaging in activities of a
financial nature, either in his personal life or in the conduct of the business
of the Bank, which could pose a substantial risk of either loss to the Bank or
severe criticism by those in regulatory authority over the Bank.
B. Resignation and Termination Not For Cause. In the event the said
Gordon W. Campbell terminates his duties as Chairman or President, for any
reason other than for cause as above defined, the said Gordon W. Campbell shall
be retained as a consultant for a salary of $60,000 per year for the remaining
term of the contract. As such consultant, the said Gordon W. Campbell shall
3
<PAGE> 4
make himself available to the Bank for at least fifteen (15) hours of each week
of eleven (11) months of the year.
In the event the said Gordon W. Campbell is discharged because of
physical or mental inability to perform his duties, the discharge will be
considered a termination not for cause and availability shall be as permitted by
said inability.
C. Benefits After Separation. ln the event of separation not for cause
as above specified or in,the event of retirement at any time after the term of
the Agreement or by agreement at any time during the time of the Agreement, the
Corporation agrees, to the extent possible under such health insurance
contracts, if any, as the Corporation has in effect from time to time, to make
available to the said Gordon W. Campbell said benefits, the cost of which
benefits would be handled as with any other active officer of the Corporation.
SHORTENING OF TERM
The occurrence of any of the following items shall be referred to as a
"sale of the Bank"; 1) a sale of fifty percent (50%) or more of the stock of the
Bank in one or more related transactions; 2) a merger or acquisition of the Bank
by another bank, or a bank holding company, under such circumstances that the
end result of the transaction is a change of the control of the Board of
Directors of Mercantile Bank; or 3) an acquisition of another bank by Mercantile
Bank or a holding company of Mercantile Bank under such circumstances that the
end result of the transaction is a change of control of the Board of Directors
of Mercantile Bank. If there occurs a "sale of the Bank" under such
circumstances as those
4
<PAGE> 5
acquiring control require a reduction in price or the payment of a lesser price
or consideration due to the existence of the Agreement with Gordon W. Campbell,
the contractual provisions of this Contract will be reduced to five (5) years
from the date of reduction or the balance of the contract, whichever is less.
STOCK OPTIONS
In addition to the stock options previously granted to Gordon W.
Campbell, an additional Twenty Thousand (20,000) shares are hereby granted by
this Agreement at the price of Eight Dollars ($8.00) per share. These shares
shall be considered fully vested at this time provided, however, that in the
event of termination of employment, the periods provided in the option plan of
the Bank for exercise of the option after termination shall commence to run with
the termination of employment, and the employment as a consultant shall not be
considered as employment for said purposes.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the
day and year first above written.
MERCANTILE BANK
By:
--------------------------------
Barry Miller, Vice President
------------------------------------
GORDON W. CAMPBEL
5
<PAGE> 1
Exhibit 10.4
1995 NONSTATUTORY STOCK OPTION PLAN OF GULF WEST BANKS, INC.
1. PURPOSE
The purpose of the 1995 Nonstatutory Stock Option Plan of Gulf West
Banks, Inc., (hereinafter referred to as the "Plan") is to provide a special
incentive to the directors and selected key employees of Gulf West Banks, Inc.
(hereinafter referred to as "GWB") and of any of GWB's Subsidiaries existing
now or in the future (the "Subsidiaries"), to promote GWB's business and that
of the Subsidiaries. The Plan is designed to accomplish this purpose by
offering such directors and employees an opportunity to acquire common stock of
GWB so that they will share in GWB's success.
2. ADMINISTRATION
The Plan shall be administered by an Option Committee (the
"Committee") to be established by the Board of GWB (the "Board"). The Committee
shall have the authority, consistent with the Plan:
a. to determine the time or times when options shall be granted
and the number of shares of common stock to be subject to
each option, subject to the limitations contained in
Paragraph 6;
b. to determine the method of payment of the option price by
each participant, subject to the limitations contained in
Paragraph 6;
c. to determine the time or times when such option becomes
exercisable and the duration of the exercise period, subject
to the limitations contained in Paragraph 6;
d. to recommend to the Board for its approval the form or forms
of the instruments evidencing any options granted under the
Plan and of any other instruments required under the Plan,
and to change such forms from time to time;
e. to establish, amend and rescind rules and regulations for the
administration of the Plan and the options for its own acts
and proceedings; and
f. to decide all questions and settle all controversies and
disputes which may arise in connection with the Plan. All
decisions, determinations and interpretations of the
Committee shall be binding on all parties concerned.
3. PARTICIPANTS
<PAGE> 2
Plan participants shall be employees and directors of GWB or of the
Subsidiaries. All participants shall be approved by the Board.
4. LIMITATIONS
Any stock option plan granted by GWB must meet all applicable
regulations of the Internal Revenue Service and must be approved by the
shareholders of GWB, as well as GWB's legal counsel. The total number of shares
of stock of GWB which may be issued under this Plan and any other plans adopted
by GWB shall not exceed 12% of GWB's total outstanding shares.
5. STOCK TO BE ISSUED
The stock to be subject to options under the Plan shall be shares of
Gulf West Banks, Inc. common stock of $1.00 per share par value. Stock to be
issued under the Plan may constitute an original issue of authorized stock or
may consist of previously issued stock acquired by GWB, as shall be determined
by the Board. The Board and the proper officers of GWB shall take any
appropriate action required for such issuance.
6. TERMS AND CONDITIONS OF OPTIONS
All options granted under the Plan shall be subject to the following
terms and conditions and to such other terms and conditions as the Committee
shall determine to be appropriate to accomplish the purpose of the Plan:
a. TOTAL OPTIONS. The total number of shares of GWB stock which
may be issued under this Plan together with the shares that
may be issued under any other option plans adopted by GWB
shall not exceed 12% of GWB's total outstanding shares.
b. OPTION PRICE. The price at which each of the options granted
under this Plan may be exercised shall be established by the
Board. This price shall not be less than the greater of the
fair market value of the stock as of the date the option is
granted or the par value of such shares. If such shares are
not publicly traded, the book value shall be substituted for
the fair market value.
c. VESTING AND PERIOD OF OPTIONS. Subject to the conditions
stated below, for each option granted the Committee shall
determine the time or times when each option becomes
exercisable and the duration of the exercise period.
All options allocated to a participant, whether granted or
ungranted, shall become immediately granted (vested) and
exercisable upon sale or change in control of GWB, provided,
however, that GWB in the said sale shall have the right to
treat the same as having been exercised and to distribute
either cash proceeds or exchange stock on the basis of
exchange value less the exercised price.
2.
<PAGE> 3
The participant must be employed by GWB or the Subsidiaries
or serve on the Board of GWB or of any of the Subsidiaries on
the grant date in order to be granted the option.
d. NOTICE OF INTENT TO EXERCISE. A participant electing to
exercise an option shall give written notice to GWB, as
specified by the Committee, of his election and the number of
shares he has elected to purchase. The options may be
exercisable at one time, or in installments in multiples of
500 shares. Such notice shall be accompanied by such
instruments or documents as may be required by the Committee,
and unless otherwise directed by the Committee, the
participant shall, at the time of exercise, tender the
purchase price of the shares he has elected to purchase.
e. PAYMENT FOR ISSUANCE OF SHARES. Upon exercise of any option
granted hereunder, payment in full shall be made at the time
of such exercise for all shares then being purchased. No part
of the option share price may be paid for with previously
issued shares.
GWB shall not be obligated to issue any shares of stock upon
the exercise of any option granted pursuant to the Plan
unless and until, in the opinion of GWB's counsel, all
applicable laws and regulations have been complied with, nor,
in the event the outstanding stock is at the time limited
upon any stock exchange, unless and until the shares to be
issued have been listed or authorized to be added to the list
upon official notice of issuance upon such exchange, nor
unless or until all other legal matters in connection with
the issuance and delivery of shares have been approved by
GWB's counsel. Without limiting the generality of the
foregoing, GWB may require from the participant such
investment representation or such agreement, if any, as
counsel for GWB may consider necessary in order to comply
with the Securities Act of 1933, and any applicable state
requirements and acts, as then in effect. A participant shall
have the rights of a stockholder only as to shares actually
acquired by him under the Plan.
f. NONTRANSFERABILITY OF OPTIONS. No option may be transferred
by the participant other than by will or by the laws of
descent and distribution, and during the participant's
lifetime the option may be exercised only by him.
g. TRANSFERABILITY OF SHARES ACQUIRED BY OPTION. A shareholder
shall not give, assign, sell, transfer, encumber of otherwise
dispose of all or any part of his shares acquired pursuant to
this Plan unless he shall first have presented to GWB a
completely executed agreement with a bona fide purchaser
pursuant to which the shares would be sold. GWB shall be
entitled to elect to become the purchaser of the shares under
such agreement. If GWB elects to purchase the same, it may do
so by sending notice thereof to the selling shareholder at
the address for that shareholder shown on the records of the
3.
<PAGE> 4
corporation, such notice to be sent on or before the 30th day
following the day on which GWB received the sales agreement.
In the event that GWB shall elect to become the purchaser,
then it shall effect the purchase in exact accordance with
the purchase and sale agreement, said purchase to be
completed at the main office of GWB on or before the 40th day
following GWB's receipt of the agreement. In the event GWB
shall not elect to purchase the shares as herein provided,
then the selling shareholder shall be entitled to complete
the sale provided that such sale shall be completed in exact
accordance with the purchase and sale agreement presented to
GWB. In the event that there shall be any modification to the
agreement, the agreement as modified shall be presented to
GWB and GWB shall once again have an option to purchase the
shares. For purposes hereof, the shares which have been
acquired by any shareholder pursuant to this Plan shall be
deemed to include all additional shares received by such
shareholder pursuant to any stock split, stock dividend or
similar recapitalization of GWB. The Secretary of GWB shall
place the following legend on the face of each stock
certificate acquired by any shareholder pursuant to this
Plan:
"The transfer of the shares represented by the
within certificate is restricted under the terms of
the 1995 Nonstatutory Stock Option Plan of Gulf West
Banks, Inc. ("GWB"), as amended, a copy of which is
on file at the office of GWB and available for
inspection during regular business hours."
h. TERMINATION OR RETIREMENT. If the employment or service on
the Board of a participant terminates for any reason other
than his death (such termination shall include the
participant's retirement), any options which remain
unexercised 60 days after termination may not subsequently be
exercised by the participant. For purposes of this
sub-paragraph, a participant's employment or service shall
not be considered terminated in the case of total and
permanent disability, partial disability, sick leave or other
bona fide leave of absence otherwise allowed by GWB or the
Subsidiaries. In the event of termination of employment or
service due to deliberate, willful, or gross misconduct as
determined by GWB or any of the Subsidiaries' all unexercised
options of such participant shall be immediately terminate
and all rights thereon shall cease.
i. DEATH OF PARTICIPANT. If a participant dies at a time when he
is entitled to exercise an option, then at any time or times
within one (1) year after his death (or such further period
as the Committee may allow) such option may be exercised, as
to all or any of the shares which the participant was
entitled to purchase immediately prior to his death, by his
executor or administrator or the person or persons to whom
the option is transferred by will or the applicable laws of
descent and distribution, and except as so exercised such
option shall expire at the end of such period. In no event,
however, may an option be exercised after the expiration
period as defined in Paragraph 6(c).
4.
<PAGE> 5
j. INCOME TAX WITHHOLDING. At the time options granted pursuant
to this Plan are exercised, the Committee is responsible for
causing GWB to properly withhold income taxes upon the
amounts transferred.
7. EXPENSES OF PLAN
All costs of and for the formulating and administration of the Plan
will be an expense of GWB.
8. CHANGES IN STOCK
In the event GWB shall at any time declare a stock dividend on its
common capital stock, $1.00 par value, or shall split up or subdivide or
combine the outstanding shares of its common capital stock, the number of
shares which are the subject of any option issued under this Plan shall be
proportionately increased or decreased as the case may be. In the event that
there may be a dispute between the interested parties as to the precise amount
of any such adjustment, the determination of the certified public accountants
customarily used by GWB to audit its books and records shall be determinative
of the matter.
9. EMPLOYMENT RIGHTS
The adoption of the Plan does not confer upon any employee of GWB or
the Subsidiaries any right to continue employment with GWB or the Subsidiaries,
nor does it interfere in any way with the right of GWB to terminate the
employment of any of its employees at any time.
10. AMENDMENTS
The Board may at any time or times amend the Plan or amend any
outstanding option or options of the purpose of satisfying the requirements of
any changes in applicable laws or regulations, or for any other purpose which
may at the time be permitted by law, provided that except to the extent
required or permitted under Section 8, no such amendment shall, without the
approval of the stockholders of GWB, increase the maximum number of shares
available under the Plan. Furthermore, the Board, may not, without the consent
of the participant, void or diminish options previously granted, nor increase
or accelerate the conditions and actions required for the exercise of the name,
except if the participant is discharged from GWB's or the Subsidiaries'
employment for cause. Neither the Committee nor the Board may substantially
change the options after the commencement of negotiations that results in a
vesting for sale purposes as described in Paragraph 6(c). The amendments shall
be presented to GWB's shareholders for approval, such approval requiring the
favorable vote of a majority of the total number of votes eligible to be cast
at a duly called meeting.
5.
<PAGE> 6
11. TAX PLANNING
GWB disclaims all responsibility for determining and advising
optionees as to the tax consequences that the Plan will impose on each
optionee. All grantees of stock options under the Plan should seek and follow
the advise of independent tax counsel regarding the deferral of any or all
benefits earned under the Plan in order to maximize the grantee's personal tax
benefits.
12. EFFECTIVENESS
This Plan shall become effective on the effective date of the
Exchange.
6.
<PAGE> 1
EXHIBIT 21
Subsidiaries
- - Mecantile Bank, a Florida Banking Corporation
425 22nd Avenue North
St. Petersburg, Florida 33704
- - 100% owned by Gulf West Banks, Inc.
<PAGE> 1
EXHIBIT 23.1(a)
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We consent to the use of our report dated February 4, 1997 relating to the
consolidated balance sheet as of December 31, 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1996 of Gulf West Banks, Inc.
and to the use of our name under the caption of "Experts," in the Registration
Statement on Form S-4 of Gulf West Banks, Inc.
HACKER, JOHNSON, COHEN & GRIEB P.A.
Tampa, Florida
October 3, 1997
<PAGE> 1
EXHIBIT 23.1(b)
The Board of Directors
Citizens National Bank & Trust Company
Port Richey, Florida:
We consent to the use of our report dated January 10, 1997 relating to the
balance sheet as of December 31, 1996 and the related statements of earnings,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1996 of Citizens National Bank & Trust Company and to the
use of our name under the caption of "Experts," in the Registration Statement
on Form S-4 of Gulf West Banks, Inc.
HACKER, JOHNSON, COHEN & GRIEB P.A.
Tampa, Florida
October 3, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,539
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,579
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,923
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 112,332
<ALLOWANCE> 1,415
<TOTAL-ASSETS> 181,594
<DEPOSITS> 160,293
<SHORT-TERM> 7,149
<LIABILITIES-OTHER> 530
<LONG-TERM> 0
3,337
0
<COMMON> 0
<OTHER-SE> 10,285
<TOTAL-LIABILITIES-AND-EQUITY> 181,594
<INTEREST-LOAN> 5,220
<INTEREST-INVEST> 1,430
<INTEREST-OTHER> 199
<INTEREST-TOTAL> 6,849
<INTEREST-DEPOSIT> 2,735
<INTEREST-EXPENSE> 3,021
<INTEREST-INCOME-NET> 3,828
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,776
<INCOME-PRETAX> 690
<INCOME-PRE-EXTRAORDINARY> 690
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 4.68
<LOANS-NON> 533
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,184
<CHARGE-OFFS> 32
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 1,415
<ALLOWANCE-DOMESTIC> 1,415
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CITIZENS NATIONAL BANK AND TRUST COMPANY
Special Meeting of Stockholders, , 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of common stock of Citizens National
Bank and Trust Company ("CNB"), a national bank organized under the laws of the
United States of America, does hereby appoint Dr. Henry W. Hanff and Philip H.
Chesnut, and each of them, as due and lawful attorneys-in-fact (each of whom
shall have full power of substitution), to represent and vote as designated
below all of the shares of CNB common stock that the undersigned held of record
at _____ p.m., Eastern Standard Time, on , 1997, at the Special Meeting of
Stockholders of CNB, to be held at 9550-1 U.S. Highway 19, Port Richey, Florida
on , 1997 at p.m. or any adjournment thereof, on the following matters, and on
such other business as may properly come before the meeting:
1. APPROVAL OF ACQUISITION PROPOSAL
Proposal to approve and adopt the Amended and Restated Agreement and
Plan of Merger dated as of October ___, 1997, by and among Gulf West
Banks, Inc., Mercantile Bank, and CNB as described in the accompanying
Proxy Statement/Prospectus dated , 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, on such other business as may properly come
before the meeting.
(Please Sign and Date on Reverse Side)
<PAGE> 2
(Continued from other side)
PLEASE SIGN AND RETURN PROMPTLY.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
APPROVAL OF THE ACQUISITION PROPOSAL.
PLEASE ENTER THE NUMBER OF SHARES OF CNB COMMON STOCK YOU OWN:_____________
(Please sign, date, and return this proxy form exactly as your name or names
appear below whether or not you plan to attend the meeting.)
[ ] I plan to attend the Special Meeting.
[ ] I do not plan to attend the Special Meeting.
Date: , 1997
Signature(s):
Title or Authority (if applicable)
PLEASE SIGN YOUR NAME HERE EXACTLY AS IT APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN, CORPORATE OFFICER OR OTHER SIMILAR CAPACITY,
SO INDICATE. IF THE OWNER IS A CORPORATION, AN
AUTHORIZED OFFICER SHOULD SIGN FOR THE CORPORATION
AND STATE HIS TITLE. THIS PROXY SHALL BE DEEMED VALID
FOR ALL SHARES HELD IN ALL CAPACITIES THAT THEY ARE
HELD BY THE SIGNATORY.
